CORRAL PETROLEUM HOLDINGS AB (PUBL) - Preem

equity according to its adopted balance sheet in its latest annual report; provided, however, that any distribution of equitymay not be made in any amount which, considering the requirements on the size of its equity in view of the nature, scopeand risks of the business as well as the financing needs of Preem or the group, including the need for consolidation,liquidity or financial position of Preem and the group, would not be defendable.As a result of the above, our ability to service cash interest payments or other cash needs is considerablyrestricted. Currently, Preem is not permitted to declare a dividend or make any payment to us, and it is unlikely that thissituation will change significantly. If equity contributions from our parent company, Moroncha Holdings, or itsshareholder, are not forthcoming, and Preem is unable to pay dividends or otherwise transfer funds to us, then we will beunable to pay interest on the Senior Secured Notes in cash and will be required to pay interest in the form of AdditionalNotes.Our ability to generate cash depends on many factors beyond our control and, if we do not have enough cash to satisfyour obligations, we may be required to refinance all or part of our existing debt.Our ability to meet our expenses and service our debt, including the payment of principal and interest on theSenior Secured Notes in cash, depends particularly on equity contributions from our parent company, MoronchaHoldings, or its shareholder. We have no control over the timing or amounts of equity contributions from our parentcompany, Moroncha Holdings, or its shareholder, and there is no guarantee Moroncha Holdings, or its shareholder, willdecide to make additional investments of equity at any time. In addition, Preem, our principal operating subsidiary, isaffected by financial, business, economic and other factors, many of which we are not able to control. As describedabove, under the 2008 Credit Facility, Preem is prohibited from making dividends or other payments to us. Moreover,the money generated from our subsidiaries’ operations may not be sufficient to allow Preem to make dividends or otherpayments to us, if so permitted in the future. In addition, tax and other considerations may effectively limit or restrictany future ability to receive dividends from Preem. If we do not receive sufficient equity contributions, if Preemcontinues to be unable to transfer funds to us, including through dividends, or if we otherwise do not have enoughmoney, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. If such ascenario were to occur, we may not be able to refinance our debt, sell assets or borrow more money on terms acceptableto us or at all. In addition, the terms of existing or future debt agreements, or potential joint venture, partnership or otheralliance agreements, may restrict us from adopting any of these alternatives.Prices for crude oil and refined products are subject to rapid and substantial volatility which may adversely affect ourmargins and our ability to obtain necessary crude oil supply.Our results of operations from refining are influenced by the relationship between market prices for crude oiland refined products. We are dependent on third parties for continued access to crude oil and other raw materials andsupplies. We depend upon a small number of suppliers and expect to continue to rely on trade credit from our suppliersto provide a significant amount of our working capital. If our suppliers fail to provide us with sufficient trade credit in atimely manner, we may have to use our cash on hand or other sources of financing, which may not be readily availableor, if available, may not be on terms acceptable or favorable to us. We buy 100% of our crude oil on the spot or termmarket. We will not generate operating profit or positive cash flow from our refining operations unless we are able tobuy crude oil and sell refined products at margins sufficient to cover the fixed and variable costs of our refineries. Inrecent years, both crude oil and refined product prices have fluctuated substantially. Based on data from Platts, during2008, the price of Dated Brent crude oil increased from $97 per barrel at the beginning of the year to a peak of $144 perbarrel in July, and ended at $37 per barrel at the end of the year. In 2009, the price of Dated Brent crude oil increasedfrom $40 per barrel at the beginning of 2009 to $78 per barrel as of December 2009. In 2010, the price of Dated Brentcrude oil increased from $78.84 per barrel at the beginning of 2010 to $92.55 per barrel at the end of December 2010.Therefore, our inventory of crude oil and refined products is exposed to fluctuations in price. These fluctuations have animpact on our results and on our compliance with the financial covenants of our lending arrangements. See “Descriptionof Certain Indebtedness—2008 Credit Facility—Financial Covenants.”Prices of crude oil and refined products depend on numerous factors, including global and regional demand for,and supply of, crude oil and refined products, and regulatory, legislative and emergency actions of national, regional andlocal agencies and governments. Decreases in the supply of crude oil or the demand for refined products may adverselyaffect our liquidity and capital resources.Supply and demand of crude oil and refined products depend on a variety of factors. These factors include:changes in global economic conditions, including exchange rate fluctuations;global demand for oil and refined oil products, such as diesel;political, geographic and economic stability in major oil-producing countries and regions in which weobtain our crude oil supplies, such as the North Sea and Russia;the ability and willingness of OPEC to regulate and influence crude oil production levels and prices;2