Item 1A. Risk Factors
Risk Factor Summary
Investing in us involves a degree of risk. You should carefully consider all information in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis section and the financial statements and related notes, prior to investing in our common stock. These risks and uncertainties include, but are not limited to, the following:
Risks Related to our Business/Industry
• The prices of crude oil, renewable feedstocks, refined, finished lubricant and renewable diesel products materially affect our operating results and are dependent upon many factors that are beyond our control.
• Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks for which we may not be adequately insured.
• A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability.
• A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations.
• To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations or cash flows could be materially and adversely affected.
• The refining and marketing industry and the lubricants and specialties industry are highly competitive, and an increase in competition could adversely affect our earnings and profitability.
• Our business is subject to the risks of international operations.
• Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition.
• Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations.
• Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations.
• Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity.
• In the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. In the event of any failure of the Company to accurately report our financial results or to maintain effective internal control over financial reporting or disclosure controls and procedures, investors could lose confidence in our financial and other public reporting, which could have a material adverse effect.
• A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business.
• Acquisitions involve numerous risks, any of which could adversely affect us.
• Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands that we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry.
• General economic conditions may adversely affect our business, operating results and financial condition.
• An impairment of our goodwill or assets could reduce our earnings or negatively impact our financial condition and results of operations.
• We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results.
• The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted.
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Risks Related to Government Regulation
• We are subject to significant regulation and oversight by governmental agencies.
• We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and we face potential exposure for environmental matters.
• We may incur significant costs and liabilities resulting from the performance of pipeline integrity programs and related repairs.
• There are various risks associated with GHGs and climate change that could result in increased operating and compliance costs, increased litigation and reduced demand for the refined products we produce and investment in our industry.
• Evolving attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities.
• Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations.
• Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels.
• State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation and financial results.
• Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations.
• Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows.
Risks Related to Cybersecurity, Data Security and Privacy, Information Technology and Intellectual Property
• Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security.
• We may be subject to information and operational technology system failures, communications network disruptions and data breaches that are generally beyond our control.
• Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection, which could result in claims or increased costs of operations, or other harm to our business.
• We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market.
• If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business.
Risks Related to Liquidity, Financial Instruments and Credit
• 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.
• We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs.
• We are exposed to the credit risks and certain other risks of our key customers and vendors.
• Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities.
• Our hedging transactions may limit our gains and expose us to other risks.
• We may be unable to pay future dividends.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition and results of operations could be materially and adversely affected. The headings provided in this Item 1A are for convenience and reference purposes only and shall not affect or limit the extent or interpretation of the risk factors.
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RISKS RELATED TO OUR BUSINESS/INDUSTRY
The prices of crude oil, renewable feedstocks, refined, finished lubricant and renewable diesel products materially affect our operating results and are dependent upon many factors that are beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional and grade differentials and governmental regulations and policies.
Among these factors is the demand for crude oil, renewable feedstocks (such as soybean oil), refined, finished lubricant and renewable diesel products, which can vary by type and class or product and is largely driven by the conditions of local and worldwide economies, as well as by weather patterns, changes in consumer preferences and the taxation of these products relative to other energy sources. Governmental regulations and policies, particularly in the areas of taxation, trade, energy and the environment, also have a significant impact on demand and pricing. Other factors affecting pricing and demand, and ultimately our operating results, include changes in product and crude pipeline capacities, crude oil differentials (including regional and grade differentials), the price and availability of renewable feedstocks, changes in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve, global market conditions, actions by foreign nations and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery and facility operations. Developments in the global oil markets, such as actual or potential hostilities or other conflicts in oil producing areas, including uncertainty regarding the effects and durations of global hostilities, war or any associated military campaigns, and worldwide demand for crude oil, particularly in developing countries, can affect the prices of crude oil and result in inflated energy prices. The demand for crude oil and refined and finished lubricant products can also be reduced due to a local or national recession or other adverse economic condition, higher gasoline prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider adoption of electric, gas/electric hybrid or hydrogen-powered vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel.
We do not produce crude oil or our renewable feedstocks and must purchase nearly all of the feedstocks we process, the price of which fluctuates based upon worldwide and local market conditions, including due to adverse weather events and regulatory interventions. The profitability of our Refining, Lubricants & Specialties and Marketing segments depends largely on the spread between market prices for refined petroleum products and crude oil prices. The profitability of our Renewables segment depends largely on the spread between market prices for renewable diesel plus state and federal low-carbon fuel incentives and renewable feedstocks, such as soybean oil. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined and renewable products are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. In addition, the volume of renewable diesel produced by our competitors is expected to increase going forward, and as the market becomes more competitive, or if there are changes in the regulations, policies, and standards affecting the demand for low-carbon fuels or our ability to obtain approved fuel pathways, our Renewables segment may experience increased volatility in product margins. A deterioration of crack spreads or price differentials between domestic and foreign crude oils or renewable diesel product margins could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Additionally, due to the seasonality of refined and renewable products markets and refinery maintenance schedules, results of operations for any particular quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the markets in which we sell our products. The effect of changes in crude oil or renewable feedstock prices on operating results depends in part on how quickly refined product or renewable diesel prices adjust to reflect these changes. A substantial or prolonged increase in crude oil or renewable feedstock prices without a corresponding increase in refined product or renewable diesel prices, a substantial or prolonged decrease in refined product or renewable diesel prices without a corresponding decrease in crude oil or renewable feedstock prices, or a substantial or prolonged decrease in demand for refined products or renewable diesel could have a significant negative effect on our earnings and cash flow.
Finally, our crude oil and refined and renewable diesel product inventories are valued at the lower of cost or market under the last-in, first-out (“LIFO”) inventory valuation methodology. If the market value of our inventory were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to Cost of materials and other even when there is no underlying economic impact at that point in time. Continued volatility in crude oil and refined product or renewable diesel prices could result in lower of cost or market inventory charges in the future, or in reversals reducing Cost of materials and other in subsequent periods should prices recover.
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Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks for which we may not be adequately insured.
Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks such as natural disasters, adverse weather, accidents, maritime disasters or casualties (including those involving marine vessels/terminals), fires, explosions, hazardous materials releases or spills, terrorist attacks or cyberattacks, vandalism, power failures, mechanical failures and other events beyond our control, and we have experienced certain of these events in the past. These events could result in an injury or loss of life, and have in the past and could in the future result in property damage or destruction, or curtailment of or an interruption in our operations and may affect our ability to meet customer commitments. For example, historic spills along our existing pipelines and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Additionally, third-party damage, mechanical malfunctions, undetected leaks in pipelines, faulty measurement or other errors may result in significant costs or lost revenues. Further, the consequences of any operational incident (including as a result of a maritime disaster or casualty) at our marine terminal facilities may be even more significant as a result of the complexities involved in addressing releases or spills occurring in U.S. federal and/or state waters (or in waters of other jurisdictions in which we operate) and/or the repair of marine terminal facilities.
We may not be able to maintain or obtain insurance of the type and amount we desire at commercially reasonable rates and exclusions from coverage may limit our ability to recover the amount of the full loss in all situations. As a result of market conditions, premiums and deductibles for certain of our insurance policies and insurance policies for our joint ventures are increasing. In some instances, certain insurance has become unavailable or has become available only for reduced amounts of coverage or at a significantly increased cost. 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.
There can be no assurance that insurance will cover all or any damages, losses or expenses resulting from these types of hazards. We are not fully insured against all risks to our business and therefore, we self-insure certain risks. If any of our facilities were to experience an interruption in operations, our earnings could be materially adversely affected (to the extent not recoverable through insurance).
If a significant accident or event occurs that is self-insured or not fully insured, it could have a material adverse effect on our business, financial condition and results of operations.
A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability.
We utilize various third-party pipeline systems to deliver our products from our refineries and renewables facilities to market. The key third-party pipeline systems utilized by the Casper, El Dorado, Navajo, Parco, Puget Sound, Woods Cross, and Tulsa refineries and Cheyenne renewables facility are ONEOK (RMPS), NuStar Energy ONEOK, SFPP, Pioneer, Olympic, MPLX, ONEOK and Pioneer, respectively. Our refineries also utilize systems owned by our Midstream segment. If these key pipelines or their associated tanks and terminals become inoperative or decrease the capacity available to us due to testing, line repair, reduced operating pressures, catastrophic events, terrorist attacks or cyberattacks, vandalism or other causes, we may not be able to sell our product, or we may be required to hold our product in inventory or supply products to our customers through an alternative pipeline or by rail or additional tanker trucks from the refinery, all of which could increase our costs and result in a decline in profitability.
Additionally, our Refining, Lubricants & Specialties and Renewables segments depend on rail and marine transportation for the delivery of feedstocks used in the production of our products and to deliver products to market, the availability of which is subject to various risks, including those associated with rail or marine strikes, equipment shortages, operating hazards and transportation regulations. If rail or marine transportation is disrupted, we may be unable to produce and/or deliver our products in a competitive or profitable manner and, if such disruption were to occur over an extended period of time, it could have a material adverse effect on our business, financial condition and results of operations.
We have manufacturing facilities in foreign countries that support the Lubricants & Specialties segment. If one of our facilities is damaged or disrupted, resulting in production being halted for an extended period, we may not be able to timely supply our customers. We take steps to mitigate this risk, including through business continuity and contingency planning and procuring property insurance (including resulting business interruption) and casualty insurance. Nevertheless, the loss of sales in any one region over an extended period of time could have a material adverse effect on our business, financial condition and results of operations.
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A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations.
To maintain or increase production levels at our refineries and facilities, we must continually contract for crude oil and renewable feedstock supplies from third parties. There are a limited number of crude oil and renewable feedstock suppliers in certain geographic regions, and in such cases, we may be required to source from a single third-party supplier. If we are unable to maintain or extend our existing contracts with any such crude oil or renewable feedstock suppliers, or enter into new agreements on similar terms, the supply of crude oil or renewable feedstocks could be adversely impacted, or we may incur a higher cost. A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices, decreased demand, lack of drilling activity, natural production declines, governmental regulations, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns, catastrophic events or other factors, could result in a decline in the volume of crude oil available to our refineries. As the volume of renewable diesel produced increases, competition for renewable feedstocks may also increase and result in an increase in feedstock costs and a decrease in renewable diesel margins. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of refined products processed at our refineries and therefore a corresponding reduction in our cash flow. In addition, the future growth of our operations will depend in part upon whether we can contract for additional supplies of crude oil or renewable feedstocks at a greater rate than the rate of natural decline in our currently connected supplies. If we are unable to secure additional crude oil supplies or renewable feedstocks of sufficient quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of our refineries’ and renewable facilities’ production capacities.
For certain raw materials used by our refineries and other facilities, there are a limited number of suppliers and, in some cases, we source from a single supplier and/or suppliers in economies that have experienced instability or the supplies are specific to the particular geographic region in which a facility is located. Any significant disruption in supply could affect our ability to obtain raw materials, or increase the cost of such raw materials, which could significantly reduce our production levels or have a material adverse effect on our business, financial condition and results of operations. In addition, certain raw materials that we use are subject to various regulatory laws, and a change in the ability to legally use such raw materials may impact our liquidity, financial position and results of operations.
It is also common in the refining industry for a facility to have a sole, dedicated source for its utilities, such as steam, electricity, hydrogen, water and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current supply agreements. Additionally, there is growing concern over the reliability of water sources. The decreased availability or less favorable pricing for water as a result of population growth, drought or regulation could negatively impact our operations.
Our Artesia RDU and Sinclair RDU are co-located with the Navajo Refineries and Parco Refinery, respectively, and their operations are dependent upon certain shared infrastructure at the co-located facilities. For example, the hydrogen plants at the Navajo Refineries and Parco Refinery support both refinery and renewable diesel operations. As a result, any disruption that negatively impacts, or causes a shutdown of, shared infrastructure at the co-located facilities could result in lost production and have a material adverse effect on earnings for both refinery and renewable diesel operations at the co-located facility. In addition, in the event equipment or raw materials at the co-located facilities are constrained, we may not have adequate inputs to support both refinery and renewable diesel operations and have in the past made, and may in the future have to make, commercial decisions that prioritize the continuing operation of one segment over the other in order to maximize earnings of our consolidated business.
If our raw material, utility, gas, hydrogen or water supplies or access to the equipment necessary to operate our facilities were disrupted, our businesses may incur increased costs to procure alternative supplies or equipment or incur excessive downtime, which would have a direct negative impact on our operations.
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To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash flows could be materially and adversely affected.
Our facilities 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 turnarounds for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. The installation and redesign of key equipment at our facilities involves significant uncertainties, including the following: our upgraded equipment may not perform at expected levels; operating costs of the upgraded equipment may be higher than expected; and 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. For example, in the third quarter of 2020, we ceased refining operations at the Cheyenne, Wyoming refinery (the “Cheyenne Refinery”) due, in part, to uncompetitive operating and maintenance costs for the refinery.
One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and refurbishment of used units from another refinery), pipelines and terminals and the conversion or expansion of existing ones, such as the conversion of the Cheyenne Refinery to renewable diesel production and the connection of a new renewable diesel and a pre-treatment unit in Artesia, New Mexico. The construction process involves numerous regulatory, environmental, political, and legal uncertainties, most of which are not fully within our control, including:
• third-party challenges to, denials, adverse modification, or delays with respect to the issuance of requisite regulatory approvals and/or obtaining or renewing permits, licenses, registrations and other authorizations;
• societal and political pressures and other forms of opposition;
• compliance with or liability under environmental or pipeline safety regulations;
• unplanned increases in the cost of construction materials or labor;
• disruptions in transportation of modular components and/or construction materials;
• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
• market-related increases in a project’s debt or equity financing costs; and/or
• nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or subcontractors involved with a project.
If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to supply certain products we make. Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel in a region in which such growth does not materialize. As a result, new capital investments may not achieve our expected investment return, which could adversely affect our financial condition or results of operations.
In addition, we expect to execute turnarounds at a number of our refineries in 2026, which involve numerous risks and uncertainties, including 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.
Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our control, including changes in general economic conditions, available alternative supply, global market conditions, actions by foreign nations and customer demand.
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, obtain crude oil in times of shortage, transition to upgraded systems and bear the economic risks inherent in all areas of the refining industry.
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We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at our refineries. Though we license our brand, as of December 31, 2025, we do not currently own or operate retail outlets and therefore are dependent upon others for outlets for our refined products. Certain of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets. Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.
In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in the geographies where we operate. These transactions could increase the future competitive pressures on us.
We compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and demand for our products and our profitability. There are governmental and consumer pressures to increase the use of alternative fuels in the United States.
The market for our Lubricants & Specialties segment is highly competitive and requires us to continuously develop and introduce new products and product enhancements.
Our ability to grow our Lubricants & Specialties segment depends, in part, on our ability to continuously develop, manufacture and introduce new products and product enhancements on a timely and cost-effective basis, in response to customers’ demands for higher performance process lubricants, coatings, greases and other product offerings. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete and, as a consequence, we may lose business and/or significant market share. Our efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by unfavorable margins or difficulties or delays in product development or service innovation, including the inability to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products or service techniques. The development and commercialization of new products require significant expenditures over an extended period of time, and some products that we seek to develop may never become profitable, and we could be required to write-off our investments related to a new product that does not reach commercial viability.
Our business is subject to the risks of international operations.
We derive a portion of our revenue and earnings from international operations. Our Petro-Canada Lubricants and Sonneborn businesses expanded our operations and product exports to over 80 countries and increased our exposure to foreign exchange risks. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our revenue, competitiveness and cost of doing business, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, tariffs, economic or trade sanctions, anti-corruption laws, data privacy regulations and foreign exchange controls and cash repatriation restrictions, environmental laws, labor laws and anti-competition regulations, increase the cost of doing business in foreign jurisdictions. Although we have implemented policies and procedures to comply with these laws and regulations, a violation by any of our employees, contractors, distributors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect our brand, reputation, international growth efforts and business.
In addition, global market risks, actions by foreign nations and other international conditions, particularly in a time of increasing political, economic and global instability, may have a material adverse effect on our results and operations. The consequences of such uncertainty cannot be fully anticipated or quantified.
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Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition .
Our reputation and our brands, including, without limitation, our existing Sinclair, HollyFrontier Specialty Products, Petro-Canada Lubricants, Red Giant Oil and Sonneborn brands, and any brands we may acquire or establish in the future, are important corporate assets. Factors that could have a negative impact on our reputation and our brands include, by way of example and not limitation, an operating incident or significant cybersecurity disruption; changes in consumer views concerning our products; a perception by investors or others that we are making insufficient progress with respect to our carbon emission reduction goals, or that pursuit of this ambition may result in allocation of capital to investments with reduced returns; and other adverse events such as those described in this Item 1A. Negative impacts on our reputation and our brands could in turn make it more difficult for us to compete successfully for new opportunities, obtain necessary regulatory approvals, obtain financing, attract talent, or could reduce consumer demand for our branded products. Our reputation may also be harmed by events which negatively affect the image of our industry as a whole. The materialization of risks discussed in this section could negatively affect our reputation and could have a material adverse effect on our earnings, cash flows and financial condition.
Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations.
A significant portion of our operating responsibility on refined product pipelines is to maintain 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 have resulted in or could result in product liability or other related claims from our customers or third parties. The development, manufacture and sale of renewable diesel and specialty lubricant products also involves an inherent risk of exposure to potential product liability claims. Our products could also be subject to false advertising or consumer protection claims, product recalls, workplace exposure, product seizures and related adverse publicity.
The occurrence of any of these incidents 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. While we have received and resolved immaterial product liability claims in the past, there can be no assurance that future product liability or other related claims against us would not have a material adverse effect on our business, reputation or results of operations or our ability to maintain existing customers or retain new customers. Although we maintain product and other general liability insurance, there can be no assurance that the types or levels of coverage maintained are adequate to cover these potential risks, or that we will be able to continue to maintain existing insurance or obtain comparable insurance at a reasonable cost, if at all.
Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations.
The long-term impacts of terrorist attacks and the threat of future terrorist attacks and vandalism on the energy transportation industry in general, and on us in particular, are unknown. Any attack on our facilities, those of our customers or suppliers and, in some cases, those of other pipelines, could have a material adverse effect on our business. Increased security measures taken by us as a precaution against possible terrorist attacks or domestic vandalism have resulted in increased costs to our business.
The U.S. government has issued public warnings that indicate that pipelines and other assets could be specific targets of terrorist organizations. These potential targets may include our pipeline systems or operating systems and might affect our ability to operate or control our pipeline assets or our operations could be disrupted. The occurrence of one of these events could cause a substantial decrease in revenues, increased costs to respond or other financial loss, damage to reputation, increased regulation or litigation and/or inaccurate information reported from our operations, and, depending on their ultimate magnitude, could have a material adverse effect on our business, financial condition and results of operations.
Uncertainty surrounding continued global hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror, may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any one of, or a combination of, these occurrences could have a material adverse effect on our business, financial condition and results of operations.
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Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity.
Our future performance depends to a significant degree upon the continued contributions of our Board of Directors, our senior management team and key technical personnel. We do not currently maintain key person life insurance, or employment agreements with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. As previously announced, on February 17, 2026, the Board of Directors received and accepted a request from Mr. Tim Go, the Company’s Chief Executive Officer and President, and a member of the Board of Directors, to take a voluntary leave of absence from his duties. In addition, on February 24, 2026, the Board of Directors received and accepted a request from Mr. Atanas Atanasov, the Company’s Executive Vice President and Chief Financial Officer, to take a voluntary leave of absence from his duties. As a result, the services of both these senior executive officers are currently not available to the Company. For additional information, please see the information set forth below under “HF Sinclair Management and Audit Committee Process” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of Part II of this Annual Report on Form 10-K.
On February 17, 2026, the Board of Directors appointed Mr. Franklin Myers as Chief Executive Officer and President on a temporary basis. In addition, on February 24, 2026, the Board of Directors appointed Mr. Vivek Garg, the Company’s Vice President, Chief Accounting Officer and Controller, as acting Chief Financial Officer of the Company, effective as of such date. Both Mr. Myers and Mr. Garg have significant experience in their respective areas of responsibility but will face the challenges associated with any transition in senior executive management.
We face competition for our professionals from our competitors, our customers and other companies operating in our industry. While the services of members of our senior management team and key technical personnel are or may be unavailable to us for any reason, we may be required to hire other personnel to manage and operate our company. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all.
Furthermore, our operations require skilled and experienced laborers with proficiency in multiple tasks. A shortage of trained workers due to retirements, an increase in labor costs as a result of inflation or otherwise could have an adverse impact on productivity and costs and on our ability to expand production in the event there is an increase in the demand for our products and services, which could adversely affect our operations.
In the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. In the event of any failure of the Company to accurately report our financial results or to maintain effective internal control over financial reporting or disclosure controls and procedures, investors could lose confidence in our financial and other public reporting, which could have a material adverse effect.
Our internal control over financial reporting and disclosure controls and procedures may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, failure or interruption of information technology systems, the circumvention or overriding of controls, or fraud. Even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
As described below under “HF Sinclair Management and Audit Committee Process” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of Part II of this Annual Report on Form 10-K, in the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. Upon completion of their reviews, both the Company’s management and the Audit Committee, with the support of external legal counsel, determined that the concerns identified did not impair the Company’s ability to make appropriate and timely decisions regarding required disclosures. In addition, they have both determined that the Company’s internal control over financial reporting was effective.
If we fail to maintain the adequacy of our internal control over financial reporting or disclosure controls and procedures, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our financial reporting obligations, the material accuracy and timeliness of our public disclosures could be impaired, and we could suffer a material adverse effect. Among other things, any such failure could cause investors to lose confidence in the accuracy and completeness of our public disclosures, including our financial statements.
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A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business.
We depend on unionized labor for the operation of many of our facilities. As of December 31, 2025, approximately 31% of our employees were represented by a labor union or works council under collective bargaining or labor agreements with various expiration dates. In addition, employees who are not currently represented by a labor union or works council may seek representation in the future. We may not be able to renegotiate our collective bargaining or labor agreements when they expire on satisfactory terms or at all. If we are unable to renegotiate our collective bargaining or labor agreements when they expire, any work stoppages or other labor disturbances at these facilities could have an adverse effect on our business, impact our ability to pay dividends to our stockholders and make payments on our debt obligations, and increase our costs. In addition, our existing labor agreements may not prevent a strike or work stoppage or other adverse employee relations event at any of our facilities in the future, and any work stoppage could negatively affect our results of operations and financial condition.
Acquisitions involve numerous risks, any of which could adversely affect us.
An additional component of our growth strategy is to selectively acquire complementary assets or businesses to complement our existing assets and businesses in order to increase earnings and cash flow. Recent acquisitions include our acquisition of Industrial Oils Unlimited, LLC, all of the remaining outstanding HEP common units, the Sinclair refining, renewables, midstream and marketing assets and the Puget Sound Refinery. Our ability to do so will be dependent upon a number of factors, including our ability to identify attractive acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain financing to fund acquisitions and to support our growth, and other factors beyond our control. Risks associated with acquisitions include those relating to:
• diversion of significant management time and attention from our existing business;
• challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that may result therefrom;
• difficulties in integrating the financial, technological and management standards, processes, procedures and controls of an acquired business with those of our existing operations;
• the inability to integrate multiple acquisitions simultaneously or within a short timeframe of each other;
• difficulties integrating personnel from the acquired business while maintaining focus on providing consistent, high-quality products and services or the loss of key employees;
• difficulties integrating relationships with customers, vendors and business partners;
• liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification or insurance or potential unknown and unforeseen expenses, delays or regulatory conditions associated with such acquisitions;
• greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for investments to improve operating results;
• difficulties or delays in achieving anticipated operational improvements or benefits or inaccurate assumptions about future synergies or revenues;
• incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets;
• issuance of additional equity, which could result in further dilution of the ownership interest of existing stockholders;
• disruption of, or the loss of momentum in, ongoing business or inconsistencies in standards, controls, procedures and policies;
• incurrence of substantial, nonrecurring transaction-related expenses; and
• potential securities class action and derivative lawsuits, which could result in substantial costs.
Any acquisitions that we do consummate may have adverse effects on our business and operating results.
Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame.
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Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands that we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry.
Certain of our facilities, pipelines and other assets are located on or adjacent to Native American tribal lands. Various federal agencies, along with each Native American tribe, promulgate and enforce regulations, including environmental standards, regarding operations on Native American tribal lands. In addition, each Native American tribe is a sovereign nation having the right to enforce laws and regulations (including various taxes, fees and other requirements and conditions) and grant approvals independent from federal, state and local statutes and regulations. Furthermore, our operations may be disrupted by restrictions on our access to railways and waterways on or adjacent to tribal lands, including, for example, through limitations upon the number of trains permitted to cross certain reservations in a specified time period. These factors may increase our cost of doing business on Native American tribal lands.
We do not own all of the land on which our pipeline systems and other assets are located, and we are, therefore, subject to the risk of increased costs or more burdensome terms to maintain necessary land use. We obtain the right to construct and operate pipelines and other assets on land owned by third parties and government agencies for specified periods. If we were to lose these rights through an inability to renew leases, right-of-way contracts or similar agreements, we may be required to relocate our pipelines or other assets and our business could be adversely affected. Additionally, it may become more expensive for us to obtain new rights-of-way or leases or to renew existing rights-of-way or leases. If the cost of obtaining or renewing such agreements increases, it may adversely affect our operations and cash flows.
The adoption or amendment of laws and regulations that limit or eliminate a state’s ability to exercise eminent domain over private property in a state in which we operate could make it more difficult or costly for us to secure rights-of-way for future pipeline construction and other projects.
In addition, our industry is subject to potentially disruptive activities by those concerned with the possible environmental impacts of crude oil and refined products. Activists, non-governmental organizations and others may seek to restrict our operations or the transportation of crude oil and refined products by exerting social, legal or political pressure. This interference could have a material adverse effect on our business, financial condition and results of operations.
General economic conditions may adversely affect our business, operating results and financial condition.
Economic slowdowns may have serious negative consequences for our business and operating results because our performance is subject to domestic economic conditions and their impact on levels of consumer spending. Some of the factors affecting consumer spending include general economic conditions, unemployment, consumer debt, inflation, reductions in net worth based on declines in equity markets and residential real estate values, adverse developments in mortgage markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic factors. Political instability and global health crises, such as the COVID-19 pandemic, can also impact the global economy and decrease worldwide demand for oil and refined products. Increased volatility in the global oil markets, including the prices our customers or our joint ventures’ customers pay for crude oil and other raw materials, has and may continue to materially adversely affect our business, financial condition, results of operations and/or cash flows.
Adverse developments in the global economy or in regional economies could also negatively impact our customers and suppliers, and therefore have a negative impact on our business or financial condition. In the event of adverse developments or stagnation in the economy or financial markets, our customers and suppliers may experience deterioration of their businesses, reduced demand for their products, cash flow shortages and difficulty obtaining financing. As a result, existing or potential customers might delay or cancel plans to use our services and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to us. Moreover, a financial market crisis may have a material adverse impact on financial institutions and limit access to capital and credit. This could, among other things, make it more difficult for us to obtain (or increase our cost of obtaining) capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all.
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Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition and results of operations. The U.S. administration may propose or take action with respect to major changes to trade policies, such as the imposition of tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements. For example, in February 2025, the U.S. administration announced tariffs on Canada, Mexico and China, including a 10% tariff on Canadian crude oil, which is subject to potential exemption under the United States-Mexico-Canada Agreement (“USMCA”) preference. The USMCA is subject to review in 2026 and the outcome is uncertain. Any changes to trade policies could result in additional retaliatory action by trade partners of the U.S. Given that we procure crude oil and other products directly or indirectly from outside of the U.S., the imposition of tariffs and other potential changes in U.S. trade policy could impact the cost structure of feedstocks and other materials and supplies at our business units, or limit the availability of such materials, which could harm our competitive position and adversely impact our business, financial condition and results of operations. In addition, we sell products to customers outside of the U.S. Retaliatory actions by other countries could result in increases in the price of our products, which could limit demand for such products, hurt our global competitive position and have a material adverse effect on our business, financial condition and results of operations.
Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. Current and future inflationary pressures may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies. Continuing increases in inflation could affect the U.S. economy generally, the overall demand for our products and services, our costs for labor, material and services and our operating margins, all of which could have an adverse effect on our business, financial position, results of operations and cash flows. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
An impairment of our goodwill or assets could reduce our earnings or negatively impact our financial condition and results of operations.
An impairment of our goodwill or assets could reduce our earnings or negatively impact our results of operations and financial condition. We continually monitor our business, the business environment and the performance of our operations to determine if an event has occurred that indicates that our goodwill or assets may be impaired. If a triggering event occurs, which is a determination that involves judgment, we may be required to utilize cash flow projections to assess our ability to recover the carrying value based on the ability to generate future cash flows. We may also conduct impairment testing based on both the guideline public company and guideline transaction methods. Our goodwill and asset impairment analyses are sensitive to changes in key assumptions used in our analysis, estimates of future crack spreads, forecasted production levels, operating costs and capital expenditures. If the assumptions used in our analysis are not realized, it is possible a material impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any additional impairments of goodwill or assets in the future.
As market prices for refined products and market prices for crude oil continue to fluctuate, we will need to continue to evaluate the carrying value of our reporting units. During the years ended December 31, 2025 and 2024 , asset impairment charges were $3 million and $17 million, respectively. No impairment charges were recorded for the year ended December 31, 2023 . A reasonable expectation exists that a deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and/or additional asset impairments at some point in the future. Future impairment charges could be material to our results of operation s and financial condition.
We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results.
A large portion of our lubricants and specialties product sales, both in domestic and international markets, occur through distributors. As a result, we are dependent on these distributors to promote and create demand for our products. We cannot assure you that we will be successful in maintaining and strengthening our relationships with our distributors or establishing relationships with new distributors who have the ability to market, sell and support our products effectively. We may rely on one or more key distributors for a product or a region, and the loss of these distributors could reduce our revenue. The sales, business practices and reputation of our distributors may affect our business and our reputation. The consolidation of distributors, loss of a relationship with a distributor, significant disagreement with a distributor, or significant deterioration in the financial condition of a distributor could also have an adverse effect on our operating results and may also result in increased competition in the applicable jurisdiction.
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The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted.
The market price of our common stock may be influenced by many factors, some of which are beyond our control, including:
• our quarterly or annual earnings or those of other companies in our industry;
• changes in accounting standards, policies, guidance, interpretations or principles;
• general economic, industry, global and stock market conditions;
• the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
• future sales of our common stock;
• announcements by us or our competitors of significant contracts or acquisitions;
• sales of common stock by us, our senior officers, our affiliates or certain related parties such as REH Advisors Inc.; and/or
• the other factors described in these Risk Factors.
In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price.
RISKS RELATED TO GOVERNMENT REGULATION
We are subject to significant regulation and oversight by governmental agencies.
Regulation affects almost every part of our business. For instance, we are subject to laws and regulations related to working conditions, environment, health and safety, equal employment opportunity, employee benefits and other labor and employment matters, and competition and antitrust matters. Our facilities, pipelines, and other operations are subject to regulation and oversight by international, federal, state, provincial and local regulatory authorities, including the FERC, Commodities Futures Trading Commission, EPA, PHMSA, OSHA, the SEC and the DOJ, and similar authorities in Canada and the Netherlands, each of which may impose significant civil and criminal penalties or other enforcement actions to ensure compliance with its requirements. Any regulatory violations could have a material adverse effect on our results of operations and financial condition, including earnings, cash flow and liquidity. Further, our financial results may be materially affected by the adoption of new or amended financial accounting standards, and regulatory or outside auditor guidance or interpretations.
New laws, policies, regulations, rulemaking and oversight, unexpected policy changes or interpretations of existing laws or regulations as well as changes to those currently in effect, could adversely impact our earnings, cash flows and operations. Actions taken and regulatory or legislative changes adopted by the U.S. government or the governments of other jurisdictions in which we operate, have the potential to adversely affect our profitability. These risks are heightened during periods of regulatory upheaval, such as during U.S. presidential and congressional transitions, and as a result of conflicting or potentially conflicting requirements in different jurisdictions. Furthermore, we could incur additional costs to comply with such statutes, rules, regulations and orders. Should we fail to comply with any applicable statutes, rules, regulations, and orders of regulatory authorities, we could be subject to substantial penalties and fines and withdrawal or denial of permits to operate.
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We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and we face potential exposure for environmental matters.
Our facilities, pipelines and distribution operations are subject to international, federal, state, provincial and local laws and regulations regarding, among other things, the manufacture, storage, handling, use, transportation and distribution of petroleum and hazardous substances by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste management, and characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the protection of human health and the environment, including climate change. Permits or other authorizations are required under these laws and regulations for the operation of our facilities, pipelines and other operations, and these permits and authorizations are subject to revocation, adverse modification and renewal or may require operational changes, which may involve significant costs. A violation of permit conditions or a failure to comply with applicable laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations and the incurrence of capital expenditures; the occurrence of delays in permitting or the denial of permits, required for the development or expansion of projects; the issuance of injunctive relief limiting or prohibiting certain operations; and reputational harm. There is also the potential for liability for spill response and remediation, natural resource damage claims, and personal and property damage claims in the event of an oil or other refined product spill at a facility located near federal, state or provincial waters or a release of hazardous or other substances into the environment.
Changes in laws or regulations could require major modifications of our operations, including expensive upgrades to our existing pollution control equipment, which could have a material adverse effect on our business, financial condition, or results of operations. For example, implementation of revised NAAQS for ozone and particulate matter, could result in stricter permitting requirements, a delay in or inability to obtain required permits, and increased expenditures for pollution control equipment, the costs of which could be significant. Also, the EPA’s amendments to the RMP rules, which are subject to ongoing litigation and reconsideration by the current administration, could require refineries with HF Alkylation process (including three of our refineries) to perform a “safer technology and alternatives analysis” as part of the process hazard analysis to consider and document the practicability of inherently safer technologies and other risk management measures and could lead to capital expenditures in future years or otherwise constrain our operations. Likewise, the EPA’s 2024 updates to its volatile organic liquid storage tank emission standards, which are subject to ongoing litigation and potential repeal by the current administration, establish more protective standards for various types of vessels, including floating roof storage vessels and storage vessels that utilize closed vent systems and controls that could necessitate additional expenditures in future years and result in increased costs on our operations. Updated or new determinations under the Endangered Species Act and comparable international, federal, state, provincial and local laws and regulations could also impact our operations or those of our suppliers. Our operations and those of our suppliers could also be impacted by new or revised federal restrictions or laws pertaining to oil and gas operations on federal lands, which could include pauses on leasing, enhanced environmental reviews, and emissions regulations. Compliance with new international and domestic environmental laws, regulations and interpretations will continue to have an adverse impact on our operations, results of our operations and capital requirements.
Various regulators are considering regulation of the emerging contaminants, including for example, a final rule adopted by the EPA in May 2024 to list certain PFAS as CERCLA hazardous substances. More recently, in September 2025, the EPA announced its intention to develop a “Framework Rule” to guide future hazardous substance designations, including the consideration of costs to manufacturers, passive receivers of PFAS, consumers, and the economy. In 2023, the EPA undertook several other regulatory actions related to PFAS chemicals, including, among others, updates to the EPA’s TRI program to remove an exemption for reporting PFAS, and included PFAS exposure as a National Enforcement and Compliance Initiative for fiscal years 2024-2027. Further, in accordance with the National Defense Authorization Act, the EPA added seven individual PFAS to the list of chemicals covered by TRI reporting and an additional nine PFAS in 2025. Moreover, certain states are also taking action to regulate PFAS with regard to reporting, remediation, and product safety. The EU has applied a step-wise ban and restrictions on certain PFAS products. PFOS and PFOA are banned in the EU for a number of years already, apart from some exemptions. Further bans and restrictions are planned for 2026 and 2027 with transitory rules for sale and use. We cannot predict the impact of future regulation of presently unregulated substances, but the prospect of such regulation creates additional uncertainty.
Several environmental groups filed a petition under TSCA, in February 2025, requesting that the EPA promulgate a Section 6(a) rule to prohibit the use of HF in domestic oil refining, citing unreasonable risks to public health and the environment from refinery alkylation and associated transport of HF. Several of our refineries utilize HF in their alkylation process. In May 2025, the EPA denied the petition, concluding petitioners did not meet their burden under TSCA to establish that a Section 6(a) rule is necessary. Petitioners subsequently filed a lawsuit challenging EPA’s denial, and that litigation is pending and we cannot predict the outcome.
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As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits involving environmental matters. The matters include, but are not limited to, soil, groundwater and water discharges and contamination, air pollution, accident prevention, personal injury and property damage allegedly caused by substances which we processed, manufactured, handled, used, transported, stored, released or disposed and climate change.
We are, and have been, the subject of various local, state, provincial, federal, international and private proceedings relating to environmental regulations, conditions and inquiries. Instances of non-compliance with environmental regulations could require additional expenditures, including expenditures for investigation and remediation, which could be significant.
Our operations are also subject to various international, federal, state, and local domestic laws and regulations relating to health and safety, such as chemical accident prevention. For example, in December 2024, the Washington Department of Labor and Industries’ new Process Safety Management Rule for petroleum refineries became effective, which applies stringent worker safety requirements to petroleum refineries, including performance of regular reviews to identify hazards, root cause analyses after significant accidents, and regular review of processes that are likely to damage or wear down equipment. We maintain safety, training and maintenance programs as part of our ongoing efforts to comply with applicable laws and regulations but cannot guarantee that these efforts will always be successful. Compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures. Failure to appropriately manage health and safety risks associated with our business could also adversely impact our employees, communities, stakeholders, reputation and results of operations.
The costs of environmental, health and safety regulations are already significant and compliance with more stringent laws or regulations or adverse changes in the interpretation of existing regulations by government agencies or courts could have an adverse effect on the financial position and the results of our operations and could require substantial expenditures for the installation and operation of systems and equipment that we do not currently possess.
We are also subject to existing, and may in the future be subject to, new or changing, domestic and international energy policy legislation. For example, in the United States, the Energy Independence and Security Act and the EPA’s RFS regulations mandate annually increasing levels for the use of renewable fuels such as ethanol and increasing energy efficiency goals, among other steps. Dutch and European policies also aim to increase the share of renewable energy used in transportation and reduce GHG emissions from transportation fuels. In Canada, fuel content legislation exists at the federal and provincial level. These statutory mandates may have the long-term impact of offsetting projected increases in the demand for refined petroleum products, particularly gasoline, in certain markets. In the near term, the increasing RFS obligations, as discussed in our Risk Factor titled “Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” below, present ethanol production and logistics challenges for both the ethanol and refining industries and may require additional capital expenditures or expenses by us to accommodate increased ethanol use. Other legislative changes may similarly alter the expected demand and supply projections for refined petroleum products in ways that cannot be predicted.
For additional information on regulations and related liabilities or potential liabilities affecting our business, see “Regulation” in Items 1 and 2, “Business and Properties,” and Item 3, “Legal Proceedings.”
We may incur significant costs and liabilities resulting from the performance of pipeline integrity programs and related repairs .
We are regulated under federal pipeline safety statutes by DOT through PHMSA. PHMSA sets and enforces pipeline safety regulations. Failure to comply with PHMSA or comparable state pipeline safety regulations could result in a number of consequences which may have a materially adverse effect on our operations. PHMSA’s enforcement authority includes the ability to assess civil penalties for violations of pipeline safety regulations, issue orders directing compliance, and issue orders directing corrective action to abate hazardous conditions. Among other things, pipeline safety laws and regulations require pipeline operators to develop integrity management programs, including more frequent inspections and other measures for pipelines located in “high-consequence areas,” which are areas where a release could have the most significant adverse consequences, including certain population areas, certain drinking water sources and unusually sensitive ecological areas. These regulations require operators of covered pipelines to perform a variety of heightened assessments, analysis, prevention, mitigation and repair activities on the segments of pipe located within high-consequence areas. Routine assessments under the integrity management program may result in findings that require repairs or other actions.
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Moreover, changes to pipeline safety laws by Congress and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. Congress is currently considering potential amendments to the Pipeline Safety Act, as it does approximately every four years. Should amendments be introduced and later become law, this could affect our operations and result in additional compliance, maintenance and other obligations. Additionally, effective in October 2022, PHMSA’s Valve Installation and Minimum Rupture Detection Standards, expanded regulation of the safety of hazardous liquid pipelines by establishing certain new procedural and notification requirements for managing rupture events and requiring the installation of rupture-mitigation valves on new or certain replaced pipelines. These standards have and may continue to result in additional capital and operations and maintenance costs in the coming years. Furthermore, where PHMSA has not issued any legal requirements, state agencies, to the extent authorized, could enact regulatory standards for certain pipelines.
We perform preventive and normal maintenance on all of our pipeline and terminal systems and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of our pipelines and other assets as required by regulations. Corrosion inhibitors, external coatings and impressed current cathodic protection systems are used to protect against internal and external corrosion. We regularly monitor, test and record the effectiveness of these corrosion-control systems. We monitor the structural integrity of covered segments of our pipeline systems through a program of periodic internal inspections using electronic “smart pigs,” hydrostatic testing, and other measures. We follow these inspections with a review of the data, and we make repairs as necessary to maintain the integrity of the pipeline. We have initiated a risk-based approach to prioritizing the pipeline segments for future smart pig runs or other appropriate integrity testing methods. This approach is intended to allow the pipelines that have the greatest risk potential to receive the highest priority in being scheduled for inspections or pressure tests for integrity. Nonetheless, the adoption of new or amended regulations or the reinterpretation of existing laws and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators.
There are various risks associated with GHGs and climate change that could result in increased operating and compliance costs, increased litigation and reduced demand for the refined products we produce and investment in our industry.
Climate change continues to attract considerable attention in the United States, Canada, Europe, and other regions. Numerous rules have been adopted and proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs, to limit or eliminate future emissions, and to require or incentivize the use of lower carbon or renewable alternatives, including through accounting and risk disclosures. As a result, our operations, and those of our customers, are subject to a series of regulatory, political, litigation-related and financial risks associated with the refining, transportation and use of petroleum products and emission of GHGs.
The EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas sources in the United States or require control or reduction of emissions of GHGs, including methane, from such sources. However, following the change in U.S. presidential administrations, proposals have been made to repeal or otherwise modify these requirements and the EPA’s GHG “Endangerment Finding,” which underpins the majority of the EPA’s GHG regulations. We cannot predict whether such efforts will ultimately be successful.
Various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, restriction of emissions, electric vehicle mandates and combustion engine phaseouts. See also “Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” below for more information on how these programs may impact us. State efforts may increase in response to decreased federal enforcement efforts.
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Relatedly, in October 2023, the Governor of California signed the CCDAA and CRFRA into law. The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have annual revenues of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2 and 3 GHG emissions. The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-Related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies “doing business in California” with a total annual revenue of $500 million. Both laws are subject to litigation, and the U.S. Court of Appeals for the Ninth Circuit issued an injunction prohibiting CRFRA from taking effect in November 2025, and the Ninth Circuit is also considering whether any relief should extend to the CCDAA. While the outcome of this litigation is uncertain, non-compliance with these laws may result in the imposition of substantial fines or penalties. Additionally, other states are considering similar laws. Any new laws or regulations imposing more stringent requirements on our business related to the disclosure of climate-related risks may result in (i) reputational harms among certain stakeholders if they disapprove of our reported GHG emissions data or disagree with our approach to mitigating climate-related risks, (ii) increased compliance costs resulting from the development of any such disclosures, and (iii) increased costs of and restrictions on access to capital to the extent that we do not meet any climate-related expectations or requirements of financial institutions.
Similar regulations exist at the provincial and federal levels in Canada, including a nation-wide GHG pricing initiative and regulations related to the control of GHGs from vehicles as well as industrial facilities and either cap and trade programs or carbon taxes at both federal and provincial levels. Canada’s 2030 Emissions Reduction Plan (“ERP”) issued pursuant to the Canadian Net-Zero Emissions Accountability Act, includes a projected contribution from the oil and gas sector of emissions reductions to 31% below 2005 levels in 2030 (or to 42% below 2019 levels) with an ultimate goal of achieving net zero emissions by 2050. The Government of Canada has proposed and may continue to propose regulations in furtherance of its ERP goals. At this time, the applicability of the ERP, and any regulations adopted in furtherance of it, to, and impact on, if any, our Canadian operations is not clear.
Furthermore, the Province of Ontario implemented SO2 regulations which target industrial emissions from refineries aimed at reducing acid rain precursors and improving local air quality. The regulations impose emission limits and monitoring obligations on petroleum facilities, such as our Mississauga facility, requiring them to install Continuous Emission Monitoring Systems and report certain incidents.
The Netherlands also participates in European legal initiatives, including GHG cap and trade programs. The Netherlands Climate Act, adopted in 2019 and updated in 2023, establishes the goal of reducing GHG emissions by 55% (compared to 1990) by 2030 and to be climate neutral by 2050. The Climate Act also establishes that the government must prepare a Climate Plan at least once every five years, covering a ten-year period. This plan contains, among others, the principles by which the Dutch government intends to achieve the goals set out in the Climate Act. The current Climate Plan of the Dutch government addresses the strategy for climate neutrality by 2050 for the period from 2025-2035.
The United Nations-sponsored “Paris Agreement” requires member nations to limit their GHG emissions through nationally-determined reduction goals reevaluated every five years after 2020. While previously a party to the Paris Agreement, the President announced the United States’ intent to re-withdrawal from the Paris Agreement, with the withdrawal expected to take effect in 2026. In January 2026, the President further announced that the United States would withdraw from the UNFCCC, a process that could take over a year. European Union (“EU”) member states have agreed to reduce GHG emissions by at least 55% reduction by 2030. They have also agreed to be climate neutral and climate sustainable by 2050 (net zero). On June 13, 2024, the EU Regulation on Methane Emissions Reduction was adopted by the EU and became effective on August 4, 2024. This regulation aims to stop the avoidable release of methane into the atmosphere, both in the EU and in global supply chains, and to minimize leaks of methane by fossil energy companies operating in the EU. The regulation applies to the production of crude oil, natural gas and coal. These sectors must now report their methane emissions to a regulator and take measures to minimize methane emissions during their operations. Notwithstanding the U.S.’s withdrawal from the Paris Agreement and UNFCCC, various state and local governments remain committed to the Paris Agreement and UNFCCC and, while these agreements and commitments are non-binding, they could result in increased pressure among financial institutions and various stakeholders to reduce or otherwise impose more stringent limitations on funding for and increased potential opposition to the energy sector and the industry in which we operate.
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The adoption of legislation or regulatory programs to reduce emissions of GHGs could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems and electricity, to acquire emissions allowances or comply with new regulatory or reporting and disclosure requirements or otherwise result in decreased demand for the petroleum products we refine and produce. In addition, several states have also taken steps to incentivize the production of electric vehicles or otherwise limit the sale of gasoline or diesel-powered vehicles. These and any future legislation or regulatory programs could increase the cost of consuming or otherwise reduce demand for, the refined petroleum products that we produce and transport. In July 2025, the United States enacted the OBBBA that may impact our Renewables segment as it largely curtailed the electric vehicle, clean energy and green energy manufacturing programs established under the Bipartisan Infrastructure Law and the IRA 2022. Additionally, political, litigation and financial risks may result in curtailed refinery activity, increased liability, or other adverse effects on our business, financial condition and results of operations.
There are also increasing risks of litigation related to climate change effects. Governments and third-parties have brought suit against some fossil fuel companies alleging, among other things, that such companies created public and private nuisances by producing fuels that contributed to climate change, such as rising sea levels, and therefore are responsible for resulting roadway and infrastructure damages, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. While the United States government has intervened in a number of these cases seeking their dismissal on federal preemption and national security grounds, we cannot predict how these cases may ultimately be decided. Separately, in the Netherlands, The Hague District Court has ordered Royal Dutch Shell (“RDS”) to reduce the CO2 emissions of the RDS group by net 45% by 2030, compared to 2019 levels, through the RDS group’s corporate policy. On November 12, 2024, the Court of Appeal of The Hague ruled that RDS has indeed a duty of care to reduce its GHG emissions. Despite this duty of care, the court ruled that it could not impose the specific reduction on RDS. These matters increase the risk that similar climate-related litigation will be brought against other corporate entities. In Canada, in March 2023, Greenpeace filed a complaint with the Competition Bureau of Canada alleging that Pathways Alliance, a coalition of six of Canada’s largest oil sand producers, made false and misleading claims that they are actively reducing emissions and helping Canada achieve its climate targets. Although the Competition Bureau has not yet made a determination, the remedies being sought include a fine in the amount of the greater of CAN 10 million or 3% of worldwide gross revenues. In October 2024, the Ontario Court of Appeal ruled in Mathur v. Ontario that the Ontario government by passing legislation that set emissions reduction targets was required to do so in way that did not jeopardize the plaintiffs’ rights to Life, Liberty and Security of the Person or Equality under the Canadian Charter of Rights and Freedoms. The case was remitted back to the trial court for a determination of the constitutionality of the legislation based on this ruling. While we are not party to any climate change suits at this time, we may become subject to or impacted by similar litigation in the future. Such cases could also adversely impact public perception and the demand for fossil fuels and petroleum products, or result in additional regulatory requirements, which could subsequently result in decreased demand for our services and refined products and a drop in our stock price.
In addition, evolving and sometimes conflicting societal expectations, as well as expectations among stakeholder groups such as investors, proxy advisors and other standard-setters, for companies to address environmental issues, including climate change, and increased consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our products and our services, reduced profits, increased investigations and litigation, and negative impacts on our stock price and costs of and access to capital markets. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed on us without regard to our causation of or contribution to the asserted damage, or to other mitigating factors.
Furthermore, our stock price could be adversely impacted if existing stockholders, including institutional investors, elect in the future to shift some or all of their investments into renewable energy or non-energy related sectors. Additionally, there is the possibility that financial institutions may be pressured or required to adopt policies that limit funding for fossil fuel energy companies. Moreover, institutional lenders have been lobbied intensively, and often publicly, by environmental activists, advocates of international climate change treaties and agreements, proponents of the international Paris Agreement, and citizen groups concerned about climate change not to provide funding for fossil fuel energy companies. Accordingly, limitation of investments in and financings for fossil fuel energy companies or subsidies or other governmental support for competitive technologies or industries could result in the direct or indirect restriction, delay or cancellation of drilling programs or development or production activities, could result in a reduction of available capital funding for potential development projects and could also adversely affect demand for our services and refined petroleum products, all of which could adversely impact our future financial results.
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Evolving attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities.
Certain members of the investment community have become more attentive to ESG and sustainability-related practices, and the community as a whole has been lobbied intensively, and often publicly, by environmental activists concerned about climate change to limit or curtail activities with fossil fuel energy companies. Certain investors, funds, financial institutions and other capital markets participants may screen companies such as ours for ESG performance based on various factors such as ESG ratings or proxy advisor recommendations, before investing in our common stock or debt securities, or lending to us, or have imposed restrictions on or otherwise limited lending to, investing in, or providing insurance coverage for, companies that operate in industries with higher perceived environmental exposure, such as the energy industry. Furthermore, there has recently been backlash from certain governments and investors against ESG funds and investment practices, which has resulted in increased scrutiny and withdrawals from such funds. Such backlash has also resulted in “anti-ESG” focused activism and investment funds as well as social media and public relations campaigns. If we are unable to meet the often conflicting ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may face increased ESG or anti-ESG-focused activism, our cost of capital or insurance may increase, our common stock or debt securities may be adversely impacted, demand for our services and refined petroleum products may decline, and our reputation may be adversely affected, all of which could adversely affect our future financial results.
In recent years, members of the investment community and related parties have increased their focus on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, and net-zero ambitions in the energy industry in particular, as well as diversity, equity, and inclusion initiatives, political activities, and governance standards among companies more generally. Furthermore, certain public statements with respect to ESG matters, such as emissions reduction goals or progress, other environmental targets or other commitments addressing certain social issues, are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. Certain regulators, such as the SEC and various state agencies, as well as non-governmental organizations and other private actors, have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-related emission reduction claims, approaches to accounting for GHG emissions reductions, or other ESG and sustainability-related goals or standards were misleading, false, or otherwise deceptive. Any alleged claims of greenwashing against us or others in our industry may lead to further negative sentiment and diversion of investments. As a result, we may face increasing pressure or negative publicity regarding our ESG practices and disclosures and demands for ESG-focused engagement from investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on our resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders.
Certain investors, stakeholders and other interested parties have in the past focused on issues related to environmental justice, despite shifting sentiment toward environmental justice at the federal level. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, adversely affect our reputation and financial performance, and impact our ability to attract and retain employees.
Certain undertakings that are incorporated in the EU (including EU-incorporated subsidiaries of non-EU incorporated parent entities) may be subject to ESG reporting requirements under the EU’s CSRD, which requires in-scope companies to report extensive audited sustainability information, including disclosing risks and opportunities arising from environmental and social matters, and the impact of their business on people and the environment. The compliance requirements under the CSRD are currently in flux with the recent proposal package by the European Commission to simplify, delay or change certain aspects of the CSRD (the “Omnibus Package I”). While the status of the Omnibus Package I and the implications on the CSRD are not yet certain, it is possible that we, or a portion of our business, may be required to report under this regime in future years. Additionally, similar laws and regulations, such as the CCDAA and the CRFRA in California, could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under these laws may be perceived or interpreted by our customers and stakeholders.
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Additionally, certain employment practices and social initiatives are the subject of scrutiny by both those calling for the continued advancement of such policies, as well as those who believe they should be curbed, including government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. We cannot be certain of the impact of such regulatory, legal and other developments on our business. More recent political developments could mean that we face increasing criticism or litigation risks from certain “anti-ESG” parties, including various governmental agencies. Such sentiment may focus on our Renewables segment, environmental commitments or our pursuit of certain employment practices or social initiatives that are alleged to be political or polarizing in nature or are alleged to violate laws based, in part, on changing priorities of, or interpretations by, federal agencies or state governments. Consideration of ESG-related factors in our decision making could be subject to increasing scrutiny and objection from such anti-ESG parties. As a result, we may face increased litigation risks from private parties and governmental authorities related to our efforts.
Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations.
As described in Items 1 and 2, “Business and Properties – Additional Operations and Other Information – Governmental Regulation,” many international, federal, state, provincial and local governments have issued, or are considering issuing, low-carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS 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 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 RFS regulations. Since the EPA first began mandating biofuels in excess of the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has been extremely volatile. 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 RFS regulations 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 RFS mandates, our financial condition and results of operations could be adversely affected.
In the past, we have received small refinery exemptions under the RFS program for certain of our refineries. However, there is no assurance that such an exemption will be obtained for any of our refineries in future years. For example, in 2022, the EPA denied all pending small refinery exemption petitions on the belief that small refineries are able to pass through compliance costs to customers. This decision was challenged and, in August 2024, nearly all of the waiver denials were vacated by the DC Circuit. In August 2025, the EPA announced decisions on 175 small refinery exemption petitions, including granting 63 full exemptions and 77 partial exemptions. Additionally, on November 7, 2025, the EPA announced its decisions on 16 small refinery exemption petitions, including granting 2 full exemptions and 12 partial exemptions. We were granted a number of small refinery exemption petitions, in full or in part, for each decision period by the EPA in August and November 2025. Although the EPA’s August and November 2025 decisions provided an updated framework for evaluation of future small refinery exemption petitions, which may ultimately include reallocating waived volumes to other obligated parties, the EPA’s decisions were challenged by parties in the renewable fuel industry and the refining industry and this litigation is ongoing. We cannot predict the extent to which these challenges may impact the EPA’s timeliness in responding to future small refinery exemption petitions. Moreover, even if the new approach survives these legal challenges, we cannot guarantee that we will continue to receive full or partial exemptions, or that Congress will not enact changes to the RFS program that removes eligibility for small refinery exemptions for our small refineries, which could result in increased costs and adversely impact future results of operations and our business strategy.
In addition, the RFS regulations are highly complex and evolving, requiring us to periodically update our compliance systems. In June 2025, the EPA proposed volume requirements for 2026 and 2027 that continue to build on the increasing volume requirements established in July 2023. Higher blending percentages may increase the cost of compliance because the future cost of RINs is difficult to estimate. In addition to increased price volatility in the RINs market, there have been multiple instances of RINs fraud in the marketplace. The EPA has initiated several enforcement actions against refiners who purchase fraudulent RINs, resulting in substantial costs to the refiner. We cannot predict our exposure to increased RINs costs in the future, nor can we predict the extent by which costs associated with RFS regulations will impact our future results of operations.
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We strategically market our low-carbon fuels based on regional policies, feedstock preferences, CI scores, and our ability to obtain fuel pathways. A significant portion of our low-carbon fuels are sold in California and Canada. We are exposed to the volatility in the market price of LCFS program credits. We cannot predict the future prices of LCFS program credits. Prices for LCFS program credits are dependent upon a variety of factors, including, as applicable, changes in regulations, the availability of LCFS program credits for purchase, transportation fuel production levels, which can vary significantly each quarter, approved CI pathways, and CI scores. If an insufficient number of LCFS program credits are available for purchase, if we have to pay significantly higher prices for them, or if we are otherwise unable to meet other obligations under the LCFS programs, our business, financial condition, results of operations, and liquidity could be adversely affected.
In addition to state LCFS (e.g., California LCFS, New Mexico CTFS, Oregon CFP and Washington CFS), and certain carbon cap and trade programs (e.g., Washington CCA and Oregon CPP), we do business in multiple jurisdictions that have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. The LCFS, carbon cap and trade programs and similar U.S. state and international low-carbon fuel regulations, policies, and standards are extremely complex, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls to maintain compliance, which could require significant expenditures, and presents an increased risk of administrative error. Our Refining segment could be materially and adversely affected if (i) we are unable to comply with these programs in the states where we sell our petroleum products or we incur a significant cost to comply or (ii) we are unable to continue to sell our products in markets where we currently sell our products. While these regulations, policies and standards may materially and adversely impact our Refining segment, they do create opportunity for our Renewables segment. As a result, our Renewables segment could be materially and adversely affected if (i) these regulations, policies, and standards are adversely changed, not enforced, or discontinued, (ii) the benefits therefrom (such as the blender’s tax credit and other incentives) are reduced, (iii) any of the products we produce are deemed not to qualify for compliance therewith, or (iv) we are unable to satisfy or maintain any approved pathways. Such changes could also negatively impact the economic assumptions and projections with respect to many of our Renewables segment investments and could have a material adverse impact on the returns achieved from those investments.
Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels.
The EPA and the National Highway Traffic Safety Administration (“NHTSA”) are required to promulgate requirements regarding the Corporate Average Fuel Economy (“CAFE”) of the nation’s passenger fleet. The EPA and NHTSA previously adopted such standards, which were most recently revised in 2024 to impose more stringent requirements for emissions reductions, although the newly revised standards are currently subject to litigation in the U.S. Circuit Court for the Sixth Circuit. The final rule was challenged by 26 states, various agricultural associations, oil and gas and automotive industry groups and was also challenged by a variety of parties seeking even stricter GHG and CAFE standards to increase fuel economy. Litigation challenging this rule was held in abeyance in February 2025 after the DOT announced NHTSA would review and reconsider all existing fuel economy standards applicable to motor vehicles produced from 2022 forward, including the CAFE standards. To guide the agency’s rulemaking process for such replacement standards, NHTSA issued an interpretative rule that sets forth the agency’s interpretation of the factors the agency is prohibited by law from considering when setting maximum feasible fuel economy standards. In December 2025, DOT issued a proposed rule to reduce the stringency of the standards for light-duty vehicles through model year 2031 and to exclude electric vehicles from compliance calculations. Additionally, in July 2025, the EPA proposed to repeal the 2009 GHG Endangerment Finding, which determined that GHG emissions endanger public health and welfare, a move that—if finalized—would remove the legal foundation and effectively repeal GHG emissions standards for motor vehicles and engines under the CAA. Furthermore, California adopted Advanced Clean Cars I and Advanced Clean Cars II (“ACC II”) in 2012 and 2022, respectively, which are intended to scale down the use of internal combustion engines and instead require an increased number of zero emission vehicles. ACC II mandates that, by 2035, all new passenger cars, trucks and SUVs sold in California will be zero emission vehicles. Although states besides California are not permitted to develop their own emissions standards, Section 177 of the Clean Air Act authorizes other states to choose to adopt California’s standards in lieu of federal requirements. In June 2025, however, the President signed three congressional resolutions that, among other things, prevent states from adopting California’s ACC II motor vehicle standards, including the 2035 zero-emission mandate. These congressional resolutions were challenged by California and ten other states and the outcome of such litigation is uncertain. Although the future of California’s fuel economy standards are uncertain, any further increases in fuel economy standards, along with mandated increases in use of renewable fuels discussed above, as well as electric vehicle mandates or internal combustion engine bans, could result in decreasing demand for petroleum-based transportation fuels. Decreasing demand for petroleum-based transportation fuels could have a material adverse effect on our financial condition and results of operations.
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State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation and financial results.
In recent years, high gasoline prices have raised questions about the operation of petroleum product markets and company profits. As a result, we may become subject to state regulation of petroleum product markets and reporting requirements relating to the petroleum industry. For example, California enacted legislation (SB 1322 and SBx 1-2) that greatly expanded reporting requirements for the petroleum industry and authorized the California Energy Commission to establish a maximum gross gasoline refining margin, impose financial penalties for profits exceeding the established maximum margin, and regulate refinery turnaround and maintenance activities that may affect fuel supply and pricing. Although we are not subject to these California statutes, other states could adopt similar regulations or reporting requirements. For example, in 2024, the Washington legislature introduced HB 2232, which, although it was not ultimately adopted, proposed to establish extensive petroleum industry reporting requirements (including the reporting of supply, pricing and profit information) and create a new division within the Washington Utilities and Transportation Commission charged with providing independent oversight and analysis of petroleum fuel markets. If HB 2232 or similar legislation is enacted, it could result in increased compliance costs and affect our results of operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under such laws may be perceived or interpreted by our customers and stakeholders.
Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations.
Scientists have noted that changes occurring in the environment may produce changes to the climate, which have significant effects on the weather. These events, including, but not limited to, drought, winter storms, wildfires, tornados, extreme temperatures, extreme precipitation or flooding, may be more intense or more frequent as a result of climate change and could have an adverse effect on our continued operations as well as the operations of our suppliers and customers. Additionally, changing meteorological conditions, particularly temperature, may result in changes to demand for our products. Our suppliers or customers may also be subject to similar risks, any of which may adversely impact our business, financial condition or operations.
Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows.
We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. In addition, many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to interest and penalties. New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely impact our financial condition, results of operations and cash flows.
Additionally, U.S. federal tax law provides various tax credits to producers of qualifying renewable fuels. These tax credits have the effect of making the production of qualifying renewable fuels more competitive by offsetting a portion of the production costs or by supplementing a portion of the revenue, but may be repealed by governmental action at any time. Alternatively, the types of renewable fuels to which these tax credits apply, as well as the applicable value, duration, and requirements, may be modified or amended by governmental action in a form where the types of fuel mixtures we produce are not eligible for the tax credits or are eligible for relatively less benefits than we anticipated, or that such credits may be phased out. As a result, a loss of, reduction in, or phased out of U.S. federal tax credits for producers of qualifying renewable fuels could increase our production costs or decrease our revenues which, in turn, could adversely impact the financial condition, results of operations and cash flows of our renewables business.
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RISKS RELATED TO CYBERSECURITY, DATA SECURITY AND PRIVACY, INFORMATION TECHNOLOGY AND INTELLECTUAL PROPERTY
Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security, any of which could prevent us or third parties we rely on from effectively operating our business, and could harm our reputation or materially adversely affect our company’s assets, growth efforts, operations, facilities, business reputation or financial condition.
Our business is dependent upon increasingly complex information and operational technology systems and other digital technologies for controlling our plants and pipelines, processing transactions and summarizing and reporting results of operations. The secure collection, processing, maintenance, storage and transmission of information is critical to our operations. We are at risk for interruptions, outages and breaches of information technology or operational systems, owned by us or our third-party vendors or suppliers; or third-party data that we process or our third-party partners process on our behalf. Such cyber incidents could materially disrupt or shutdown operational systems; result in loss of, unauthorized access to, or copying or transfer of intellectual property assets, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; and jeopardize the security of our facilities. We and vendors on our behalf monitor our information and operational technology systems on a continuous basis in an effort to detect cyberattacks, security breaches or unauthorized access. Preventative and detective measures we utilize include independent cybersecurity audits and penetration tests. We have implemented these efforts along with other risk mitigation procedures designed to detect and address unauthorized and damaging activity on our network, stay abreast of the increasing cybersecurity threat landscape and improve our cybersecurity posture, but there is no guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents. We also have limited ability to force third parties, including our partners, suppliers and service providers (including providers of cloud-hosting services for our data or applications), to implement strong cybersecurity controls and are exposed to potential harm from cybersecurity events that may affect their operations. Any implementation, maintenance, segregation and improvement of our systems may require significant management time, support and cost and may not be effective or adequate. These efforts may come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings, and such increased costs and diversion of resources may adversely affect operating margins.
A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception that are generally beyond our control despite our implementation of protective measures. Emerging artificial intelligence (“AI”) technologies may improve or expand the capabilities of malicious third parties in a way we cannot predict at this time, including being used to develop new hacking tools, exploit vulnerabilities, use phishing to trick employees into making payments or granting access to internal systems, obscure malicious activities, and increase the difficulty of detecting threats. Our service providers and vendors are also increasingly using and offering platforms powered by AI. While we advise our employees and contractors to refrain from providing confidential or sensitive information to any AI models or AI-powered platforms and endeavor to limit our vendors’ processing of any confidential or sensitive information in an AI model, we cannot predict how an AI model will process our data or if it will inadvertently provide our data to a third-party in its outputs. Any input of our confidential or sensitive data into an AI model could result in inadvertent disclosure of this data at any time to an unknown third-party, which could subject us to litigation or regulatory actions or cause us to breach our contractual obligations. Strategic targets, such as energy-related assets, may be at greater risk of future attacks from hackers, nation-sponsored groups or other nefarious actors than other targets in the United States, especially during times of war with nations with a history of funding cyberattacks. While there have been immaterial incidents of unauthorized access to our information and operational technology systems, as of the date of this Annual Report on Form 10-K, we have not experienced any material impact on our business or operations from these attacks; however, there is no assurance that other such incidents have not already occurred and we are unaware of them, and that we will not suffer such a loss in the future. In addition, information technology system failures, communications network disruptions, and security breaches could still impact equipment and software used to control plants and pipelines, resulting in improper operation of our assets or delays in the delivery or availability of our customers’ products, contamination or degradation of the products we transport, store or distribute, or releases of hydrocarbon products and other damage to our facilities for which we could be held liable. Information and operational technology system failures, communications network disruptions, and security breaches could also cause us to breach our contractual arrangements with other parties, subject us to regulatory actions or litigation and harm our brand and business relationships as well as our financial condition.
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Furthermore, we collect and store sensitive data in the ordinary course of our business, including personally identifiable information of our employees as well as our proprietary business information and that of our customers, suppliers, contractors, investors and other stakeholders. Additionally, new laws and regulations governing cybersecurity, data privacy and unauthorized disclosure of confidential information, including international comprehensive data privacy regulations and recent U.S. state legislation in Iowa and Utah, among others, pose increasingly complex compliance challenges and could potentially elevate our costs over time. Our efforts to improve security and protect data may result in increased distraction to management and capital and operating costs to modify, upgrade or enhance our security measures that are designed to protect against such cyberattacks and we may face difficulties in fully anticipating or implementing adequate security measures or mitigating potential harm. Moreover, as technologies evolve and cyberattacks become increasingly sophisticated, we may not be able to anticipate, detect or prevent cyberattacks or security breaches, particularly because the methodologies used by attackers change frequently or may not be recognized until after such attack is launched, and because attackers are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection. We cannot ensure that our insurance coverage will be sufficient to cover all the losses or expenses we may experience as a result of such cyberattacks. Even with insurance coverage for cyberattacks, data breaches or unauthorized access of our or a third-party partner’s information technology systems, a claim could be denied or coverage delayed. Moreover, it is increasingly difficult to buy sufficient cyber insurance coverage as the insurance market has been limiting both liability under cyber policies and the issuance of such policies, generally. A cyberattack or security breach could result in liability under data privacy or securities laws, regulatory penalties, damage to our reputation or a loss of confidence in our products and services, or additional costs for remediation and modification or enhancement of our information and operational systems to prevent future occurrences, all of which could have a material and adverse effect on our business, financial condition or results of operations.
We may be subject to information and operational technology system failures, communications network disruptions and data breaches that are generally beyond our control.
We depend on the efficient and uninterrupted operation of third-party hardware and software systems and infrastructure, including our operating systems, communications systems and financial reporting systems. These systems are critical in meeting customer expectations, effectively tracking, maintaining and operating our equipment, directing and compensating our employees, and interfacing with our financial reporting system. We have implemented safeguards and other preventative measures designed to protect our systems and confidential and proprietary data, including sophisticated network security and internal control measures. However, our information and operational technology systems and communications network, and those of our information and operational technology and communication service providers, remain vulnerable to interruption by natural disasters, power loss, telecommunications failure, terrorist attacks, internet failures, computer malware, ransomware, cyberattacks, data breaches, unsuccessful transition to upgraded or replacement systems and other events unforeseen or generally beyond our control. The increase in companies and individuals working remotely has increased the risk of cyberattacks and potential cybersecurity incidents, both deliberate attacks and unintentional events. Any of these events could cause system interruptions, delays and loss of critical data, and could prevent us from developing or manufacturing products or providing services on a timely basis, which could make our business and services less attractive and subject us to liability. Any of these events could damage our reputation and be expensive to remedy.
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Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection (“data protection obligations”). Many of these data protection obligations are subject to change and uncertain interpretation, and any real or perceived failure to comply with such obligations could result in claims, increased costs of operations, or other harm to our business.
The constantly evolving global regulatory and legislative environment surrounding data privacy and protection poses increasingly complex compliance challenges, and complying with such data protection obligations could increase the costs and complexity of compliance and enforcement risks. These laws also are not uniform, as certain laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information, and such laws may differ from each other, which may complicate compliance efforts. Our data protection obligations may also change as the regulatory environment governing use and development of AI technologies changes. We, and our third-party service providers, collect some personal information from consumers, including credit card data, and we have personal information from our employees, job applicants and some business partners, such as customers, contractors and distributors. Any failure, whether real or perceived, by us to comply with applicable data protection obligations could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. Our compliance with current laws such as the General Data Protection Regulation and other similar current and upcoming data privacy/security laws, as well as any associated inquiries or investigations or any other government actions related to these laws, may increase our operating costs or subject us to legal and reputational risks, including significant fines, civil or criminal penalties or judgments, proceedings or litigation by governmental agencies or customers, class action privacy litigation in certain jurisdictions and negative publicity.
Our pipeline operations are subject to the Department of Homeland Security’s (“DHS”) Transportation Security Administration security directives. These directives require us to comply with mandatory reporting measures, including, among other things, to appoint personnel, report confirmed and potential cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security Agency (“CISA”) and provide vulnerability assessments. As legislation continues to develop and cyber incidents continue to evolve, we may be required to expend significant additional resources to respond to cyberattacks, to continue to modify or enhance our protective measures, or to detect, assess, investigate and remediate any security vulnerabilities and report any cyber incidents to the applicable regulatory authorities. Any failure to maintain compliance with these evolving government regulations may result in enforcement actions which may then result in significant time, support and cost and have a material adverse effect on our business and operations.
We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market.
We develop and use intellectual property in the ordinary course of our business, including trademarks, trade secrets, copyrighted works and innovations, some of which are material to our business. We take measures designed to identify and protect our intellectual property through practices appropriate for securing and protecting exclusive rights in and to our intellectual property, including applying for registrations in the United States and in various foreign jurisdictions. Despite our efforts to protect such intellectual property, unauthorized third parties from time to time have, and may continue to, illegally obtain, copy, use or disclose our trademarks (or other marks likely to cause confusion among our consumers), technologies, products and processes or seek court declarations that they do not infringe, misappropriate, dilute, or otherwise violate our intellectual property. In addition, the laws and/or judicial systems and enforcement mechanisms of foreign jurisdictions in which we create, market and sell our products may afford little or no effective protection of our intellectual property. We may also be subject to infringement, misappropriation, dilution, or other violation complaints from others challenging our use of a valid technology or intellectual property right. We cannot guarantee that our efforts to enforce our intellectual property rights against unauthorized use and appropriation, or our efforts to defend against third-party claims of infringement would be successful. These potential risks to our intellectual property and any failure to adequately maintain, enforce and protect our intellectual property could subject us to increased competition and potentially result in the loss of our competitive advantage, key technology and resources, and customer trust, and negatively impact our brand. These risks could also lead to a decrease in our revenue which would negatively impact our business, prospects, liquidity, financial position and results of operations.
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If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business.
We obtain rights and licenses to certain intellectual property, including technologies, data, content and software from third parties, that are important to our business, and in the future we may enter into additional agreements that provide us with rights or licenses to valuable intellectual property or technology. If a licensor alleges that we failed to comply with any of the obligations under our license agreements, we may be required to pay damages, enter costly litigation, and the licensor may have the right to terminate some or all of the license. Termination by the licensor would cause us to lose valuable rights that may be difficult to acquire elsewhere, and could prevent us from using, selling, marketing, manufacturing, importing or producing our products and services, or inhibit our ability to commercialize future products and services. Our business could suffer if any current or future licenses are limited or terminated, if the licensors fail to abide by the terms of the license, if the licensed intellectual property rights are found to be invalid or unenforceable, if the licensed technology is found to infringe, misappropriate, dilute, or otherwise violate the rights of a third-party, or if we are unable to enter into necessary licenses on acceptable terms or at all. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating, diluting, or otherwise violating the licensor’s or another party’s rights.
In the future, we may identify additional third-party intellectual property that we believe is useful or necessary to engage in our business. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial license fees or royalties based on sales of our products and services. Such fees and royalties are a component of the cost of our products and services and may affect the attractiveness of and the margins on our products and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us, and sometimes at a cheaper cost. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and on our ability to prevent others from interfering with our goodwill or the commercialization of our products and services.
RISKS RELATED TO LIQUIDITY, FINANCIAL INSTRUMENTS AND CREDIT
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 and could adversely affect our profitability and cash flow.
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We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs.
The domestic and global financial markets and economic conditions are subject to disruption and volatility from time to time due to a variety of factors, including low consumer confidence, high unemployment, geoeconomic and geopolitical issues, weak economic conditions and uncertainty in the financial services sector. In addition, the fixed-income markets have experienced periods of extreme volatility, which has negatively impacted market liquidity conditions. As a result, the cost of raising money in the debt and equity capital markets has increased substantially at times while the availability of funds from these markets diminished significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency of lending counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms or at all and reduce, or in some cases cease to provide, funding to borrowers. We use both fixed and variable rate debt, and we are exposed to market risk due to the floating interest rates on our credit facilities. In addition, lending counterparties under any existing revolving credit facility and other debt instruments may be unwilling or unable to meet their funding obligations, or we may experience a decrease in our capacity to issue debt or obtain commercial credit or a deterioration in our credit profile, including a rating agency lowering or withdrawing our credit ratings if, in its judgment, the circumstances warrant. Due to these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be required to sell assets. Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions or construction projects, take advantage of other business opportunities or respond to competitive pressures, comply with regulatory requirements, or meet our short-term or long-term working capital requirements, any of which could have a material adverse effect on our revenues and results of operations. Failure to comply with regulatory requirements in a timely manner or meet our short-term or long-term working capital requirements could subject us to regulatory action.
We are exposed to the credit risks and certain other risks of our key customers and vendors.
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We derive a significant portion of our revenues from contracts with key customers. Additionally, certain key customers of our Puget Sound Refinery contribute significantly to the cash flows and profitability of that facility. Any default or delay in payment by, or disputes with, those customers, which have occurred in the past and may occur in the future, could have an adverse impact on our financial results.
Any such default or delay in payment by our customers could negatively affect our operating results in the periods in which they occur, and, if significant, could materially or adversely affect our business, financial condition, results of operations, and cash flows. In addition, nonperformance by vendors who have committed to provide us with products or services could result in higher costs or interfere with our ability to successfully conduct our business.
Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities.
The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our revolving credit facility imposes usual and customary requirements for this type of credit facility, including certain limitations on: (i) liens and indebtedness, (ii) changes in control, and (iii) engaging in mergers and consolidations. If we fail to satisfy the covenants set forth in our credit facility or another event of default occurs under our credit facility, the maturity of the loans could be accelerated or we could be prohibited from borrowing for our future working capital needs and issuing letters of credit. We might not have, or be able to obtain, sufficient funds to make these immediate payments. If we desire to undertake a transaction that is prohibited by the covenants in our credit facility we will need to obtain consent under our credit facility. Such consent may not be possible or may not be available on commercially acceptable terms.
Our leverage may adversely affect our ability to fund future working capital, capital expenditures and other corporate purposes, future acquisitions, construction or development activities, or to otherwise realize fully the value of our assets and opportunities because of the need to dedicate a significant portion of our cash flow from operations to payments on our indebtedness or to comply with any restrictive terms of our indebtedness. Our leverage also may make our results of operations more susceptible to adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and may place us at a competitive disadvantage as compared to our competitors that have less debt.
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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 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.
We may be unable to pay future 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 dividends on our common stock is evaluated quarterly and 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 or amounts of such payments.
