Corral Petroleum Holdings AB (publ) Business Update ... - Preem

expenditures in the future to comply with new or amended environmental and energy laws and regulations. We may not havesufficient funds to make the necessary capital expenditures. Failure to make these capital expenditures could negativelyimpact our business, financial condition and results of operations. It is difficult to predict the effect of future laws andregulations on our financial condition or results of operations. We cannot assure you that environmental or health and safetyliabilities and expenses will not have a material adverse effect on our financial condition or results of operations.We may be liable for environmental damages, which could adversely affect our business or financial results and reduceour ability to pay interest and principal due on the Existing Notes or any new notes.We believe that the risk of significant environmental liability is inherent in our business. We are subject to risksrelating to crude oil or refined product spills, discharge of hazardous materials into the soil, air and water, and otherenvironmental damage. Our feedstock and refined products are shipped to and from our refineries in tankers that passthrough 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 of accidentaldischarges of hazardous materials and of the assertion of claims by third parties (including governmental authorities) againstus for violation of applicable law and/or damages arising out of any past or future contamination. In addition, there are plansto build a motorway near the Sundsvall harbor where we have non-operational storage chambers. If the plans move forward,we may be required to fund a portion of the costs associated with the remediation of the area. Environmental regulators maybecome aware of and, in some cases, investigate the existence of soil and groundwater contamination at our refineries, atsome of our depot sites and at some sites where we previously had operations, which could lead to legal proceedings beinginitiated against us. The County Administrative Board of Västra Götelands Län may hold us partly liable for certain clean-upcosts related to a drainage ditch on our property in Gothenburg. While we are unable to confirm the extent of any liabilityand associated potential clean-up costs until a ground investigation is performed, we do not expect such costs to be material.Should there be any successful claim against us, we may have to pay substantial amounts in fees and penalties, forremediation, or as compensation to third parties, in each case, in respect of past or future operations, acquisitions or disposals.Any amounts paid in fees and penalties, for remediation, or as compensation to third parties would reduce, and couldeliminate, the funds available for paying interest or principal on the Existing Notes or any new 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 ofthe sites we operate or own and that we (and companies with which we have merged) have operated or owned, includingfollowing the closure or sale of, or expiration of leases for, such sites. We may be liable for decontamination and otherremedial costs as a result of contamination caused in connection with the transportation and distribution of our products. Insome instances, such as the closure of a number of our depots, we are currently unable to accurately estimate the costs ofnecessary remediation and may face significant unexpected costs, which could materially adversely affect our financialcondition, 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 New Credit Facility will 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 rates couldrise significantly in the future, increasing Preem’s interest expense associated with these obligations and thus our debt,reducing cash flow available for capital expenditures and hindering Preem’s ability to make payments on the Existing Notesor any new notes issued in a refinancing.We are exposed to currency and commodity price fluctuations, which could adversely affect our financial results, liquidityand ability to pay interest and principal due on the Existing Notes or any new notes.Our crude oil purchases are primarily denominated in dollars. Our revenues are primarily denominated in dollarsand kronor. We publish our financial statements in kronor. As of June 30, 2011, our krona-denominated indebtedness totaledSEK 6,999 million (€765 million), our dollar-denominated indebtedness totaled $1,056 million (including approximately$325 million of Existing Dollar Notes and Subordinated Notes) and our euro-denominated indebtedness totaled €342 million(consisting of the Existing Euro Notes and Subordinated Notes).As a result, fluctuations of these currencies against each other or against other currencies in which we do business orhave indebtedness could have a material adverse effect on our business and financial results. We estimate that a 10% changein the U.S. dollar to kronor exchange rate would result in a corresponding change in our EBITDA of approximately SEK400 million. From time to time, we use forward exchange contracts and, to a lesser extent, currency swaps to manage our9