CORRAL PETROLEUM HOLDINGS AB (PUBL) - Preem

through environmentally sensitive areas. An oil spill from a tanker in such areas would have an adverse impact on theenvironment, and could impact our reputation and our business. In our industry, there is an ever-present risk ofaccidental discharges of hazardous materials and of the assertion of claims by third parties (including governmentalauthorities) against us for violation of applicable law and/or damages arising out of any past or future contamination. Forinstance, we must carry out a number of measures to reduce the emissions from Preemraff Gothenburg by 2016, whichover the course of the next two years is expected to cost approximately SEK 25 million (€2.8 million). In addition, thereare plans to build a motorway near the Sundsvall harbor where we have non-operational storage chambers. If the plansmove forward, we may be required to fund a portion of the costs associated with the remediation of the area.Environmental regulators may become aware of and, in some cases, investigate the existence of soil and groundwatercontamination at our refineries, at some of our depot sites and at some sites where we previously had operations, whichcould lead to legal proceedings being initiated against us.Should there be any successful claim against us, we may have to pay substantial amounts in fees and penalties,for remediation, or as compensation to third parties, in each case, in respect of past or future operations, acquisitions ordisposals. Any amounts paid in fees and penalties, for remediation, or as compensation to third parties would reduce, andcould eliminate, the funds available for paying interest or principal on the Senior Secured Notes and for financing ournormal operations and planned development.We may be liable for environmental damage caused by previous owners of operations or properties that we haveacquired, use or have used. We may be liable for decontamination and other remedial costs at, and in the vicinity of,most of the sites we operate or own and that we (and companies with which we have merged) have operated or owned,including following the closure or sale of, or expiration of leases for, such sites. We may be liable for decontaminationand other remedial costs as a result of contamination caused in connection with the transportation and distribution of ourproducts. In some instances, such as the closure of a number of our depots, we are currently unable to accuratelyestimate the costs of necessary remediation and may face significant unexpected costs, which could materially adverselyaffect our financial condition, results of operations and cash flows.Certain of our indebtedness bear interest at floating rates that could rise significantly, increasing our interest cost anddebt and reducing our cash flow.Borrowings under the 2008 Credit Facility bear interest at per annum rates equal to EURIBOR, LIBOR orSTIBOR, adjusted periodically, (or in the case of short-term loans with a term of less than one week, at a base ratedetermined by reference to the factoring bank’s cost of funds) plus a spread and mandatory costs. These interest ratescould rise significantly in the future, increasing Preem’s interest expense associated with these obligations and thus ourdebt, reducing cash flow available for capital expenditures and hindering our ability to make payments on the SeniorSecured Notes.We are exposed to currency and commodity price fluctuations, which could adversely affect our financial results,liquidity and ability to pay interest and principal due on the Senior Secured Notes.Our crude oil purchases are primarily denominated in dollars. Our revenues are primarily denominated indollars and kronor. We publish our financial statements in kronor. As of December 31, 2010, our krona-denominatedindebtedness totaled SEK 14,630 million (€1,625 million), our dollar-denominated indebtedness totaled $637 million(including approximately $305 million of Senior Secured Dollar Notes and Subordinated Dollar Notes) and our eurodenominatedindebtedness totaled €320 million (consisting of the Senior Secured Euro Notes and Subordinated EuroNotes).As a result, fluctuations of these currencies against each other or against other currencies in which we dobusiness or have indebtedness could have a material adverse effect on our business and financial results. We estimatethat a 10% change in the U.S. dollar to kronor exchange rate would result in a corresponding change in our EBITDA ofSEK 400 million. From time to time, we use forward exchange contracts and, to a lesser extent, currency swaps tomanage our foreign currency risk. We engage in hedging activities from time to time that could expose us to lossesshould markets move against our hedged position. Present or future management of foreign exchange risk may not beadequate and exchange rate fluctuations may have a material adverse effect on our business, financial condition andresults of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Results of Operations—Fluctuations in Foreign Currency Exchange Rates.”Changes in the price of commodities, such as crude oil, can affect our cost of goods sold and the price of ourrefined products. Commodity price changes can also trigger a price effect on inventory, which can affect our revenues,gross profit and operating income. We enter into commodity derivative contracts from time to time to manage our priceexposure for our inventory positions and our purchases of crude oil in the refining process, and to fix margins on certainfuture production. On occasion, we also enter into certain derivative contracts that are classified as “speculative”transactions.To the extent these derivative contracts protect us against fluctuations in oil prices, they do so only for a limitedperiod of time. Derivative contracts can also result in a reduction in possible revenue if the contract price is less than the6