HollyFrontier 2014 Annual Report Download - page 32

Table of Content
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Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.
Our operations are subject to operational hazards and unforeseen interruptions such as natural disasters, adverse weather, accidents,
fires, explosions, hazardous materials releases, power failures, mechanical failures and other events beyond our control. These
events might result in a loss of equipment or life, injury, or extensive property damage or destruction of property, as well as a
curtailment or an interruption in our operations and may affect our ability to meet marketing commitments. We maintain significant
insurance coverage, but it does not cover all potential losses, costs or liabilities, and our business interruption insurance coverage
generally does not apply unless a business interruption exceeds 45 days. If any refinery were to experience an interruption in
operations, earnings from the refinery could be materially adversely affected (to the extent not recoverable through insurance)
because of lost production and repair costs.
The availability of adequate insurance may be affected by conditions in the insurance market over which we have no control,
resulting in the inability to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market
conditions, premiums and deductibles for certain of our insurance policies could increase or, in some instances, certain insurance
could become unavailable or available only for reduced amounts of coverage. We could suffer losses for uninsurable or uninsured
risks or in amounts in excess of our existing insurance coverage. The occurrence of an event that is not fully covered by insurance
could have a material adverse effect on our business, financial condition and results of operations.
The energy industry is highly capital intensive, and the entire or partial loss of individual facilities can result in significant costs
to both industry companies, such as us, and their insurance carriers. In recent years, several large energy industry claims have
resulted in significant increases in the level of premium costs and deductible periods for participants in the energy industry. As a
result of large energy industry claims, insurance companies that have historically participated in underwriting energy-related
facilities may discontinue that practice or demand significantly higher premiums or deductible periods to cover these facilities. If
significant changes in the number or financial solvency of insurance underwriters for the energy industry occur, or if other adverse
conditions over which we have no control prevail in the insurance market, we may be unable to obtain and maintain adequate
insurance at reasonable cost. In addition, we cannot assure you that our insurers will renew our insurance coverage on acceptable
terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. Further, our
underwriters could have credit issues that affect their ability to pay claims. The unavailability of full insurance coverage to cover
events in which we suffer significant losses could have a material adverse effect on our business, financial condition and results
of operations.
The availability and cost of renewable identification numbers could have an adverse effect on our financial condition and
results of operations. In addition, the EPA has not yet finalized the 2014 percentage standards under its Renewable Fuel
Standard 2 (“RFS2”) regulations.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS2 regulations reflecting the increased
volume of renewable fuels mandated to be blended into the nation's fuel supply. The regulations, in part, require refiners to add
annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as renewable identification
numbers (“RINs”), in lieu of such blending. We currently purchase RINs for some fuel categories on the open market in order to
comply with the quantity of renewable fuels we are required to blend under the RFS2. Recently, due in part to the nation's fuel
supply approaching the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has
been extremely volatile with the price dramatically increasing in recognition of the decrease in RINs availability. While we cannot
predict the future prices of RINs, the costs to obtain the necessary number of RINs could be material. If we are unable to pass the
costs of compliance with the RFS2 on to our customers, if sufficient RINs are unavailable for purchase, if we have to pay a
significantly higher price for RINs or if we are otherwise unable to meet the RFS2 mandates, our financial condition and results
of operations could be adversely affected. Additionally, the EPA has not yet finalized the 2014 percentage standards under its
RFS2 program. When the EPA ultimately finalizes the required blending percentages for 2014, such levels could be higher or
lower than amounts estimated and accrued for in our consolidated financial statements as of December 31, 2014.
Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we sell
our products could adversely affect our earnings and profitability.
We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of
their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors
may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the economic risks
inherent in all areas of the refining industry.