| GIANT INDUSTRIES INC Item 1A Risk Factors |
| An investment in our common shares involves risk |
| You should carefully consider the specific factors described below, together with the cautionary statements under the caption “Forward — Looking Statements” in Item 7 of this Report and the other information included in this report, before purchasing our common shares |
| The risks described below are not the only ones that we face |
| Additional risks that are not yet known to us or that we currently think are immaterial could also impair our business, financial condition, or results of operations |
| If any of the following risks actually occurs, our business, financial condition, or results of operations could be adversely affected |
| In such case, the trading price of our common shares could decline, and you may lose all or part of your investment |
| We have debt that could adversely affect our operations |
| As of December 31, 2005, our total debt was approximately dlra275 million and our stockholders’ equity was approximately dlra400 million |
| We currently have a dlra175 million revolving credit facility |
| At December 31, 2005, we had approximately dlra67 million of letters of credit outstanding and dlra108 million of availability (net of the dlra67 million of letters of credit outstanding), subject to borrowing base limitations |
| Our level of debt may have important consequences to you |
| Among other things, it may: • limit our ability to use our cash flow, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes; 14 _________________________________________________________________ [46]Table of Contents • restrict our ability to pay dividends; • require a substantial portion of our cash flow from operations to make debt service payments; • limit our flexibility to plan for, or react to, changes in our business and industry conditions; • place us at a competitive disadvantage compared to our less leveraged competitors; and • increase our vulnerability to the impact of adverse economic and industry conditions and, to the extent of our outstanding debt under our floating rate debt facilities, the impact of increases in interest rates |
| We cannot assure you that we will continue to generate sufficient cash flow or that we will be able to borrow funds under our senior secured revolving credit facility in amounts sufficient to enable us to service our debt or meet our working capital and capital expenditure requirements |
| If we cannot do so, due to borrowing base restrictions or otherwise, we may be required to sell additional assets, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing |
| We cannot assure you that we will be able to refinance our debt, sell assets or borrow more money on terms acceptable to us, if at all |
| In addition, our ability to incur additional debt will be restricted under the covenants contained in our senior credit facilities and our senior subordinated note indentures |
| Our debt instruments impose restrictions on us that may adversely affect our ability to operate our business |
| The indentures governing our existing debt securities contain covenants that, among other things, restrict our ability to: • create liens; • incur or guarantee debt; • pay dividends; • repurchase shares of our common stock; • sell certain assets or subsidiary stock; • engage in certain mergers; • engage in certain transactions with affiliates; or • alter our current line of business |
| In addition, our senior secured credit facility contains other and more restrictive covenants |
| We also must comply with specified financial covenants in our senior secured credit facility, including maintaining a minimum consolidated net worth, a minimum consolidated interest coverage ratio, and a maximum consolidated funded indebtedness to total capitalization percentage |
| Our ability to comply with these covenants may be affected by many events beyond our control, and we cannot assure you that our future operating results will be sufficient to comply with the covenants |
| Our failure to comply with the financial covenants or the other restrictions contained in our senior credit facility could result in a default, which could cause that debt (and by reason of cross-default provisions, debt under our indentures) to become immediately due and payable |
| If we cannot repay those amounts, the lenders under our senior secured credit facility could proceed against the collateral granted to them to secure that debt |
| If those lenders accelerate the payment of the senior secured credit facility, we cannot assure you that our assets would be sufficient to pay that debt and our debt under our indentures |
| We assumed liabilities in connection with the acquisition of our Yorktown refinery |
| We assumed certain liabilities and obligations in connection with our purchase of the Yorktown refinery in 2002 |
| Among other things, and subject to certain exceptions, we assumed responsibility for all costs, expenses, liabilities and obligations under environmental, health and safety laws caused by, arising from, incurred in connection with or relating to the ownership of the Yorktown refinery or its operation |
| We agreed 15 _________________________________________________________________ [47]Table of Contents to indemnify the sellers for losses incurred in connection with or related to the liabilities and obligations we have assumed |
| We only have limited indemnification rights against the sellers |
| Environmental obligations assumed by us include the seller’s Yorktown refinery responsibilities under a consent decree among various parties covering many locations (the “Consent Decree”) |
| As applicable to the Yorktown refinery, the Consent Decree requires, among other things, a reduction of nitrous oxides, sulfur dioxide, and particulate matter emissions and upgrades to the refinery’s leak detection and repair program |
| We estimate that we will incur capital expenditures of between dlra20cmam000cmam000 and dlra27cmam000cmam000 to comply with the Consent Decree through 2006, and have expended approximately dlra8cmam500cmam000 of this amount through the end of 2005 |
| We do not anticipate any significant increase in current operating expenses when all equipment modifications required by the Consent Decree are completed |
| In connection with the Yorktown acquisition, we also assumed the seller’s obligations under an administrative order issued in 1991 by EPA under the Resource Conservation and Recovery Act |
| The order requires an investigation of certain areas of the refinery and the development of measures to correct any releases of contaminants or hazardous substances found in these areas |
| A Resource Conservation and Recovery Act Facility Investigation was conducted and approved conditionally by EPA in 2002 |
| Following the investigation, a Risk Assessment/ Corrective Measures Study (“RA/CMS”) was finalized in 2003, which summarized the remediation measures agreed upon by us, EPA, and the Virginia Department of Environmental Quality (“VDEQ”) |
| The RA/CMS proposes investigation, sampling, monitoring, and cleanup measures, including the construction of an on-site corrective action management unit that would be used to consolidate hazardous solid materials associated with these measures |
| These proposed actions relate to soil, sludge, and remediation wastes relating to solid waste management units |
| Groundwater in the aquifers underlying the refinery, and surface water and sediment in a small pond and tidal salt marsh on the refinery property also are addressed in the RA/CMS Based on the RA/CMS, EPA issued a proposed cleanup plan for public comment in December 2003 setting forth preferred corrective measures for remediating soil, groundwater, sediment, and surface water contamination at the refinery |
| Following the public comment period, EPA issued its final remedy decision and response to comments in April 2004 |
| EPA currently is developing the administrative consent order pursuant to which we will implement our cleanup plan |
| Our most current estimate of expenses associated with the order is between dlra25cmam000cmam000 (dlra17cmam500cmam000 of which we believe is subject to reimbursement by BP) and dlra27cmam000cmam000 (dlra19cmam500cmam000 of which we believe is subject to reimbursement by BP) |
| We anticipate that these expenses will be incurred over a period of approximately 35 years after EPA approves our cleanup plan |
| We believe that between approximately dlra9cmam600cmam000 and dlra10cmam600cmam000 of this amount will be incurred over an initial four-year period, and additional expenditures of approximately dlra7cmam600cmam000 will be incurred over the following four-year period, with the remainder thereafter |
| We may, however, be able to receive reimbursement for some of the expenditures associated with the plan due to the environmental reimbursement provisions included in the purchase agreement for the refinery |
| EPA may require financial assurance of our ability to perform the plan, such as depositing funds into a trust or posting a letter of credit or performance bond |
| If we cannot agree with EPA regarding financial assurance, and as a result do not sign the consent order being developed by EPA, EPA has indicated that it will consider its other options for enforcement |
| As part of the clean-up plan, the facility’s underground sewer system will be cleaned, inspected and repaired as needed |
| A portion of this sewer work is scheduled to begin during the construction of the corrective action management unit and related remediation work and is included in our associated cost estimate |
| We anticipate that the balance of the sewer work will cost between approximately dlra1cmam500cmam000 and dlra3cmam500cmam000 over a period of three to five years, beginning around the time the construction of the corrective action management unit and related remediation work is nearing completion |
| We anticipate that construction of the corrective action, management unit and related remediation work will be completed approximately seven to eight years after EPA approves our clean-up plan and authorizes its implementation |
| 16 _________________________________________________________________ [48]Table of Contents If we cannot maintain an adequate supply of feedstocks at our Ciniza and Bloomfield refineries, our operating results may be adversely affected |
| The primary feedstock for our Four Corners refineries is Four Corners Sweet, a locally produced, high quality crude oil |
| We supplement the crude oil used at our refineries with other feedstocks |
| These other feedstocks currently include locally produced natural gas liquids and condensate as well as other feedstocks produced outside of the Four Corners area |
| The most significant of these other feedstocks are the natural gas liquids, consisting of natural gasoline, normal butane and isobutane |
| These refineries continue to be affected by reduced crude oil production in the Four Corners area |
| The Four Corners basin is a mature production area and as a result is subject to a natural decline in production over time |
| This natural decline is being partially offset by new drilling, field workovers, and secondary recovery projects, which have resulted in additional production from existing reserves |
| As a result of the declining production of crude oil in the Four Corners area in recent years, we have not been able to cost-effectively obtain sufficient amounts of crude oil to operate our Four Corners refineries at full capacity |
| Crude oil utilization rates for our Four Corners refineries declined from approximately 67prca in 2003 to approximately 62prca in 2005 |
| Our current projections of Four Corners crude oil production indicate that our crude oil demand will exceed the crude oil supply that is available from local sources for the foreseeable future and that our crude oil capacity utilization rates at our Four Corners refineries will continue to decline unless circumstances change |
| On August 1, 2005, we acquired an idle crude oil pipeline system that originates near Jal, New Mexico and is connected to a company-owned pipeline network that directly supplies crude oil to the Bloomfield and Ciniza refineries |
| When operational, the pipeline will have sufficient crude oil transportation capacity to allow us to again operate both refineries at maximum rates |
| We have begun testing the pipeline and taking other actions related to placing it in service |
| Unless currently unanticipated obstacles are encountered, we anticipate that the pipeline will become operational before the end of 2006 |
| If additional crude oil or other refinery feedstocks become available in the future via the new pipeline or otherwise, we may increase production runs at our Four Corners refineries depending on the demand for finished products and the refining margins attainable |
| We continue to assess short-term and long-term options to address the continuing decline in Four Corners crude oil production |
| The options being considered include: • evaluating potentially economic sources of crude oil produced outside the Four Corners area, including ways to reduce raw material transportation costs to our refineries; • evaluating ways to encourage further production in the Four Corners area; • changes in operation/configuration of equipment at one or both refineries to further the integration of the two refineries, and reduce fixed costs; and • with sufficient further decline in raw material supply, the temporary, partial or permanent discontinuance of operations at one or both refineries |
| None of these options, however, may prove to be economically viable |
| We cannot assure you that the Four Corners crude oil supply for our Ciniza and Bloomfield refineries will continue to be available at all or on acceptable terms for the long term, that the new pipeline will become operational, or that the additional crude oil supplies accessible via the new pipeline will be available on acceptable terms |
| Because large portions of the refineries’ costs are fixed, any significant interruption or decline in the supply of crude oil or other feedstocks would have an adverse effect on our Four Corners refinery operations and on our overall operations |
| We have pipeline systems for gathering and delivering crude oil to our refineries and for natural gas liquids |
| If we cannot use either the crude oil pipeline system or the natural gas liquids pipeline, this could have a material adverse effect on our business, financial condition or results of operation |
| Certain rights-of-way for our crude oil pipeline system must be renewed periodically |
| A portion of the system, consisting of eight miles, must be renewed in 2006 |
| Additional rights-of-way for pipeline sections consisting of 174 miles must be renewed in 2009 |
| We expect that substantial lead time will be required to negotiate and complete renewal of 17 _________________________________________________________________ [49]Table of Contents these rights-of-way |
| Our inability to successfully renew these rights of way would negatively impact our ability to use the crude oil pipeline system, which could have a material adverse effect on our business |
| The volatility of crude oil prices and refined product prices may adversely affect our business, financial condition and operating results |
| Our cash flow from operations depends primarily on producing and selling quantities of refined products at refinery margins sufficient to cover fixed and variable expenses |
| In recent years, crude oil costs and prices of refined products have fluctuated substantially |
| These costs and prices depend on numerous factors beyond our control, including: • the supply of and demand for crude oil, gasoline and other refined products; • changes in the economy; • changes in the level of foreign and domestic production of crude oil and refined products; • worldwide political conditions; • the extent of government regulations; and • local factors, including market conditions, pipeline capacity, and the level of operations of other refineries in our markets |
| Our crude oil requirements are supplied from sources that include major oil companies, large independent producers, and smaller local producers |
| In February 2004, we entered into a long-term crude oil supply agreement with Statoil Marketing and Trading (USA), Inc, which we believe will provide a significant proportion of our Yorktown refinery’s crude oil needs |
| We began taking supplies of acidic crude oil at our Yorktown refinery beginning in February 2004 |
| Following various upgrades at the refinery, which took place in the third quarter of 2004, the volumes processed have increased |
| The term of this agreement expires when we have received the total volumes of crude oil committed to be provided by Statoil, which we believe will be in approximately 2009 |
| Except for this long-term supply agreement with Statoil, our crude oil supply contracts are generally relatively short-term contracts with market-responsive pricing provisions |
| An increase in crude oil prices would adversely affect our operating margins if we cannot pass along the increased cost of raw materials to our customers |
| Our sale prices for refined products are influenced by the commodity price of crude oil |
| Generally, an increase or decrease in the price of crude oil results in a corresponding increase or decrease in the price of gasoline and other refined products |
| The timing of the relative movement of the prices, however, as well as the overall change in product prices, could reduce profit margins and could have a significant impact on our refining and marketing operations, earnings and cash flows |
| In addition, we maintain inventories of crude oil, intermediate products, and refined products, the values of which are subject to rapid fluctuation in market prices |
| Price level changes during the period between purchasing feedstocks and selling the manufactured refined products could have a significant effect on our operating results |
| Any long-term adverse relationships between costs and prices could impact our ability to generate sufficient operating cash flows to meet our working capital needs |
| Furthermore, because of the significantly greater volume of products produced and sold by our Yorktown refinery, as compared to our other operations, we have a much larger exposure to volatile refining margins than we had in the past |
| Our industry is highly competitive, and we may not be able to compete effectively against larger competitors with greater resources |
| We operate in a highly competitive industry |
| Many of our competitors are large, integrated oil companies that, because of their more diverse operations, larger refineries, stronger capitalization and better brand name recognition, are better able to withstand volatile industry conditions than we are, including shortages or excesses of crude oil or refined products or intense price competition |
| The refineries operated by our competitors are typically larger and more efficient than our refineries |
| As a result, these refineries may have 18 _________________________________________________________________ [50]Table of Contents lower per barrel processing costs |
| Mergers between large integrated oil companies, and upgrades to competitors’ refineries have, and in the future may, result in increased competition for our refineries |
| The completion of certain pipeline projects could result in increased competition by increasing the amount of refined products available in the Albuquerque, El Paso, Tucson, and Phoenix market areas and other market areas |
| We are aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of our marketing areas |
| The Longhorn pipeline, which began operations in August 2004, runs from Houston, Texas to El Paso, Texas |
| In El Paso, the Longhorn pipeline connects to a Chevron pipeline that delivers to the Albuquerque area and to a Kinder-Morgan pipeline that delivers to the Phoenix and Tucson, Arizona markets |
| In addition, there are plans to increase the volume of product that can be transported by pipeline from El Paso to the Phoenix and Tucson markets, and the volume of product that can be transported by pipeline from Amarillo, Texas to the Albuquerque market |
| The Longhorn pipeline and the completion of some or all of these other projects could result in increased competition by increasing the amount of refined products potentially available in these markets, as well as improving competitor access to these areas |
| It also could result in new opportunities for us, as we are a net purchaser of refined products in some of these areas |
| The completion of certain projects and refinery improvements could result in increased competition in the Four Corners area |
| Portions of our marketing area may be impacted by competitors’ plans, as well as plans of our own, for expansion projects and refinery improvements that could increase the production of refined products in New Mexico |
| In addition, we anticipate that lower quality crude oils, which are typically less expensive to acquire, can and will be processed by our competitors as a result of refinery improvements |
| These developments could result in increased competition in our market areas |
| Any significant interruptions in the operations of any of our refineries could materially and adversely affect our business, financial condition and operating results |
| Our refining activities are conducted at our two refinery locations in New Mexico and the Yorktown refinery in Virginia |
| The refineries constitute a significant portion of our operating assets, and our two New Mexico refineries supply a significant portion of our retail operations |
| As a result, our operations would be subject to significant interruption if any of the refineries were to experience a major accident, be damaged by severe weather or other natural disaster, or otherwise be forced to shut down |
| If any of the refineries were to experience an interruption in supply or operations, our business, financial condition and operating results could be materially and adversely affected |
| On November 25, 2005, a fire occurred at our Yorktown refinery |
| Damage was primarily done to the gas plant that supports the fluid catalytic converter (“FCC”), a unit that alters the molecular composition of materials sent into the unit in order to produce gasoline, diesel, fuel oil, heating oil, and other products |
| Some piping and instrumentation cables for other operating units in the refinery were also damaged by the fire |
| All of the units at the refinery were shut down to assess the scope of work needed to return the refinery to safe and efficient operations |
| The refinery is being brought back to operation in two stages |
| Certain units, including the crude unit, began operations in January 2006, and the refinery is currently operating at approximately 40cmam000 barrels per day |
| The gas plant and the FCC are currently targeted to return to operation in April 2006, at which time the refinery should return to its normal operating level of approximately 62cmam000 barrels per day |
| Although we anticipate that the Yorktown refinery will return to full operating levels in April, it is possible that construction delays and other unanticipated problems could occur that would prevent us from achieving this goal |
| As a result of current market conditions, our refining margins are weaker now than they were at the same time last year |
| Additionally, we are selling feedstocks for the FCC rather than processing them into higher valued gasoline and diesel because we our not able to operate the FCC as a result of the fire |
| 19 _________________________________________________________________ [51]Table of Contents We have property insurance coverage with a dlra1cmam000cmam000 deductible that should cover a significant portion of the costs of repairing the Yorktown refinery |
| We also have business interruption insurance coverage for the financial impact of the fire after the policies 45-day waiting period is exceeded |
| We do not yet know exactly when we will be receiving payments under these policies or ultimately how much we will receive |
| The amounts that we will receive from our business interruption coverage will necessarily reflect the margin environment during the time we are not operating at normal operating levels as a result of the fire, including the current weaker margin environment |
| We also may receive amounts under our business interruption coverage reflecting our sales of FCC feedstocks during the period of time the unit is not operational rather than the higher valued products that otherwise would have been produced and sold |
| Our operations are subject to various hazards that are not fully insured, and our insurance premiums could increase |
| Our operations are subject to normal hazards of operations, including fire, explosion and weather-related perils |
| We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles and consistent with standard practices for comparable companies |
| We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable or premium costs, in our judgment, do not justify the expenditures |
| Any such event that causes a loss for which we are not fully insured could have a material and adverse effect on our business, financial condition and operating results |
| As a result of the insurance claims that we have submitted in connection with the fire at our Yorktown refinery in November 2005, current insurance market conditions, and other factors, our annual insurance premiums for property damage, business interruption, and other types of insurance could increase |
| Such increases could have a material and adverse effect on our business, financial condition and operating results |
| Compliance with various regulatory and environmental laws and regulations will increase the cost of operating our business |
| Our operations are subject to a variety of federal, state and local environmental, health and safety laws and regulations governing the discharge of pollutants into the soil, air and water, product specifications, the generation, treatment, storage, transportation and disposal of solid and hazardous waste and materials and employee health and safety |
| Violations of such laws and regulations can lead to substantial fines and penalties |
| Also, these laws and regulations have become, and are becoming, increasingly stringent |
| Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied |
| Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, the installation and operation of refinery equipment, pollution control systems and other equipment we do not currently possess, or the acquisition or modification of permits applicable to our activities |
| The EPA has issued a rule pursuant to the Clean Air Act that requires refiners to reduce the sulfur content of gasoline and diesel fuel |
| Some refiners began producing gasoline that satisfies low sulfur gasoline standards in 2004, with most refiners required to be in full compliance for all production in 2006 |
| Most refiners also must begin producing highway diesel fuel that satisfies low sulfur diesel standards by June 2006 |
| All refiners and importers must be in full compliance with the new standards by the end of 2010 without exception |
| We applied for temporary relief from the low sulfur gasoline standards at the Yorktown refinery |
| In March 2003, the EPA approved our application and issued a compliance plan |
| This compliance plan allowed us to postpone certain capital expenditures for up to three years from the date we would otherwise have begun these expenditures |
| We must be in full compliance with the diesel sulfur standards by June 1, 2006, and the gasoline sulfur standards by January 1, 2008 |
| The compliance plan requires us to provide the EPA with an annual report on our adherence to the compliance plan and on our progress in meeting the low sulfur standards |
| If we fail to comply with the conditions set by the EPA, the compliance plan could be modified or 20 _________________________________________________________________ [52]Table of Contents revoked |
| The EPA must, however, provide us with reasonable notice of any anticipated changes in the plan and reasonable lead time to implement any modifications due to changes in the compliance plan |
| Modifications to or revocation of the compliance plan could increase the quantity of high-sulfur products, including product components, that do not meet the new standards |
| This would likely reduce our Yorktown refining earnings |
| With respect to the Ciniza and Bloomfield refineries, we believe that we qualify under existing regulations for an extension of the low sulfur gasoline standards until 2007, the date when the annual average sulfur content of our Four Corners gasoline must begin to be reduced |
| Full compliance is, however, required by 2008 |
| We are currently installing the equipment necessary to produce low sulfur gasoline and diesel fuel at our refineries |
| There are a number of factors that could affect our cost of compliance with the low sulfur standards |
| In particular, because these standards affect the entire industry and because of the damage to refineries caused by Hurricanes Katrina and Rita, engineering and construction companies are busy and may charge a premium for their services |
| The relatively short time left to comply also might result in increased costs to expedite ordering for otherwise long delivery items or added overtime by contractors to meet the implementation schedule |
| Increases in metal and concrete prices could further impact costs |
| It is possible that our Yorktown and Ciniza refineries will not be able to meet the June 2006 start date for the low sulfur diesel standards as a result of the combined effects of Hurricanes Katrina and Rita on the availability of contractors and other similar effects and the time and effort required to repair damage resulting from the 2005 fire at the Yorktown refinery |
| We are continuing to assess the timeline for low sulfur diesel production at both refineries and, at this time, do not know if the modifications necessary to produce low sulfur diesel will be completed on time |
| We have been in communication with EPA concerning the possibility that we will not be able to meet the June start date |
| Any failure to complete these projects by the applicable deadline could result in a reduction of the quantity of gasoline and diesel fuel that we would have available for sale, and an increase in the quantity of refinery products available for sale that are not subject to the low sulfur diesel standards, such as heating oil |
| Such circumstances would likely reduce refining earnings |
| In addition, applicable laws and regulations govern the investigation and remediation of contamination at our current and former properties, as well as at third-party sites to which we sent wastes for disposal |
| We may be held liable for contamination existing at current or former properties, notwithstanding that a prior operator of the site, or other third party, caused the contamination |
| We may be held responsible for costs associated with cleaning up contamination at third-party disposal sites, notwithstanding that the original disposal activities accorded with all then applicable regulatory requirements |
| We are currently engaged in several such remediation projects |
| Moreover, we face significant exposure from actual or potential claims and lawsuits, brought by either governmental authorities or private parties, alleging non-compliance with environmental, health and safety laws and regulations, or property damage or personal injury caused by the environmental, health or safety impacts of our operations or of historic contamination |
| Governmental authorities may also impose penalties and fines for alleged violations of environmental laws and regulations |
| We enter into various settlements, consent decrees, and other agreements with governmental authorities to resolve allegations of non-compliance with environmental laws and regulations, including, for example, the 2005 settlement agreements entered into with the EPA and the New Mexico Environmental Department applicable to our Four Corners refineries |
| For a discussion of these settlement agreements, as well as other agreements with governmental authorities, see our related discussion in Note 17 to our Consolidated Financial Statements in Item 8 |
| Future expenditures related to compliance with environmental, health and safety laws and regulations, the investigation and remediation of contamination, and the defense or settlement of governmental enforcement actions or private-party claims cannot be reasonably quantified in many circumstances for various 21 _________________________________________________________________ [53]Table of Contents reasons, including the speculative nature of remediation and clean-up cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to us, and changing environmental laws, regulations and their respective interpretations |
| We cannot assure you that compliance with such laws or regulations, such investigations or cleanups, or such enforcement proceedings or private-party claims will not have a material adverse effect on our business, financial condition or results of operation |
| Our operations are inherently subject to discharges or other releases of petroleum or hazardous substances for which we may face significant liabilities |
| Our operations, as with others in the businesses in which we operate, are inherently subject to spills, discharges or other releases of petroleum or hazardous substances that may give rise to liability to governmental entities or private parties under federal, state or local environmental laws, as well as under common law |
| Spills, discharges or other releases of contaminants have occurred from time to time during the normal course of our operations, including releases associated with our refineries, pipeline and trucking operations, as well as releases at gasoline service stations and other petroleum product distribution facilities we have operated and are operating |
| We cannot assure you that additional spills, discharges and other releases will not occur in the future, that future action will not be taken in connection with past incidents (including at the Yorktown refinery), that governmental agencies will not assess penalties against us in connection with any past or future discharges or incidents, or that third parties will not assert claims against us for damages allegedly arising out of any such past or future discharges or incidents |
| Lawsuits have been filed in numerous states alleging that MTBE, a blendstock used by many refiners in producing specially formulated gasoline, has contaminated water supplies |
| MTBE contamination primarily results from leaking underground or aboveground storage tanks |
| The suits allege MTBE contamination of water supplies owned and operated by the plaintiffs, who are generally water providers or governmental entities |
| The plaintiffs assert that numerous refiners, distributors, or sellers of MTBE and/or gasoline containing MTBE are responsible for the contamination |
| The plaintiffs also claim that the defendants are jointly and severally liable for compensatory and punitive damages, costs, and interest |
| Joint and several liability means that each defendant may be liable for all of the damages even though that party was responsible for only a small part of the damages |
| We are a defendant in approximately 30 of these MTBE lawsuits pending in Virginia, Connecticut, Massachusetts, New Hampshire, New York, New Jersey, and Pennsylvania |
| We intend to vigorously defend these lawsuits |
| We cannot yet predict whether these lawsuits will materially impact us |