Frontier Oil Corporation Form 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
þ	OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
o	OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . to . . . .

Commission File Number: 1-7627

FRONTIER OIL CORPORATION
(Exact name of registrant as specified in its charter)

Wyoming		74-1895085
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10000 Memorial Drive, Suite 600		77024-3411
Houston, Texas		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (713) 688-9600

Securities registered pursuant to Section 12(b) of the Act:

		Name of Each Exchange
Title of Each Class		on Which Registered

Common Stock		New York Stock Exchange
6⅝% Senior Notes due 2011

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ü No . . .

Indicate by check mark if disclosure of delinquent filers pursuant to rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ü

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes ü No . . .

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2004 was $556.0 million.

The number of shares of common stock outstanding as of February 18, 2005 was 27,150,710.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Proxy Statement for the registrant’s 2005 annual meeting of shareholders are incorporated by reference into Items 10 through 14 of Part III.

TABLE OF CONTENTS

Part I
	Item 1.	Business
		Summary and Overview
		Refining Operations
		Marketing and Distribution
		Competition
		Crude Oil Supply
		Safety
		Government Regulation
		Employees
		Risk Factors Relating to Our Business
		Available Information
	Item 2.	Properties
	Item 3.	Legal Proceedings
	Item 4.	Submission of Matters to a Vote of Security Holders

Part II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6.	Selected Financial Data
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
	Item 8.	Financial Statements and Supplementary Data
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A.	Controls and Procedures

Part III

Part IV
	Item 15.	Exhibits and Financial Statement Schedules

Forward-Looking Statements

This Form 10-K contains “forward-looking statements” as defined by the Securities and Exchange Commission. Such statements are those concerning contemplated transactions and strategic plans, expectations and objectives for future operations. These include, without limitation:

·	statements, other than statements of historical facts, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future;
·	statements relating to future financial performance, future capital sources and other matters; and
·	any other statements preceded by, followed by or that include the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “estimates,” “projects,” “could,” “should,” “may,” or similar expressions.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Form 10-K are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. You are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

We undertake no obligation to update or revise publicly any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-K, or to reflect the occurrence of unanticipated events.

PART I

Item 1. Business

Summary

The terms “Frontier,” “we,” “us” and “our” as used in this Form 10-K refer to Frontier Oil Corporation and its subsidiaries, except where it is clear that those terms mean only the parent company. When we use the term “Rocky Mountain region,” we refer to the states of Colorado, Wyoming, Montana and Utah, and when we use the term “Plains States,” we refer to the states of Kansas, Oklahoma, Nebraska, Iowa, Missouri, North Dakota and South Dakota.

Overview

We are an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. We operate refineries (the “Refineries”) in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of 156,000 barrels per day (“bpd”). Both of our Refineries are complex refineries, which means that they can process heavier, less expensive types of crude oil and still produce a high percentage of gasoline, diesel fuel and other high margin refined products. We focus our marketing efforts in the Rocky Mountain region and the Plains States, which we believe are among the most attractive refined products markets in the United States. The operations of refining and marketing of petroleum products are considered part of one reporting segment.

Cheyenne Refinery. Our Cheyenne Refinery has a permitted crude capacity of 46,000 bpd on a twelve-month average. We market its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska (the “Eastern Slope”). The Cheyenne Refinery has a coking unit, which allows the refinery to process up to 100% heavy crude oil for use as a feedstock. The ability to process heavy crude oil lowers our crude oil supply costs because heavy crude oil is generally less expensive than lighter types of crude oil. For the year ended December 31, 2004, heavy crude oil constituted approximately 85% of the Cheyenne Refinery’s total crude oil charge. For the year ended December 31, 2004, the Cheyenne Refinery’s yielded product mix included gasoline (42%), diesel fuel (30%) and asphalt and other refined petroleum products (28%).

El Dorado Refinery. The El Dorado Refinery, acquired on November 16, 1999 from Equilon Enterprises LLC, now known as Shell Oil Products US (“Shell”), is one of the largest refineries in the Plains States and the Rocky Mountain region with a crude capacity of 110,000 bpd. The El Dorado Refinery can select from many different types of crude oil because of its direct access to Cushing, Oklahoma, which is connected by pipeline to the Gulf Coast. This access, combined with the El Dorado Refinery’s complexity (including a coking unit), gives it the flexibility to refine a wide variety of crude oils. In connection with our acquisition of the El Dorado Refinery in late 1999, we entered into a 15-year refined product offtake agreement for gasoline and diesel production at this refinery with Equiva Trading Company (“Equiva”), an affiliate of Shell Oil Company. In 2002, Equiva assigned this offtake agreement to Shell. Shell will also continue to purchase all jet fuel production until the end of the product offtake agreement. The offtake agreement allowed us to maximize the operating efficiency of the El Dorado Refinery during the initial years. As our commitments to Shell under the refined product offtake agreement decline over the first ten years, we intend to market an increasing portion of the El Dorado Refinery’s gasoline and diesel in the same markets in which Shell currently sells the El Dorado Refinery’s production, primarily in Denver and throughout the Plains States. For the year ended December 31, 2004, the El Dorado Refinery’s yielded product mix included gasoline (56%), diesel and jet fuel (34%) and chemicals and other refined petroleum products (10%).

Other Assets. We also own FGI, LLC, a 120,000 barrel asphalt terminal and storage facility in Grand Island Nebraska, a 34.72% interest in a crude oil pipeline in Wyoming and a 50% interest in two crude oil tanks in Guernsey, Wyoming.

Refining Operations

Varieties of Crude Oil. Traditionally, crude oil has been classified within the following types:

·	sweet (low sulfur content),

·	sour (high sulfur content),

·	light (high gravity),

·	heavy (low gravity) and

·	intermediate (if gravity or sulfur content is in between).

For the most part, heavy crude oil tends to be sour and light crude oil tends to be sweet. When refined, light crude oil produces a higher yield of higher margin refined products such as gasoline, diesel and jet fuel and as a result, is more expensive than heavy crude oil. In contrast, heavy crude oil produces more low margin by-products and heavy residual oils. The discount at which heavy crude oil sells compared to the sales price of light crude oil is known in the industry as the light/heavy spread or differential. Coking units, such as the ones used by our refineries, can process certain by-products and heavy residual oils to produce additional volumes of gasoline and diesel, thus increasing the aggregate yields of higher margin refined products from the same initial volume of crude oil.

Products. The Cheyenne and El Dorado Refineries are both complex refineries. Refineries are frequently classified according to their complexity, which refers to the number, type and capacity of processing units at the refinery. Each of our refineries possesses a coking unit, which provides substantial upgrading capacity. Upgrading capacity refers to the ability of a refinery to produce high yields of high margin refined products such as gasoline and diesel despite processing significant volumes of heavy and intermediate crude oil. In contrast, in order to produce high yields of gasoline and diesel, refineries with low upgrading capacity must process primarily sweet crude oil. Some low complexity refineries may be capable of processing heavy and intermediate crude oil, but they will produce large volumes of by-products and heavy residual oils. The Cheyenne and El Dorado Refineries have high upgrading capacity relative to other refineries in the Plains States and Rocky Mountain region. Because gasoline, diesel and jet fuel sales generally achieve higher margins than are available on other refined products, we expect that these products will continue to make up the bulk of our production.

Refinery Maintenance. Each of the operating units at our refineries requires regular maintenance and repair shutdowns (referred to as “turnarounds”) during which the unit is not in operation. Turnaround cycles vary for different units but are generally required every one to five years. In general, turnarounds at our refineries are managed so that some units continue to operate while others are down for scheduled maintenance. We also coordinate operations by staggering turnarounds at the two refineries. Maintenance turnarounds are implemented using our regular personnel as well as additional contract labor. Turnaround work typically proceeds on a continuous 24-hour basis to minimize unit downtime. We accrue for our turnaround costs over the period from the prior turnaround to the next scheduled turnaround. We normally schedule our maintenance turnaround work during the spring or fall of each year. When we perform a turnaround we may increase product inventories prior to the turnaround to minimize the impact of the turnaround on our sales of refined products. We have major turnaround work scheduled on the fluid catalytic cracking unit (“FCCU”) and related units at our El Dorado Refinery during March 2005. Major turnaround work was performed on our alkylation unit at our El Dorado Refinery in March 2004. Turnaround work was performed on our sulfur and hydrotreating units at our Cheyenne Refinery in February 2004.

Marketing And Distribution

Cheyenne Refinery. The primary market for the Cheyenne Refinery’s refined products is the Eastern Slope. For the year ended December 31, 2004, we sold approximately 87% of the Cheyenne Refinery’s gasoline sales volumes in Colorado and 8% in Wyoming. For the year ended December 31, 2004, we sold approximately 33% of the Cheyenne Refinery’s diesel sales volumes in Colorado and 56% in Wyoming. Because of the location of the Cheyenne Refinery, we are able to sell a significant portion of its diesel product from a truck rack at the Refinery, eliminating any transportation costs. The gasoline and remaining diesel produced by this Refinery are primarily shipped via pipeline to terminals for distribution by truck or rail. Pipeline shipments from the Cheyenne Refinery are handled mainly by the Kaneb pipeline, serving Denver and Colorado Springs, Colorado, and the ConocoPhillips pipeline, serving Sidney, Nebraska.

We sell refined products from our Cheyenne Refinery to a broad base of independent retailers, jobbers and major oil companies. Refined product prices are determined by local market conditions at distribution centers known as “terminal racks.” The customer at a terminal rack typically supplies its own truck transportation. Prices at the terminal rack are posted daily by sellers. In the year ended December 31, 2004, approximately 81% of the Cheyenne Refinery’s sales were made to its 25 largest customers. Occasionally, marketing volumes exceed the Refinery’s production, in which case we purchase product in the spot market as needed.

El Dorado Refinery. The primary markets for the El Dorado Refinery’s refined products are Colorado and the Plains States, which include the Kansas City metropolitan area. The gasoline, diesel and jet fuel produced by the El Dorado Refinery are primarily shipped via pipeline to terminals for distribution by truck or rail. The Kaneb pipeline, serving the northern Plains States, the Magellan pipeline serving Denver, Colorado, the Magellan pipeline serving Kansas City and Carthage, Missouri and Des Moines, Iowa, and until December 2004 the KCPL pipeline, serving Kansas City, handle pipeline shipments from our El Dorado Refinery.

In connection with our late 1999 acquisition of this Refinery we entered into a 15-year refined product offtake agreement with Shell. For the year ended December 31, 2004, Shell was the El Dorado Refinery’s largest customer, representing 71% of total sales. Under the agreement, Shell purchases gasoline, diesel and jet fuel produced by the El Dorado Refinery at market-based prices. Initially in 1999, Shell purchased all of the El Dorado Refinery’s production of these products. Beginning in 2000, we retained and marketed 5,000 bpd of the Refinery’s gasoline and diesel production. The retained portion is scheduled to increase by 5,000 bpd each year for ten years. In 2004, we retained 25,000 bpd of the Refinery’s gasoline and diesel production. Shell will continue to purchase all jet fuel production for the remainder of the original 15-year product offtake agreement term. The agreement allows us to focus on maximizing the operating efficiency of our El Dorado Refinery during these years. As our sales to Shell under this agreement decrease, we intend to sell the gasoline and diesel produced by the El Dorado Refinery in the same markets as Shell currently does, as described above.

Competition

Cheyenne Refinery. The most competitive market for the Cheyenne Refinery is the Denver metropolitan area. Other than the Cheyenne Refinery, four principal refineries serve the Denver market: a 65,000 bpd refinery near Rawlins, Wyoming and a 22,000 bpd refinery in Casper, Wyoming, both owned by Sinclair Oil Company (“Sinclair”); a 28,000 bpd refinery in Denver owned by Valero Energy Corporation (“Valero”); and a 58,000 bpd refinery in Denver owned by Suncor Energy (U.S.A.) (“Suncor”). Five product pipelines also supply Denver, including three from outside the region that enable refined products from other regions to be sold in the Denver market. Refined products shipped from other regions bear the burden of higher transportation costs.

The Valero and Suncor refineries located in Denver have lower product transportation costs in serving the Denver market than we do. However, the Cheyenne Refinery has lower crude oil transportation costs because of its proximity to the Guernsey, Wyoming hub, the major crude oil pipeline hub in the Rocky Mountain region, and our ownership interest in the Centennial pipeline, which runs from Guernsey to the Cheyenne Refinery. Moreover, unlike Sinclair, Valero and Suncor, we only sell our products to the wholesale market. We believe that our commitment to the wholesale market gives us a customer relation’s advantage over our principal competitors in the Eastern Slope area, all of which also have retail outlets, because we are not in direct competition with independent retailers of gasoline and diesel.

El Dorado Refinery. The El Dorado Refinery faces competition from other Plains States and mid continent refiners, but the principal competitors for the El Dorado Refinery are Gulf Coast refiners. Although our Gulf Coast competitors typically have lower production costs because of their size (economies of scale) than the El Dorado Refinery, we believe that our competitors’ higher refined product transportation costs allow the El Dorado Refinery to compete effectively with these refineries in the Plains States and Rocky Mountain region. The Plains States and mid continent regions are also supplied by three product pipelines that originate from the Gulf Coast.

Crude Oil Supply

Cheyenne Refinery. In the year ended December 31, 2004, we obtained approximately 32% of the Cheyenne Refinery’s crude oil charge from Wyoming, 57% from Canada and 11% from Colorado. During the same period, heavy crude oil constituted approximately 85% of the Cheyenne Refinery’s total crude oil charge. Cheyenne is 88 miles south of Guernsey, Wyoming, the main hub and crude oil trading center for the Rocky Mountain region. We transport up to 25,000 bpd of crude oil from Guernsey to the Cheyenne Refinery through the Centennial pipeline. Additional crude oil volumes are transported on an alternative common carrier pipeline. Ample quantities of heavy crude oil are available at Guernsey, including both locally produced Wyoming general sour and imported Canadian heavy crude oil, which is supplied by the Express pipeline system and the eastern corridor pipeline system including the Wascana, Poplar and Butte pipelines. The Cheyenne Refinery’s ability to process up to 100% heavy crude oil feedstocks gives us a distinct advantage over the four other Eastern Slope refineries, none of which has the necessary upgrading capacity to process high volumes of heavy crude oil.

We purchase crude oil for the Cheyenne Refinery from several suppliers, including major oil companies, marketing companies and large and small independent producers under arrangements which contain market-responsive pricing provisions. Many of these arrangements are subject to cancellation by either party or have terms that are not in excess of one year and are subject to periodic renegotiation. In October 2002, we entered into a five-year crude oil supply agreement with Baytex Energy Ltd., a Canadian crude oil producer. On November 28, 2002 Baytex Energy Ltd. assigned this agreement to its wholly owned subsidiary, Baytex Marketing Ltd. This agreement, effective January 1, 2003, provides for the purchase of up to 20,000 bpd of a Lloydminster crude oil blend, a heavy Canadian crude. Initially, we received 9,000 bpd, which increased to 20,000 bpd by October 2003. This type of crude oil typically sells at a discount to lighter crude oils. Our price for crude oil under the agreement will be equal to 71% of the simple average of the near month settlement prices of the NYMEX light sweet crude oil contracts during the month of delivery, plus the cost of transportation based on the Express Pipeline tariff from Hardisty, Alberta to Guernsey, Wyoming, less $0.25 per barrel. The initial term of the agreement is through December 31, 2007. This agreement provides a firm source of heavy Canadian crude and also assigns a portion of our dedicated capacity through the Express pipeline.

El Dorado Refinery. In the year ended December 31, 2004, we obtained approximately 57% of the El Dorado Refinery’s crude oil charge from Texas, 17% from the Middle East, 15% from Kansas, 10% from Louisiana, and the remaining from the North Sea. El Dorado is 125 miles north of Cushing, Oklahoma, a major crude oil hub. The Cushing hub is supplied by the Seaway pipeline, which runs from the Gulf Coast; the Basin pipeline, which runs through Wichita Falls from West Texas; and the Mobil pipeline, which originates at the Gulf Coast and connects to the Basin pipeline at Wichita Falls. The Osage pipeline runs from Cushing to El Dorado and transported approximately 85% of our crude oil charge during the year ended December 31, 2004. The remainder of our crude oil charge was transported to the El Dorado Refinery through Kansas gathering system pipelines. During 2004, we entered into a Transportation Services Agreement (“Agreement”) to transport crude oil on the Spearhead Pipeline from Griffith, Indiana to Cushing, Oklahoma. The owner of the Spearhead Pipeline intends to alter an existing pipeline, including reversing the flow, with an anticipated date to be able to commence crude oil shipments on or around January 1, 2006. This pipeline will enable us to transport Canadian crude oil to our El Dorado Refinery. The initial term of this Agreement is for a period of ten years from the actual commencement date, although we have the right to extend the Agreement for an additional ten-year term.

Safety

We are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state occupational safety statutes. We believe that we have operated in substantial compliance with OSHA requirements, including general industry standards, record keeping and reporting, hazard communication and process safety management. The nature of our business may result from time to time in industrial accidents. It is possible that changes in safety and health regulations or a finding of non-compliance with current regulations could result in additional capital expenditures or operating expenses, as well as fines and penalties.

The Cheyenne Refinery reduced its OSHA recordable incident rate from 1.38 in 2003 to 1.03 for 2004. For comparison, the National Petrochemical and Refiner’s Association (“NPRA”) industry average is 1.46. For the continued improvement in safety, the personnel at Cheyenne will be awarded four safety awards by the NPRA, which are:

(1)	an award for Meritorious Safety Performance for achieving a total recordable incidence rate of 1.2 or lower,

(2)	the Gold Award for a reduction in recordable accidents and no workplace injury,

(3)	the Award for Safety Achievement in Hours for one million or more hours worked without a lost time accident, and

(4)	the Award for Safety Achievement in Years for one or more years worked without a lost time accident.

By the end of 2004, the Cheyenne employees had worked 825 days without a lost time accident. Our behavioral safety program initiated in 2000, our Safety Training Observation Program started in 2002, and our supervisor’s safety training program added in 2003 have maintained a very positive safety trend at the Cheyenne Refinery. The combination of our behavioral safety program with the management driven safety programs has made very positive changes in the safety culture of the entire workforce at the Cheyenne Refinery. We are determined not only to sustain our safety record, but also to further improve our safety record at the Cheyenne Refinery.

Because our contractor injury rate is higher than our employee injury rate at our Cheyenne Refinery, we increased our efforts on contractor safety in 2004. In addition to the local safety training provided to contractors, personnel at the Cheyenne Refinery assisted the Wyoming-Montana Safety Council in obtaining accreditation by the Association to Reciprocal Safety Councils that allows them to provide contractor safety training with nation-wide reciprocity. This has been a very successful program in the Gulf Coast region, and we have high expectations in our geographic region. By improving the training of the contractor workforce in general, we also improve the safety of the outside labor that we hire at our Cheyenne Refinery as well as other industrial facilities in our geographic region.

The El Dorado Refinery also improved its safety record last year from an OSHA recordable incident rate of 2.14 in 2003 to 1.94 for 2004, which is slightly above the NPRA industry average. Our employees and management continue to dedicate their efforts to a balanced safety program that combines individual behavioral elements in a safety-coaching environment with very structured management driven programs to improve the safety of the facility and operating procedures. Our objective is a safe working environment for employees who know how to work safely. Management believes that our implementation of the Active Safety Participation program introduced in 2004 will drive much improved performance in 2005. Encouraging all employees to contribute toward improving safety performance through their personal involvement in safety-related activities is an industry-proven way to reduce injuries. The El Dorado Refinery’s performance bonus program will be linked to the overall level of participation in the safety process and injury prevention. The El Dorado Refinery is also transitioning from a management driven to an employee driven behavioral based safety program that we anticipate will also reduce the number of injuries. To further emphasize the importance of safety in the overall success of the El Dorado Refinery in 2005, and to ensure all our employees have personal accountability in this endeavor, the individual portion of the El Dorado Refinery’s bonus program will be based upon each individual’s commitment to safety.

Government Regulation

Environmental Matters. Our operations and many of our manufactured products are specifically subject to certain requirements of the Clean Air Act (“CAA”) and related state and local regulations. The 1990 amendments to the CAA contain provisions that will require capital expenditures for the installation of certain air pollution control devices at the Refineries during the next several years. The Environmental Protection Agency (“EPA”) has embarked on a Petroleum Refining Initiative (“Initiative”) alleging industry-wide noncompliance with certain longstanding rules. The Initiative has resulted in many refiners entering into consent decrees typically requiring substantial expenditures for penalties and additional pollution control equipment. We have been contacted by the EPA and invited to meet with them to hear more about the Initiative. At this time, we do not know how the Initiative may affect us. We have, however, in recognition of the EPA’s reinterpretation of certain regulatory requirements associated with the Initiative, determined that we will incur expenditures totaling approximately $8.0 million to further reduce emissions from our Refineries’ flare systems. At our Cheyenne Refinery, we spent $223,000 in 2004, and estimate spending an additional $4.0 million, primarily in 2005, on the flare system. At our El Dorado Refinery, we spent $423,000 in 2004, and we estimate incurring a total additional $3.3 million during 2005 and 2006, on the flare system. Both the Kansas Department of Health and Environment (“KDHE”) and the Wyoming Department of Environmental Quality (“WDEQ”) have expressed their preference to enter into consent decrees with Frontier to settle these and certain other compliance matters. The provisions of a KDHE order have not yet been proposed; however, Region VII of the EPA has informed the State of Kansas and Frontier that requirements for reductions in emissions from the El Dorado Refinery’s FCCU must also be included in any settlement with the State of Kansas if we want protection from a subsequent EPA enforcement action under the Initiative. We are currently evaluating interim and final FCCU emission control options.

In a settlement entered on February 22, 2005, the WDEQ accepted a penalty payment in the amount of $120,000 in addition to our commitment to complete the aforementioned flare system controls and an agreed upon Capital Supplemental Environmental Project estimated to cost $535,000 to resolve one of the Initiative’s four concerns and other violations. The settlement addresses:

·	the reduction of flare system emissions,

·	an earlier notice of violation regarding excess emissions from our Cheyenne Refinery’s crude unit heaters,

·	resolution of a 1992 Odor Consent Decree, and

·	two recent odor violations associated with the startup of our Cheyenne Refinery’s new gasoline desulfurization equipment.

During the first quarter of 2004, we decreased the previously estimated penalty accrual of $317,000 recorded as of December 31, 2003 to $120,000. This $197,000 reduction is reflected as a reduction of “Refinery operating expenses, excluding depreciation” on the Consolidated Statement of Income for the year ended December 31, 2004.

The EPA has promulgated regulations requiring the phase-in of gasoline sulfur standards, which began January 1, 2004 and continues through 2008, with special provisions for small business refiners. Because we qualify as a small business refiner, we have elected to extend our small refinery interim gasoline sulfur standard at each of our Refineries until 2011 and to comply with the highway diesel sulfur standard by June 2006, as discussed below. Our Cheyenne Refinery has spent approximately $28.9 million (including capitalized interest) to complete the project to meet the interim gasoline sulfur standard, which was required by January 1, 2004. The remaining $7.0 million estimated cost to meet the additional standard for the Cheyenne Refinery is expected to be incurred in 2009 and 2010. The total capital expenditures estimated as of December 31, 2004 for the El Dorado Refinery to achieve the final gasoline sulfur standard are approximately $15 million, which are expected to be incurred between 2006 and 2009. Our approach to achieve the gasoline sulfur standard at the El Dorado Refinery has been revised from building a new unit to the modification of existing equipment, thus reducing the cost from the original estimate of $44.0 million.

The EPA has promulgated regulations that will limit the sulfur content of highway diesel fuel beginning in 2006. As indicated above, we have elected to comply with the highway diesel sulfur standard by June 2006. As of December 31, 2004, capital costs, including capitalized interest, for diesel desulfurization are estimated to be approximately $14.0 million for the Cheyenne Refinery and approximately $106.5 million for the El Dorado Refinery. Approximately $250,000 of the Cheyenne Refinery expenditures were incurred in 2004, $9.0 million is estimated to be incurred in 2005, with the remaining $4.7 million estimated to be incurred in the first half of 2006. Approximately $6.0 million of the El Dorado Refinery expenditures were incurred in 2004, with $90.5 estimated to be incurred in 2005, and the remaining $10.0 million estimated to be incurred in the first half of 2006. Certain provisions of The American Jobs Creation Act of 2004 should benefit us by allowing an accelerated depreciation deduction of 75% of these qualified capital costs in the years incurred and by providing a $0.05 per gallon credit on compliant diesel fuel up to an amount equal to the remaining 25% of these qualified capital costs for federal income tax purposes.

On June 29, 2004, the EPA promulgated regulations designed to reduce emissions from the combustion of diesel fuel in non-road applications such as mining, agriculture, locomotives and marine vessels. We currently participate in this market through the manufacture and sale of approximately 6,000 bpd of non-road diesel fuel from our El Dorado Refinery. The new regulations will, in part, require refiners to reduce the sulfur content of non-road diesel fuel from 5,000 parts per million (“ppm”) to 500 ppm in 2007 and further to 15 ppm in 2010 for all uses but locomotive and marine. Diesel fuel used in locomotives and marine operations will be required to meet the 15 ppm sulfur standard in 2012. Small refiners, such as Frontier, will be allowed to either postpone the new sulfur limits or, if the small refiner chooses to meet the new limit on the national schedule, to increase their gasoline sulfur limits by 20%. We intend to desulfurize all of our diesel fuel, including non-road, to the 15 ppm sulfur standard by 2006. The new regulation also clarifies that EPA-approved small business refiners will be allowed to exceed both the small refiner maximum capacity and/or employee criteria through merger with or acquisition of another approved small business refiner without loss of small refiner regulatory status.

The front range of Colorado (including the Denver metropolitan area) is a major market for the products manufactured by our Refineries. During 2004, the State of Colorado undertook an effort to develop and implement controls necessary to ensure that the area will regain compliance with the EPA’s National Ambient Air Quality Standards for ozone during the three-year averaging period of 2005 through 2007. On March 25, 2004, the EPA advised the refiners supplying the Denver region that their request for continuance of the long-standing Reid Vapor Pressure (“RVP”) waiver would not be granted for the 2004 ozone control period and that gasoline marketed in the area could not exceed the regulatory standard of 7.8 pounds RVP beginning May 1, 2004 at the marketing distribution terminals and June 1, 2004 at customer retail locations. During 2004, we incurred $2.0 million in capital costs at our Cheyenne Refinery to comply with this standard.

As is the case with all companies engaged in similar industries, we face potential exposure from future claims and lawsuits involving environmental matters including soil and water contamination, air pollution, personal injury and property damage allegedly caused by substances that we may have manufactured, handled, used, released or disposed.

Cheyenne Refinery. We are party to an agreement with the State of Wyoming requiring the investigation and possible eventual remediation of certain areas of our Cheyenne Refinery’s property that may have been impacted by past operational activities. Prior to this agreement, we addressed tasks required under a consent decree approved by the Wyoming State District Court on November 28, 1984 and involving the State of Wyoming, the WDEQ and the predecessor owners of the Cheyenne Refinery. This action primarily addressed the threat of groundwater and surface water contamination at the Cheyenne Refinery. As a result of these investigative efforts, capital expenditures and remediation of conditions found to exist have already taken place, including the completion of surface impoundment closures, waste stabilization activities and other site remediation projects totaling approximately $4.0 million. In addition, we estimate that an ongoing groundwater remediation program averaging approximately $200,000 in annual operating and maintenance costs will be required for approximately ten more years. As of December 31, 2004, we have a reserve of $1.5 million in environmental liabilities reflecting the estimated present value of these expenditures ($2.0 million, discounted at a rate of 5.0%). The EPA also issued an administrative consent order with respect to our Cheyenne Refinery on September 24, 1990 pursuant to the Resource Conservation and Recovery Act. Among other things, this order required a technical investigation of the Cheyenne Refinery to determine if certain areas had been adversely impacted by past operational activities. Based upon the results of the ongoing investigation, additional remedial action could be required by a subsequent administrative order or permit.

In accordance with permits issued by the State of Wyoming under the federal National Pollutant Discharge Elimination System (“NPDES”), our Cheyenne Refinery is permitted to discharge its treated wastewater to either of two receiving waterways: a creek adjacent to the Cheyenne Refinery or a normally dry ravine called “Porter Draw.” Certain landowners downstream of the Cheyenne Refinery’s permitted discharge to Porter Draw expressed their unwillingness to continue to accommodate this wastewater flow by appealing our discharge permit and by giving notice of possible legal action. In response, as an alternative to continuing to discharge into the ravine, we arranged to deliver our treated wastewater beginning in July 2004 to the City of Cheyenne (“Cheyenne”) municipal treatment plant for additional treatment and release, and we have entered into settlements with the landowners. To initiate this wastewater treatment service, we have agreed to pay Cheyenne a $1.6 million development fee (reflected in “Other intangible asset” on our Consolidated Balance Sheet as of December 31, 2004). The $1.6 million fee will be paid in equal installments over five years, with the first payment having been made in July 2004. In addition, we pay Cheyenne $2.00 per 1,000 gallons of wastewater treated, which is included as “Refinery operating expenses, excluding depreciation” in our Consolidated Statements of Income.

El Dorado Refinery. Our El Dorado Refinery is subject to a 1988 consent order with the KDHE. This order, including various subsequent modifications, requires the El Dorado Refinery to continue the implementation of a groundwater management program with oversight provided by the KDHE Bureau of Environmental Remediation. More specifically, the El Dorado Refinery must continue to operate the hydrocarbon recovery well systems and containment barriers at the site and conduct sampling from monitoring wells and surface water stations. Quarterly and annual reports must also be submitted to the KDHE. The order requires that remediation activities continue until KDHE-established groundwater criteria or other criteria agreed to by the KDHE and the El Dorado Refinery are met. Subject to the terms of the purchase and sale agreement for the El Dorado Refinery entered into between Frontier and Shell, Shell is responsible for the costs of continued compliance with this order.

Centennial Pipeline Regulation. We have a 34.72% undivided ownership interest in the Centennial pipeline, which runs approximately 88 miles from Guernsey to Cheyenne, Wyoming. Suncor Pipe Line Company is the sole operator of the Centennial pipeline as well as the holder of the remaining ownership interest. The Cheyenne Refinery receives up to 25,000 bpd of crude oil feedstock through the Centennial pipeline. Under the terms of the operating agreement for the Centennial pipeline, the costs and expenses incurred to operate and maintain the Centennial pipeline are allocated to us on a combined basis, based on our throughput and ownership interest. The Centennial pipeline is subject to numerous federal, state and local laws and regulations relating to the protection of health, safety and the environment. We believe that the Centennial pipeline is operated in accordance with all applicable laws and regulations. We are not aware of any material pending legal proceedings to which the Centennial pipeline is a party.

Employees

At December 31, 2004, we employed approximately 731 full-time employees in the refining operations, 74 of whom were in the Houston and Denver offices, 261 at the Cheyenne Refinery, 390 at the El Dorado Refinery and 6 at our asphalt terminal in Grand Island, Nebraska. The Cheyenne Refinery employees include 91 administrative and technical personnel and 170 union members. The El Dorado Refinery employees include 134 administrative and technical personnel and 256 union members. The union members at our Cheyenne Refinery are represented by seven bargaining units, the largest being the Paper, Allied-Industrial, Chemical and Energy Workers International Union (“PACE”) and the others being affiliated with the AFL-CIO. At the Cheyenne Refinery, our current contract with PACE expires in July 2006, while our current contract with the AFL-CIO affiliated unions expires in June 2009. At the El Dorado Refinery, all union members are represented by PACE, and our current contract with PACE expires in January 2006.

Risk Factors Relating to Our Business

Crude oil prices and refining margins significantly impact our cash flow and have fluctuated significantly in the past.

Our cash flow from operations is primarily dependent upon producing and selling quantities of refined products at margins that are high enough to cover our fixed and variable expenses. In recent years, crude oil costs and crack spreads (the difference between crude oil prices and refined product sales prices) have fluctuated substantially. Factors that may affect crude oil costs and refined product prices include:

·	overall demand for crude oil and refined products;

·	general economic conditions;

·	the level of foreign and domestic production of crude oil and refined products;

·	the availability of imports of crude oil and refined products;

·	the marketing of alternative and competing fuels;

·	the extent of government regulation;

·	global market dynamics;

·	product pipeline capacity;

·	local market conditions; and

·	the level of operations of other refineries in the Plains States and Rocky Mountain region.

Crude oil supply contracts are generally short-term contracts with price terms that change as market prices change. Our crude oil requirements are supplied from sources that include:

·	major oil companies;

·	crude oil marketing companies;

·	large independent producers; and

·	smaller local producers.

The price at which we can sell gasoline and other refined products is strongly influenced by the commodity price of crude oil. Generally, an increase or decrease in the price of crude oil results in a corresponding increase or decrease in the price of gasoline and other refined products. However, if crude oil prices increase significantly, our operating margins would fall unless we could pass along these price increases to our customers. From time to time, we purchase forward crude oil supply contracts, enter into forward product agreements to hedge excess inventories and hedge our refined product margins.

In addition, our refineries maintain inventories of crude oil, intermediate products and refined products, the value of each being subject to fluctuations in market prices. Our inventories of crude oil, unfinished products and finished products are recorded at the lower of cost on a first-in, first-out (“FIFO”) basis or market prices. As a result, a rapid and significant increase or decrease in the market prices for crude oil or refined products could have a significant short-term impact on our earnings and cash flow.

Our profitability is linked to crude oil differentials, which increased significantly in 2004 over 2003 levels.

The light/heavy crude oil differential is the average differential between the benchmark West Texas Intermediate (“WTI”) crude oil priced at Cushing, Oklahoma and the heavy crude oil priced delivered to the Cheyenne Refinery, and the WTI/WTS (sweet/sour) crude oil differential is the average differential between benchmark WTI crude oil priced at Cushing, Oklahoma and West Texas sour crude oil priced at Midland, Texas. Our profitability at our Cheyenne Refinery is linked to the light/heavy crude oil differential and our profitability at our El Dorado Refinery is linked to the WTI/WTS crude oil differential. We prefer to refine heavy crude oil at the Cheyenne Refinery and sour crude oil at the El Dorado Refinery because they provide a wider refining margin than light or sweet crude does. Accordingly, any tightening of these crude oil differentials will reduce our profitability. The light/heavy crude oil differential averaged $9.90 per barrel in the year ended December 31, 2004, compared to $7.10 per barrel in the same period in 2003. The WTI/WTS crude oil differential averaged $3.74 per barrel in the year ended December 31, 2004, compared to $2.68 per barrel in the same period in 2003. Crude prices were high during 2004, which resulted in both attractive light/heavy crude oil differentials and WTI/WTS crude oil differentials. However, crude oil prices may not remain at current levels and the crude oil differentials may decline again.

External factors beyond our control can cause fluctuations in demand for our products and in our prices and margins, which may negatively affect income and cash flow.

External factors can also cause significant fluctuations in demand for our products and volatility in the prices for our products and other operating costs and can magnify the impact of economic cycles on our business. Examples of external factors include:

·	general economic conditions;
·	competitor actions;
·	availability of raw materials;
·	international events and circumstances; and
·	governmental regulation in the United States and abroad, including changes in policies of the Organization of Petroleum Exporting Countries (“OPEC”).

Demand for our products is influenced by general economic conditions. For example, near record level refined product margins and crude oil differentials in 2001 declined substantially in 2002. This decline was attributed to unusually high prices for oil, reduced market demand for refined products and greater imports of competitive products, all of which adversely affected our results of operations in 2002. In 2003, refined product margins and crude oil differentials returned closer to historical average levels. In 2004, crude oil differentials reached record levels, and refined product margins exceeded historical average levels. However, the recurrence of weaker economic and market conditions in the future may have a negative impact on our business and financial results.

Our Refineries face operating hazards, and the potential limits on insurance coverage could expose us to potentially significant liability costs.

Our operations are subject to significant interruption, and our profitability is impacted if any of our refineries experiences a major accident or fire, is damaged by severe weather or other natural disaster, or otherwise is forced to curtail its operations or shut down. If a pipeline becomes inoperative, crude oil would have to be supplied to our Refineries through an alternative pipeline or from additional tank trucks to the Refineries, which could hurt our business and profitability. In addition, a major accident, fire or other event could damage a refinery or the environment or cause personal injuries. If either of our Refineries experiences a major accident or fire or other event or an interruption in supply or operations, our business could be materially adversely affected if the damage or liability exceeds the amounts of business interruption, property, terrorism and other insurance that we maintain against these risks.

Our Refineries consist of many processing units, a number of which have been in operation for a long time. One or more of the units may require additional unscheduled down time for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for each unit every one to five years. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that our units are not operating.

We face substantial competition from other refining and pipeline companies.

The refining industry is highly competitive. Many of our competitors are large, integrated, major or independent oil companies that, because of their more diverse operations, larger refineries and stronger capitalization, may be better positioned than we are to withstand volatile industry conditions, including shortages or excesses of crude oil or refined products or intense price competition at the wholesale level. Many of these competitors have financial and other resources substantially greater than ours.

Our operating results are seasonal and generally lower in the first and fourth quarters of the year.

Demand for gasoline and asphalt products is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic and road construction work. As a result, our operating results for the first and fourth calendar quarters are generally lower than those for the second and third quarters. Diesel demand has historically been more stable because two major east-west truck routes and two major railroads cross one of our principal marketing areas for our Cheyenne Refinery. However, reduced road construction and agricultural work during the winter months somewhat depresses demand for diesel in the winter months.

Our operations involve environmental risks that may require us to make substantial capital expenditures to remain in compliance or that could give rise to material liabilities.

Our results of operations may be affected by increased costs resulting from compliance with the extensive environmental laws to which our business is subject and from any possible contamination of our facilities as a result of accidental spills, discharges or other releases of petroleum or hazardous substances.

Our operations are subject to a variety of federal, state and local environmental laws and regulations relating to the protection of the environment, including those governing the emission or discharge of pollutants into the air and water, product specifications and the generation, treatment, storage, transportation and disposal, or remediation of solid and hazardous waste and materials. Environmental laws and regulations that affect the operations, processes and margins for our refined products are extensive and have become progressively more stringent. Additional legislation or regulatory requirements or administrative policies could be imposed with respect to our products or activities. Compliance with more stringent laws or regulations or more vigorous enforcement policies of the regulatory agencies could adversely affect our financial position and results of operations and could require us to make substantial expenditures. Our business is inherently subject to accidental spills, discharges or other releases of petroleum or hazardous substances. Past or future spills related to any of our operations, including our Refineries, pipelines or product terminals, may give rise to liability (including potential cleanup responsibility) to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. This may involve contamination associated with facilities that we currently own or operate, facilities that we formerly owned or operated and facilities to which we sent wastes or by-product for treatment or disposal and other contamination. Accidental discharges could occur in the future, future action may be taken in connection with past discharges, governmental agencies may assess penalties against us in connection with past or future contamination and third parties may assert claims against us for damages allegedly arising out of any past or future contamination. The potential penalties and clean-up costs for past or future releases or spills, the failure of some prior owners of our facilities to complete their clean-up obligations, the liability to third parties for damage to their property, or the need to address newly-discovered information or conditions that may require a response could be significant, and the payment of these amounts could have a material adverse effect on our business, financial condition and results of operations.

An adverse decision in a lawsuit pending between Holly Corporation and Frontier could have a material adverse effect on our financial condition and therefore, on our results of operations.

On August 20, 2003, we filed a lawsuit in the Delaware Court of Chancery seeking declaratory relief and unspecified damages based on allegations that Holly Corporation (“Holly”) repudiated its obligations and breached an implied covenant of good faith and fair dealing under a merger agreement announced in late March 2003 under which Frontier and Holly were to be combined. On September 2, 2003, Holly filed its answer and counterclaims seeking declaratory judgments that Holly had not repudiated the merger agreement, that we had repudiated the merger agreement, that we had breached certain representations made by us in the merger agreement, that Holly’s obligations under the merger agreement were and are excused and that Holly may terminate the merger agreement without liability, and seeking unspecified damages as well as costs and attorneys’ fees. The trial with respect to our complaint and the Holly answer and counterclaims began in the Delaware Court of Chancery on February 23, 2004 and was completed on March 5, 2004. In this litigation, the maximum amount of damages currently asserted by us against Holly is approximately $161 million plus interest, attorneys’ fees and costs, and the maximum amount of damages currently asserted by Holly against us is approximately $148 million plus interest, attorneys’ fees and costs. Post-trial briefing was completed in late April 2004, and on May 4, 2004 the court heard oral arguments. We are awaiting a decision to be announced by the court. While we cannot predict the outcome of this litigation, an adverse decision to us could have a material adverse effect on our business, financial condition, liquidity, competitive position or prospects.

We may have labor relations difficulties with some of our employees represented by unions.

Approximately 58 percent of our employees were covered by collective bargaining agreements at December 31, 2004. We believe that our current relations with our employees are good. However, employees may conduct a strike at some time in the future, which may adversely affect our operations. See “Business-Employees.”

Terrorist attacks and threats or actual war may negatively impact our business.

Terrorist attacks in the United States, as well as events occurring in response to or in connection with them, including future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions affecting our suppliers or our customers, may adversely impact our operations. As a result, there could be delays or losses in the delivery of supplies and raw materials to us, decreased sales of our products and extension of time for payment of accounts receivable from our customers.

Available Information

We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC’s Internet site at http://www.sec.gov contains the reports, proxy and information statements, and other information filed electronically.

Our web site address is: http://www.frontieroil.com. We make our web site content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. We make available on this web site under “Investor Relations,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file those materials with, or furnish those materials to, the SEC.

We filed our 2004 annual CEO certification with the New York Stock Exchange (“NYSE”) on April 15, 2004. We anticipate filing our 2005 annual CEO certification with the NYSE on or about April 20, 2005. Additionally, we filed with the SEC as exhibits to our Form 10-K for the year ended December 31, 2003 the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.

Item 2. Properties

Refining Operations

We own the 125 acre site of the Cheyenne Refinery in Cheyenne, Wyoming and the approximately 1,000 acre site of the El Dorado Refinery in El Dorado, Kansas. The following tables set forth the refining operating statistical information on a consolidated basis and for each Refinery for 2004, 2003 and 2002. The statistical information includes the following terms not previously defined:

·	Charges - the quantity of crude oil and other feedstock processed through refinery units on bpd basis.
·	Manufactured product yields - the volumes of specific materials that are obtained through the distilling of crude oil and the operations of other refinery process units on a bpd basis.
·	Gasoline and diesel crack spreads - The average non-oxygenated gasoline and diesel net sales prices that we receive for each product less the average WTI crude oil price at Cushing, Oklahoma.

Consolidated:

Year Ended December 31,	2004		2003		2002
Charges (bpd)
Light crude		37,486		31,314		35,684
Heavy and intermediate crude		110,662		115,907		110,372
Other feed and blend stocks		16,609		18,407		17,760
Total		164,757		165,628		163,816

Manufactured product yields (bpd)
Gasoline		82,944		83,449		84,645
Diesel and jet fuel		53,093		53,156		53,436
Asphalt		7,475		7,530		7,437
Chemicals		939		842		369
Other		16,112		16,536		14,915
Total		160,563		161,513		160,802

Total product sales (bpd)
Gasoline		90,698		89,842		91,989
Diesel and jet fuel		52,818		53,606		53,378
Asphalt		7,427		7,260		7,490
Chemicals		841		842		439
Other		14,205		14,117		13,236
Total		165,989		165,667		166,532

Refinery operating margin information (per sales barrel)
Refined products revenue	$	47.27	$	35.88	$	29.82
Raw material, freight and other costs (FIFO inventory accounting)		40.04		30.77		25.71
Refinery operating expenses, excluding depreciation		3.62		3.31		2.93
Depreciation and amortization		0.53		0.47		0.44

Average WTI crude oil price at Cushing, OK (per barrel)	$	41.85	$	31.89	$	26.17

Average gasoline crack spread (per barrel)	$	8.61	$	7.00	$	5.88
Average diesel crack spread (per barrel)		7.35		5.05		3.97

Average sales price (per sales barrel)
Gasoline	$	51.70	$	39.72	$	33.08
Diesel and jet fuel		49.81		36.91		30.35
Asphalt		24.11		24.68		21.64
Chemicals		115.45		53.90		41.68
Other		17.63		12.24		9.24

Cheyenne Refinery:

Year Ended December 31,	2004		2003		2002
Charges (bpd)
Light crude		6,645		5,405		4,070
Heavy crude		38,408		40,284		37,231
Other feed and blend stocks		4,392		5,966		4,882
Total		49,445		51,655		46,183

Manufactured product yields (bpd)
Gasoline		20,039		20,518		18,196
Diesel and jet fuel		14,387		15,044		13,434
Asphalt		7,475		7,530		7,437
Other		5,839		6,822		5,855
Total		47,740		49,914		44,922

Total product sales (bpd)
Gasoline		26,744		26,836		24,559
Diesel and jet fuel		14,581		15,091		13,361
Asphalt		7,427		7,260		7,490
Other		5,044		4,708		4,243
Total		53,796		53,895		49,653

Refinery operating margin information (per sales barrel)
Refined products revenue	$	45.50	$	35.61	$	29.91
Raw material, freight and other costs (FIFO inventory accounting)		38.08		29.40		25.18
Refinery operating expenses, excluding depreciation		3.68		3.12		3.02
Depreciation and amortization		0.90		0.79		0.83

Average light/heavy crude oil differential (per barrel)	$	9.90	$	7.10	$	4.77

Average gasoline crack spread (per barrel)	$	9.33	$	7.32	$	6.44
Average diesel crack spread (per barrel)		9.34		6.57		4.99

Average sales price (per sales barrel)
Gasoline	$	53.28	$	41.42	$	35.22
Diesel and jet fuel		52.35		39.00		32.16
Asphalt		24.11		24.68		21.64
Other		15.98		8.44		6.68

El Dorado Refinery:

Year Ended December 31,	2004		2003		2002
Charges (bpd)
Light crude		30,841		25,909		31,614
Heavy and intermediate crude		72,254		75,623		73,141
Other feed and blend stocks		12,218		12,440		12,878
Total		115,313		113,972		117,633

Manufactured product yields (bpd)
Gasoline		62,905		63,931		66,449
Diesel and jet fuel		38,706		38,111		40,002
Chemicals		939		842		369
Other		10,273		9,715		9,061
Total		112,823		112,599		115,881

Total product sales (bpd)
Gasoline		63,954		63,006		67,430
Diesel and jet fuel		38,237		38,516		40,017
Chemicals		841		842		439
Other		9,161		9,410		8,993
Total		112,193		111,774		116,879

Refinery operating margin information (per sales barrel)
Refined products revenue	$	48.12	$	36.01	$	29.78
Raw material, freight and other costs (FIFO inventory accounting)		40.98		31.43		25.93
Refinery operating expenses, excluding depreciation		3.59		3.41		2.90
Refinery depreciation		0.35		0.32		0.28

WTI/WTS crude oil differential (per barrel)	$	3.74	$	2.68	$	1.36

Average gasoline crack spread (per barrel)	$	8.31	$	6.86	$	5.68
Average diesel crack spread (per barrel)		6.59		4.45		3.63

Average sales price (per sales barrel)
Gasoline	$	51.03	$	38.99	$	32.30
Diesel and jet fuel		48.84		36.09		29.75
Chemicals		115.45		53.90		41.68
Other		18.53		14.13		10.45

Other Properties

We lease approximately 6,500 square feet of office space in Houston for our corporate headquarters under a lease expiring in October 2009. For our refining operations headquarters, we lease approximately 28,000 square feet in Denver, Colorado under a four and a half year sublease expiring in December 2006. We lease approximately ten acres of land, including a building and railroad spur in Grand Island, Nebraska, under a ten-year lease expiring January 31, 2009, on which our asphalt and terminal storage facility are located.

Item 3. Legal Proceedings

Beverly Hills Lawsuits. Our subsidiary, Wainoco Oil & Gas Company, owned and operated an interest in an oil field in the Los Angeles, California metropolitan area from 1985 to 1995. The production facilities for that interest in the oil field are located at the campus of the Beverly Hills High School. In April 2003, a law firm began filing claims with the Beverly Hills Unified School District and the City of Beverly Hills on behalf of former students, school employees, area residents and others alleging that emissions from the oil field or the production facilities caused cancers or various other health problems in those individuals. Wainoco Oil & Gas Company and Frontier have been named in six such suits: Moss et al. v. Veneco, Inc. et al., filed in June 2003; Ibraham et al. v. City of Beverly Hills et al., filed in July 2003; Yeshoua et al. v. Veneco, Inc. et al., filed in August 2003; Jacobs v. Wainoco Oil & Gas Company et al., filed in December 2003; Bussel et al. v. Veneco, Inc. et al., filed in January 2004; and Steiner et al. v. Venoco Inc. et al., filed in May 2004. Other defendants in these lawsuits include the Beverly Hills Unified School District, the City of Beverly Hills, ten other oil and gas companies, two additional companies involved in owning or operating a power plant adjacent to the Beverly Hills High School and three of their related parent companies. The lawsuits include claims for personal injury, wrongful death, loss of consortium and/or fear of contracting diseases, and also ask for punitive damages. No dollar amounts of damages have been specified in any of the lawsuits. The six pending lawsuits have been related to one another and have been transferred to a judge on the complex civil litigation panel in the Superior Court of the State of California for the County of Los Angeles. A case management order has been entered in the case pursuant to which 12 plaintiffs have been selected as the initial group of plaintiffs to go to trial, discovery has commenced and a preliminary trial date has been set for July 25, 2005.

The oil production site operated by our subsidiary was a modern facility and was operated with a high level of safety and responsibility. We believe that our subsidiary’s activities did not cause any health problems for anyone, including former Beverly Hills high school students, school employees or area residents. Nevertheless, as a matter of prudent risk management, we purchased insurance in 2003 from an insurance company with an A.M. Best rating of A++ (Superior) covering the existing claims described above and any similar claims for bodily injury or property damage asserted during the five-year period following the policy’s September 30, 2003 commencement date. The claims are covered, whether asserted directly against the insured parties or as a result of contractual indemnity. In October 2003, we paid $6.25 million to the insurance company (which included an indemnity premium of $5.75 million and a $500,000 administration fee) and also funded with the insurance company a commutation account of approximately $19.5 million, from which the insurance company is funding the first costs under the policy including, but not limited to, the costs of defense of the claims. The policy covers defense costs and any payments made to claimants, up to an aggregate limit of $120 million, including coinsurance by us of up to $3.9 million of the coverage between $40 million and $120 million. As of December 31, 2004, the commutation account balance was approximately $16.4 million. We also paid $772,500 to the State of California for insurance tax on the premium in 2003, of which $600,000 was refunded in 2004. We have the right to terminate the policy at any time after September 30, 2004 and prior to September 30, 2008, and receive a refund of the unearned portion of the premium (approximately $4.0 million as of December 31, 2004, and declining by approximately $1.1 million each year) plus any unspent balance in the commutation account plus accumulated interest. While the policy is in effect, the insurance company will manage the defense of the claims. We are also seeking coverage with respect to the Beverly Hills, California claims from the insurance companies that provided policies to us during the 1985 to 1995 period.

We believe that neither the claims that have been made, the six pending lawsuits, nor other potential future litigation, by which similar or related claims may be asserted against us or our subsidiary, will result in any material liability or have any material adverse effect upon our financial position or results of operations.

Holly Lawsuit. On August 20, 2003, we announced that Holly had advised us that it was not willing to proceed with the merger agreement previously announced on March 31, 2003 on the agreed terms. As a result, we filed suit for damages in the Delaware Court of Chancery. On September 2, 2003, Holly filed an answer and counterclaims, denying our claims, asserting that we repudiated the merger agreement by filing the Delaware lawsuit, and claiming among other things that the Beverly Hills, California litigation caused us to be in breach of our representations and warranties in the merger agreement. We have denied all of Holly’s counterclaims. Trial on the suit and Holly’s counterclaims concluded on March 5, 2004. Oral arguments were held on May 4, 2004, and we are awaiting a decision. We believe that the counterclaims filed against us by Holly will not result in any material liability or have any material adverse effect upon our financial position or results of operations.

MTBE Concentration Lawsuits. In November 2003, our El Dorado Refinery (owned by our subsidiary, Frontier El Dorado Refining Company (“FEDRC”)) was included as one of 52 defendants in four lawsuits brought on behalf of the City of Dodge City, Kansas, the Chisholm Creek Utility Authority, the City of Bel Aire, Kansas, the County of Sedgwick Water Authority and the City of Park City, Kansas (the “Kansas Plaintiffs”) alleging unspecified damages for contamination of groundwater/public water wells by methyl tertiary butyl ether (“MTBE”) and tertiary butyl alcohol, a degradation product of MTBE. These four cases were removed to federal court and were then transferred with other similar cases to a federal district court in New York to be presided over by one federal court judge. In November 2004, our Cheyenne Refinery (owned by our subsidiary, Frontier Refining Inc (“FRI”)) was notified that it had been added as a defendant to these same four cases involving Kansas Plaintiffs. Because neither FEDRC nor FRI had either manufactured MTBE or provided MTBE blended gasoline in the Kansas marketplace, the Kansas Plaintiffs voluntarily dismissed both FEDRC and FRI in January 2005. These voluntary dismissals are without prejudice. Accordingly, the Kansas Plaintiffs are able, if they have the required evidentiary support, to add either FEDRC or FRI back into the litigation. However, given the basis for the dismissals, we continue to believe that any potential liability would not have a material adverse effect on our liquidity, financial position or results of operations.

Other. We are also involved in various other lawsuits which are incidental to our business. In management’s opinion, the adverse determination of such lawsuits would not have a material adverse effect on our liquidity, financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange under the symbol FTO. The quarterly high and low sales prices as reported on the New York Stock Exchange for 2004 and 2003 are shown in the following table:

2004	High	Low
Fourth quarter Third quarter Second quarter First quarter	$ 26.93 23.70 21.19 19.85	$ 22.24 18.23 17.00 16.07
2003	High	Low
Fourth quarter Third quarter Second quarter First quarter	$ 17.81 16.14 18.16 18.25	$ 14.70 13.91 15.08 14.01

The approximate number of holders of record for our common stock as of February 18, 2005 was 1,046. Quarterly cash dividends of $.05 per share have been declared on our common stock for each quarter beginning with the quarter ended June 2001 and through the quarter ended June 30, 2004. The quarterly cash dividend was increased to $.06 per share for the quarters ended September 30, 2004 and December 31, 2004.

Item 6. Selected Financial Data

Five Year Financial Data

	2004			2003			2002			2001			2000
	(Dollars in thousands except per share amounts)
Revenues	$	2,861,716		$	2,170,503		$	1,813,750		$	1,888,401		$	2,045,157
Operating income		143,549			51,864			27,899			164,100			70,655
Net income		69,764			3,232			1,028			107,653			37,206
Basic earnings per share		2.62			0.12			0.04			4.12			1.36
Diluted earnings per share		2.55			0.12			0.04			4.00			1.34
Net cash provided by (used by) operating activities		177,899			(6,005	)		50,822			138,575			66,346
Net cash used in investing activities		(43,107	)		(34,300	)		(37,117	)		(22,824	)		(12,688	)
Net cash used in financing activities		(74,923	)		(7,539	)		(5,336	)		(76,202	)		(27,557	)
Working capital		97,261			38,621			108,253			109,064			43,610
Total assets		754,400			642,297			628,877			581,746			588,213
Long-term debt		150,000			168,689			207,966			208,880			239,583
Shareholders’ equity		240,113			169,277			168,258			169,204			81,424
Dividends declared per common share		0.22			0.20			0.20			0.15			-
Adjusted EBITDA (1)		180,168			80,696			55,231			189,110			93,662

(1)

Adjusted EBITDA represents income before interest expense, interest income, merger financing termination costs (includes both interest expense and income), income tax, and depreciation and amortization. Adjusted EBITDA is not a calculation based upon generally accepted accounting principles; however, the amounts included in the adjusted EBITDA calculation are derived from amounts included in our consolidated financial statements included in Item 8 of this Form 10-K. Adjusted EBITDA should not be considered as an alternative to net income or operating income, as an indication of our operating performance, or as an alternative to operating cash flow as a measure of liquidity. Adjusted EBITDA is not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA is presented here because it enhances an investor’s understanding of our ability to satisfy principal and interest obligations with respect to our indebtedness and to use cash for other purposes, including capital expenditures. Adjusted EBITDA is also used for internal analysis and as a basis for financial covenants. Our adjusted EBITDA is reconciled to net income as follows:

	2004			2003			2002			2001			2000
	(in thousands)
Net income	$	69,764		$	3,232		$	1,028		$	107,653		$	37,206
Add provision for income taxes		42,339			2,956			1,060			28,073			2,075
Add interest expense and other financing costs		37,573			28,746			27,613			31,146			34,738
Subtract interest income		(1,716	)		(1,109	)		(1,802	)		(2,772	)		(3,364	)
Add merger financing termination costs, net		-			18,039			-			-			-
Add depreciation and amortization		32,208			28,832			27,332			25,010			23,007
Adjusted EBITDA	$	180,168		$	80,696		$	55,231		$	189,110		$	93,662

Five Year Operating Data

	2004		2003		2002		2001		2000
Charges (bpd)
Light crude		37,486		31,314		35,684		31,456		35,605
Heavy crude (1)		110,662		115,907		110,372		111,061		105,529
Other feed and blend stocks		16,609		18,407		17,760		15,538		14,884
Total charges		164,757		165,628		163,816		158,055		156,018

Manufactured product yields (bpd)
Gasoline		82,944		83,449		84,645		78,126		76,795
Diesel and jet fuel		53,093		53,156		53,436		51,210		50,924
Chemicals (2)		939		842		369		1,370		1,804
Asphalt and other		23,587		24,066		22,352		24,483		23,363
Total manufactured product yields		160,563		161,513		160,802		155,189		152,886

Product sales (bpd)
Gasoline		90,698		89,842		91,989		83,737		83,070
Diesel and jet fuel		52,818		53,606		53,378		51,539		51,568
Chemicals (2)		841		842		439		1,413		1,964
Asphalt and other		21,632		21,377		20,726		22,411		21,556
Total product sales		165,989		165,667		166,532		159,100		158,158

Average sales price (per barrel)
Gasoline	$	51.70	$	39.72	$	33.08	$	35.85	$	38.09
Diesel and jet fuel		49.81		36.91		30.35		34.12		37.19
Chemicals (2)		115.45		53.90		41.68		70.81		70.52
Asphalt and other		19.85		16.46		13.72		14.07		16.14

Refinery operating margin information (per sales barrel)
Refined products revenue	$	47.27	$	35.88	$	29.82	$	32.53	$	35.20
Raw material, freight and other costs		40.04		30.77		25.71		25.69