HollyFrontier 2014 Annual Report Download - page 36

Table of Content
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Our refineries consist of many processing units, a number of which have been in operation for many years. One or more of the
units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled
turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the
units are not operating. We have taken significant measures to expand and upgrade units in our refineries by installing new
equipment and redesigning older equipment to improve refinery capacity. The installation and redesign of key equipment at our
refineries involves significant uncertainties, including the following: our upgraded equipment may not perform at expected
throughput levels; operating costs of the upgraded equipment may be higher than expected; the yield and product quality of new
equipment may differ from design and/or specifications and redesign, modification or replacement of the equipment may be
required to correct equipment that does not perform as expected, which could require facility shutdowns until the equipment has
been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment, or repaired equipment
could lead to lower revenues or higher costs or otherwise have a negative impact on our future financial condition and results of
operations.
In addition, we expect to execute turnarounds at our refineries, which involve numerous risks and uncertainties. These risks include
delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades, overhaul
and repair of process equipment and materials, during which time all or a portion of the refinery will be under scheduled downtime.
We may be unable to pay future regular and/or special dividends.
We will only be able to pay dividends from our available cash on hand, cash from operations or borrowings under our credit
agreement. The declaration of future regular and/or special dividends on our common stock will be at the discretion of our board
of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital
requirements, and restrictions in our debt agreements and legal requirements. We cannot assure you that any dividends will be
paid or the frequency of such payments.
Product liability claims and litigation could adversely affect our business and results of operations.
A significant portion of our operating responsibility on refined product pipelines is to insure the quality and purity of the products
loaded at our loading racks. If our quality control measures were to fail, we may have contaminated or off-specification commingled
pipelines and storage tanks or off-specification product could be sent to public gasoline stations. These types of incidents could
result in product liability claims from our customers.
Product liability is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against
manufacturers and resellers based upon claims for injuries caused by the use of or exposure to various products. There can be no
assurance that product liability claims against us would not have a material adverse effect on our business or results of operations
or our ability to maintain existing customers or retain new customers.
Our hedging transactions may limit our gains and expose us to other risks.
We periodically enter into derivative transactions as it relates to inventory levels and/or future production to manage the risks from
changes in the prices of crude oil, refined products and other feedstocks. These transactions limit our potential gains if commodity
prices move above or below the certain price levels established by our hedging instruments. We hedge price risk on inventories
above our target levels to minimize the impact these price fluctuations have on our earnings and cash flows. Consequently, our
hedging results may fluctuate significantly from one reporting period to the next depending on commodity price fluctuations and
our relative physical inventory positions. These transactions may also expose us to risks of financial losses; for example, if our
production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge agreements
fails to perform its obligations under the agreements.
Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers,
which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil
to operate our refineries at desired capacity.
An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view our
ability to make payments and induce them to shorten the payment terms of their invoices with us or require credit enhancement.
Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our suppliers of
more burdensome payment terms or credit enhancement requirements on us may have a material adverse effect on our liquidity
and our ability to make payments to our suppliers. This in turn could cause us to be unable to operate our refineries at desired
capacity. A failure to operate our refineries at desired capacity could adversely affect our profitability and cash flow.