Frontier Oil (FTO) 10-Q 2008 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

OR

¨ Transition Report pursuant to Section 13 or 15(d) 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

Former name, former address and former fiscal year, if

changed since last report.

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  þ            No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one)

Large accelerated filer  þ	Accelerated filer ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes  ¨            No  þ

Registrant’s number of common shares outstanding as of May 5, 2008: 103,946,521

FRONTIER OIL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2008

INDEX

Item 1.                   Financial Statements

Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.                   Quantitative and Qualitative Disclosures About Market Risk

Item 4.                   Controls and Procedures

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” as defined by the Securities and Exchange Commission (“SEC”).  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 fact, 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-Q 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.

All forward-looking statements contained in this Form 10-Q only speak as of the date of this document.  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-Q, or to reflect the occurrence of unanticipated events.

PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited, in thousands, except per share data)
	Three Months Ended March 31,
	2008			2007
Revenues:
Refined products	$	1,207,588		$	1,050,056
Other		(21,805	)		(2,173	)
		1,185,783			1,047,883
Costs and expenses:
Raw material, freight and other costs		999,128			839,865
Refinery operating expenses, excluding depreciation		87,560			71,163
Selling and general expenses, excluding depreciation		10,355			11,032
Depreciation, accretion and amortization		14,940			11,123
(Gain) loss on sales of assets		(37	)		2,028
		1,111,946			935,211
Operating income		73,837			112,672
Interest expense and other financing costs		1,639			2,956
Interest and investment income		(2,313	)		(5,327	)
		(674	)		(2,371	)
Income before income taxes		74,511			115,043
Provision for income taxes		28,542			40,323
Net income	$	45,969		$	74,720
Other comprehensive income (loss):
Defined benefit plans, net of tax benefit of $579		(950	)		-
Comprehensive income	$	45,019		$	74,720
Basic earnings per share of common stock	$	0.45		$	0.68
Diluted earnings per share of common stock	$	0.44		$	0.68
The accompanying notes are an integral part of these condensed consolidated financial statements.

FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except share data)
March 31, 2008 and December 31, 2007	2008			2007
ASSETS
Current assets:
Cash, including cash equivalents of $130,139 and $278,314 at 2008 and 2007,     respectively	$	154,261		$	297,399
Trade receivables, net of allowance of $500 at both years		175,855			155,454
Income taxes receivable		732			24,056
Other receivables		4,683			5,236
Inventory of crude oil, products and other		596,554			501,927
Deferred income taxes		2,606			9,426
Commutation account		6,294			6,280
Other current assets		26,596			31,245
Total current assets		967,581			1,031,023
Property, plant and equipment, at cost:
Refineries and pipelines		1,145,490			1,082,275
Furniture, fixtures and other equipment		13,708			13,168
		1,159,198			1,095,443
Accumulated depreciation and amortization		(332,511	)		(317,993	)
Property, plant and equipment, net		826,687			777,450
Deferred turnaround costs		53,601			39,276
Deferred catalyst costs		8,599			6,540
Deferred financing costs, net of accumulated amortization of $1,789 and $1,619 at     2008 and 2007, respectively		2,386			2,556
Prepaid insurance, net of accumulated amortization		606			909
Intangible assets, net of accumulated amortization of $400 and $370 at 2008 and     2007, respectively		1,429			1,460
Other assets		4,435			4,634
Total assets	$	1,865,324		$	1,863,848
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	441,499		$	417,395
Derivative liabilities		4,037			15,089
Accrued liabilities and other		60,373			69,029
Total current liabilities		505,909			501,513
Long-term debt		150,000			150,000
Contingent income tax liabilities		33,512			32,257
Post-retirement employee liabilities		29,474			27,549
Other long-term liabilities		13,439			13,605
Deferred income taxes		111,143			100,310
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value, 500,000 shares authorized, no shares issued		-			-
Common stock, no par value, 180,000,000 shares authorized, 131,850,356 shares issued    at both years		57,736			57,736
Paid-in capital		218,079			211,324
Retained earnings		1,136,304			1,095,540
Accumulated other comprehensive income		628			1,578
Treasury stock, at cost, 27,999,911 and 26,893,939 shares at 2008 and 2007, respectively		(390,900	)		(327,564	)
Total shareholders' equity		1,021,847			1,038,614
Total liabilities and shareholders' equity	$	1,865,324		$	1,863,848
The accompanying notes are an integral part of these condensed consolidated financial statements.

FRONTIER OIL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
	For the three months ended March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	45,969		$	74,720
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, accretion and amortization		18,912			14,413
Deferred income taxes		18,232			(97	)
Stock-based compensation expense		4,124			5,544
Excess income tax benefits of stock-based compensation		(3,661	)		(1,944	)
Amortization of debt issuance costs		170			199
(Gain) loss on sales of assets		(37	)		2,028
Decrease in commutation account		-			1,015
Amortization of long-term prepaid inusrance		303			304
Increase in other long-term liabilities		906			29,196
Changes in deferred charges and other		(20,157	)		(2,776	)
Changes in working capital from operations		(91,113	)		17,105
Net cash (used in) provided by operating activities		(26,352	)		139,707
Cash flows from investing activities:
Additions to property, plant and equipment		(43,603	)		(51,934	)
Proceeds from sales of assets		37			2,290
El Dorado Refinery contingent earn-out payment		(7,500	)		(7,500	)
Other acquisitions and leasehold improvements		-			(2,995	)
Net cash used in investing activities		(51,066	)		(60,139	)
Cash flows from financing activities:
Purchase of treasury stock		(64,084	)		(29,661	)
Proceeds from issuance of common stock		126			485
Dividends paid		(5,420	)		(3,312	)
Excess income tax benefits of stock-based compensation		3,661			1,944
Debt issuance costs and other		(3	)		(3	)
Net cash used in financing activities		(65,720	)		(30,547	)
(Decrease) increase in cash and cash equivalents		(143,138	)		49,021
Cash and cash equivalents, beginning of period		297,399			405,479
Cash and cash equivalents, end of period	$	154,261		$	454,500
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest, excluding capitalized interest	$	525		$	4,396
Cash paid during the period for income taxes		200			5,000
Cash refunds of income taxes		24,000			-
Noncash investing activities - accrued capital expenditures, end of period		40,059			27,679
The accompanying notes are an integral part of these condensed consolidated financial statements.

FRONTIER OIL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

1.      Financial Statement Presentation

The interim condensed consolidated financial statements include the accounts of Frontier Oil Corporation (“FOC”), a Wyoming corporation, and its wholly-owned subsidiaries, collectively referred to as “Frontier” or “the Company.”  The Company is an energy company engaged in crude oil refining and wholesale marketing of refined petroleum products.

The Company operates refineries (“the Refineries”) in Cheyenne, Wyoming and El Dorado, Kansas.  The Company also owns Ethanol Management Company (“EMC”), a products terminal and blending facility located near Denver, Colorado.  The Company utilizes the equity method of accounting for investments in entities in which it has the ability to exercise significant influence.  Entities in which the Company has the ability to exercise control are consolidated.  All of the operations of the Company are in the United States, with its marketing efforts focused in the Rocky Mountain and Plains States regions of the United States.  The Rocky Mountain region includes the states of Colorado, Wyoming, Montana and Utah, and the Plains States include the states of Kansas, Oklahoma, Nebraska, Iowa, Missouri, North Dakota and South Dakota.  The Company purchases crude oil to be refined and markets the refined petroleum products produced, including various grades of gasoline, diesel fuel, jet fuel, asphalt, chemicals and petroleum coke.  The operations of refining and marketing of petroleum products are considered part of one reporting segment.

These financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include all adjustments (comprised of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.  The Company believes that the disclosures contained herein are adequate to make the information presented not misleading.  The condensed consolidated financial statements included herein should be read in conjunction with the financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2007.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average number of common shares outstanding during the period.  No adjustments to income are used in the calculation of basic EPS.  Diluted EPS includes the effects of potentially dilutive shares, principally common stock options and unvested restricted stock outstanding during the period.  The basic and diluted average shares outstanding were as follows:

	Three Months Ended March 31,
	2008		2007
Basic		103,230,636		109,253,509
Diluted		104,018,493		110,319,964

For the three months ended March 31, 2008 and 2007, there were no outstanding stock options that could potentially dilute EPS in future years that were not included in the computation of diluted EPS.

The Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share in November 2007, which was paid in January 2008.  In addition, a quarterly cash dividend of $0.05 per share was declared in February 2008 and paid in April 2008.  The total cash required for the dividend declared in February 2008 was approximately $5.1 million and was reflected in “Accrued liabilities and other” on the Condensed Consolidated Balance Sheet as of March 31, 2008.  On April 22, 2008, the Company announced an increase in the regular quarterly cash dividend effective July 2008, to $0.06 per share ($0.24 annualized) from the current level of $0.05 per share ($0.20 annualized).

New accounting pronouncements

On January 1, 2008, the Company adopted The Emerging Issues Task Force (“EITF”) Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”).  In a stock-based compensation arrangement, employees may be entitled to dividends during the vesting period for nonvested shares or share units and until the exercise date for stock options.  These dividend payments generally can be treated as a deductible compensation expense for income tax purposes, thereby generating an income tax benefit for the employer.  At issue was how such a realized benefit should be recognized in the financial statements.  The EITF concluded that an entity should recognize the realized tax benefit as an increase in additional paid-in capital (“APIC”) and that the amount recognized in APIC should be included in the pool of excess tax benefits available to absorb tax deficiencies on stock-based payment awards.  EITF 06-11 is effective prospectively for income tax benefits that result from dividends on equity-classified employee share-based payment awards declared in fiscal years beginning after December 15, 2007.  This EITF did not have a material effect on the Company’s financial statements.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard (“FAS”) No. 157, “Fair Value Measurements.”  FAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurement.  Where applicable, this statement simplifies and codifies fair value related guidance previously issued within Generally Accepted Accounting Principles (“GAAP”).  FAS No. 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  The Company partially adopted FAS No. 157 as of January 1, 2008, pursuant to FASB Staff Position (“FSP”) FAS No. 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of FAS No. 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008.  FSP FAS No. 157-2 states that a measurement is recurring if it happens at least annually and defines non-financial assets and non-financial liabilities as all assets and liabilities other than those meeting the definition of a financial asset or financial liability in FAS No. 159.  The statement also notes that if FAS No. 157 is not applied in its entirety, the Company must disclose (1) that it has only partially adopted FAS No. 157 and (2) the categories of assets and liabilities recorded or disclosed at fair value to which the statement was not applied.  The Company chose to adopt FSP FAS No. 157-2 as of January 1, 2008 and delay the application of FAS No. 157 in its entirety.  Therefore, the Company did not apply FAS No. 157 to nonrecurring fair value measurements of non-financial assets and non-financial liabilities, including non-financial long-lived assets measured at fair value for an impairment assessment under FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and asset retirement obligations initially measured at fair value under FAS No. 143, “Accounting for Asset Retirement Obligations.”  The Company is still required to apply FAS No. 157 to recurring financial and non-financial instruments, which affects the fair value disclosure of our financial derivatives within the scope of FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  See Note 8 ”Fair Value Measurements.”

On January 1, 2008 the Company adopted FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,” which expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value.  Under FAS No. 159, a company may elect to use fair value to measure many financial instruments and certain other assets and liabilities at fair value.  The Company has decided not to elect fair value accounting for any of its eligible items.  The adoption of FAS No. 159 therefore did not have any impact on the Company’s financial position, cash flows or results of operations.

FSP No. FIN 39-1, an amendment of FASB Interpretation No. 39 was adopted by the Company on January 1, 2008.  This FSP amends paragraph 3 of Interpretation 39 to replace the terms “conditional contracts” and “exchange contracts” with the term “derivative instruments” as defined in FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  It also amended paragraph 10 of Interpretation 39 to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in accordance with the paragraph.  The adoption of this FSP did not have any impact on the Company’s financial statements.

In March 2008, the FASB released FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.”  FAS No. 161 expands the disclosure requirements in FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” about an entity’s derivative instruments and hedging activities.  FAS No. 161’s disclosure provisions apply to all entities with derivative instruments subject to FAS No. 133 and its related interpretations.  The provisions also apply to related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments.  Entities with instruments subject to FAS No. 161 must provide more robust qualitative disclosures and expanded quantitative disclosures.  The statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company is currently evaluating the effect that this statement will have on the Company’s financial statements and any other factors influencing its overall business environment, but does not believe that it will have a material effect on its financial statements.

2.      Inventories

Inventories of crude oil, unfinished products and all finished products are recorded at the lower of cost on a first-in, first-out (“FIFO”) basis or market.  Crude oil includes both domestic and foreign crude oil volumes at its cost and associated freight and other cost.  Unfinished products (work in process) include any crude oil that has entered into the refining process, and other feedstocks that are not finished as far as refining operations are concerned.  These include unfinished gasoline and diesel, blend stocks and other feedstocks.  Finished product inventory includes saleable gasoline, diesel, jet fuel, chemicals, asphalt and other finished products.  Unfinished and finished products inventory values have components of raw material, the associated raw material freight and other costs, and direct refinery operating expense allocated when refining begins relative to their proportionate market values.  Refined product exchange transactions are considered asset exchanges with deliveries offset against receipts.  The net exchange balance is included in inventory.  Inventories of materials and supplies and process chemicals are recorded at the lower of average cost or market.  Crude oil inventories, unfinished product inventories and finished product inventories are used to secure financing for operations under the Company’s revolving credit facility and Utexam financing arrangement (see Note 13, “Amendment of Crude Oil Purchase and Sale Contract”).  The components of inventory as of March 31, 2008 and December 31, 2007 were as follows:

	March 31,		December 31,
	2008		2007
	(in thousands)
Crude oil	$	321,730	$	223,715
Unfinished products		137,622		152,572
Finished products		116,500		104,820
Process chemicals		1,069		1,300
Repairs and mainteance supplies and other		19,633		19,520
	$	596,554	$	501,927

3.     Accrued Liabilities and Other

	March 31,		December 31,
	2008		2007
	(in thousands)
Accrued compensation	$	7,537	$	16,119
Accrued Beverly Hills litigation settlement		10,000		10,000
Accrued income taxes		11,314		6,819
Accrued El Dorado Refinery contingent earn-out payment		-		7,500
Accrued dividends		5,610		5,825
Accrued environmental costs		8,744		8,750
Accrued property taxes		7,809		4,998
Accrued refinery incidents costs		565		2,800
Accrued interest		5,021		2,541
Other		3,773		3,677
	$	60,373	$	69,029

4.      Income Taxes

The Company is currently under a U.S. Federal income tax examination for 2005 and 2006.  As of March 31, 2008, no taxing authority has proposed any significant adjustments to the Company's tax positions.

The Company recognizes liabilities, interest and penalties for potential tax issues based on its estimate of whether, and the extent to which, additional taxes may be due as determined under FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions – An Interpretation of FAS No. 109, Accounting for Income Taxes”.  A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and the federal income tax benefit of state contingencies, is as follows (in thousands):

Balance as of January 1, 2008	$	28,324
Additions based on tax positions related to the current year		498
Additions for tax positions of prior years		154
Reductions for tax positions of prior years		-
Settlements		-
Reductions due to lapse of applicable statutes of limitations		-
Balance as of March 31, 2008	$	28,976

The total contingent income tax liabilities and accrued interest of $33.5 million and $32.3 million at March 31, 2008 and December 31, 2007, respectively, are reflected in the Consolidated Balance Sheets under “Contingent income tax liabilities.”  During the three months ended March 31, 2008 and 2007, the Company recognized approximately $604,000 and $497,000, respectively, of interest expense on contingent income tax liabilities.

5.      Treasury Stock

The Company accounts for its treasury stock under the cost method on a FIFO basis.  The Company’s Board of Directors through December 31, 2007, had approved a total of $300 million for share repurchases, of which $243.6 million had been utilized as of December 31, 2007.  On February 28, 2008, the Company’s Board of Directors authorized another $100 million for share repurchases.  During the three months ended March 31, 2008, the Company purchased 1,561,367 shares ($56.3 million) in open market transactions, leaving remaining authorization of $100.2 million for future repurchases of shares.

For the three months ended March 31, 2008, 698,274 treasury shares were re-issued for restricted stock awards and for shares issued due to the exercise of stock options.  During the three months ended March 31, 2008, the Company received 4,500 shares ($167,000) of its common stock, now held as treasury stock, from employees in stock swaps where mature stock is surrendered by the employees to exercise their stock options, as provided by the Company’s stock-based compensation plan.  The Company also received during the three months ended March 31, 2008, 238,379 shares ($7.8 million) of its common stock, now held as treasury stock, from employees to cover minimum withholding taxes on stock-based compensation.  As of March 31, 2008, the Company held 27,999,911 shares of treasury stock.

6.      Stock-based Compensation

Stock-based compensation costs and income tax benefits recognized in the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2008 and 2007 were as follows:

	Three Months Ended March 31,
	2008		2007
	(in thousands)
Restricted shares and units	$	1,055	$	2,032
Stock options		226		561
Performance-based awards		2,843		2,951
Total stock-based compensation expense	$	4,124	$	5,544
Income tax benefit recognized in the income statement	$	698	$	2,107

Omnibus Incentive Compensation Plan.  The Company’s Omnibus Incentive Compensation Plan (the “Plan”) is a broad-based incentive plan that provides for granting stock options, stock appreciation rights (“SAR”), restricted stock awards, performance awards, stock units, bonus shares, dividend equivalent rights, other stock-based awards and substitute awards (“Awards”) to employees, consultants and non-employee directors of the Company.  As of March 31, 2008, 4,893,008 shares remain available to be awarded under the Plan assuming maximum payout is achieved on the performance awards made in 2008 (see “Performance Awards” below).  For purposes of determining compensation expense, forfeitures are estimated at the time Awards are granted based on historical average forfeiture rates and the group of individuals receiving those Awards. The Plan provides that the source of shares for Awards may be either newly issued shares or treasury shares.  For the three months ended March 31, 2008, treasury shares were re-issued for restricted stock awards and for shares issued due to the exercise of stock options.  As of March 31, 2008, there was $43.5 million of total unrecognized compensation cost related to Awards issued under the Plan, including costs for stock options, restricted stock, restricted stock units and performance-based awards.  This amount is expected to be recognized as expense over a weighted-average period of 2.5 years.

Stock Options.  Stock option changes during the three months ended March 31, 2008 are presented below:

	Number of awards			Weighted-Average Exercise Price		Aggregate Intrinsic Value of Options
						(in thousands)
Outstanding at beginning of period		624,591		$	22.4021
Granted		-			-
Exercised or issued		(70,000	)		-
Expired or forfeited		-			-
Outstanding at end of period		554,591		$	24.7043	$	2,373
Vested or expected to vest at end of period		543,672		$	24.6103	$	2,373
Exercisable at end of period		210,249		$	17.0384	$	2,373

The Company received $126,000 of cash for stock options exercised during the three months ended March 31, 2008.  The total intrinsic value of stock options exercised during the three months ended March 31, 2008 was $2.2 million.  The Company realized $844,000 and $1.3 million of income tax benefit, nearly all of which was excess income tax benefit, for the three months ended March 31, 2008 and 2007, respectively, related to exercises of stock options.  Excess income tax benefits are the benefits from deductions that are allowed for income tax purposes in excess of the expenses recorded in the Company’s financial statements.  These excess income tax benefits are recorded as an increase to paid-in capital, and the majority of these amounts are reflected as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

The following table summarizes information about stock options outstanding as of March 31, 2008:

Stock Options Outstanding at March 31, 2008
Number Outstanding		Weighted-Average Remaining Contractual Life (Years)		Exercise Price		Exercisable		Vested or Expected to Vest
	449,591		3.07	$	29.3850		105,249		438,672
	105,000		0.90	$	4.6625		105,000		105,000

Restricted Shares and Restricted Stock Units.  The following table summarizes the changes in the Company’s restricted shares and restricted stock units during the three months ended March 31, 2008:

	Shares/Units			Weighted-Average Grant-Date Market Value
Nonvested at beginning of period		1,053,083		$	24.0234
Conversion of 2007 performance stock unit awards		459,171			29.3850
Granted		191,603			29.2920
Vested		(588,879	)		22.9150
Forfeited		-			-
Nonvested at end of period		1,114,978			27.7222

The total fair value of restricted shares and restricted stock units which vested during the three months ended March 31, 2008 was $22.0 million, and the Company realized $7.2 million of income tax benefit related to these vestings, of which $2.8 million was excess income tax benefit.  The total fair value of restricted shares and restricted stock units which vested during the three months ended March 31, 2007 was $4.3 million, and the Company realized $1.6 million of income tax benefit related to these vestings, of which $708,000 was excess income tax benefit.

In March 2008, following certification by the Compensation Committee of the Company’s Board of Directors that specified performance criteria had been achieved for the year ended December 31, 2007, the Company issued 459,171 shares of restricted stock in connection with the February 2007 grant of performance stock unit awards.  One-third of this restricted stock will vest on June 30, 2008, one-third will vest on June 30, 2009 and the final one-third will vest on June 30, 2010. The Company issued 26,250 restricted stock units to its Board of Directors on January 24, 2008, of which 3,750 restricted stock units vested during the quarter due to retirement and the remainder will vest on December 31, 2008.  In the three months ended March 31, 2008, an additional 162,488 shares of restricted stock were issued to employees and will vest 25% in March 2009, 25% in March 2010 and the final 50% in March 2011.  The Company also granted 2,865 shares of restricted stock to an employee, one-third which will vest on June 30, 2008, one-third will vest on June 30, 2009 and the final one-third will vest on June 30, 2010.

Performance Awards.  During the three months ended March 31, 2008, the Company granted up to 481,811 performance stock unit awards to be earned if certain performance goals are met for 2008.  Depending on achievement of the performance goals, awards earned could be between 0% and 125% of the base number of performance stock units.  If any of the performance goals are achieved for 2008 and certified by the Compensation Committee, these stock unit awards (or a portion thereof) will be converted into restricted stock during the first quarter of 2009.  One-third of these restricted shares will vest on June 30, 2009, one-third on June 30, 2010 and the final one-third on June 30, 2011.  The Company also granted up to 240,871 performance stock unit awards contingent upon performance criteria being met over a three-year period ending on December 31, 2010.  As of March 31, 2008, the Company assumed that the target (100%) level award would be earned for purposes of stock-based compensation expense for the awards granted in 2008.

As of March 31, 2008, the Company also had outstanding up to 229,628 performance stock unit awards that were issued during the quarter ended March 31, 2007, to be earned should performance criteria be met over a three-year period ending December 31, 2009.  Depending on achievement of the performance goals, awards earned could be between 0% and 125% of the base number of performance stock units.  As of March 31, 2008, the Company assumed the maximum (125%) level award would be earned for purposes of stock-based compensation expense for the awards granted in 2007.  When common stock dividends are declared by the Company’s Board of Directors, dividend equivalents (on the stock unit awards) and dividends (once the stock unit awards are converted to restricted stock) are accrued on the performance stock units and restricted stock but are not paid until the restricted stock vests.  The stock unit awards are valued at the market value on the date of grant and amortized to compensation expense on a straight-line basis over the nominal vesting period, adjusted for retirement-eligible employees, as required under FAS No. 123(R), “Share-Based Payment.”

7.      Employee Benefit Plans

Defined Benefit Plans

The Company established a defined benefit cash balance pension plan, effective January 1, 2000, for eligible El Dorado Refinery employees to supplement retirement benefits that those employees lost upon the sale of the El Dorado Refinery to Frontier.  No other current or future employees will be eligible to participate in the plan.  This plan had assets of $10.7 million at December 31, 2007, and its funding status is in compliance with ERISA.  In April 2008, the Company’s Board of Directors approved the termination of the pension plan.  Because of regulatory review, the Company estimates that it will take approximately a year to complete the termination.  Plan participants will receive 100% of their account balance, including interest, until termination.  It is anticipated most participants will roll over their account balance into the Company’s 401K plan.  The Company does not believe the termination will have a material effect on net income.

The Company provides post-retirement healthcare and other benefits to certain employees of the El Dorado Refinery.  Eligible employees are employees hired by the El Dorado Refinery before certain defined dates and who satisfy certain age and service requirements.  Employees hired on or before November 16, 1999 qualify for retirement healthcare insurance until eligible for Medicare.  Employees hired on or before January 1, 1995 are also eligible for Medicare supplemental insurance. These plans were unfunded as of March 31, 2008.  The post-retirement healthcare plan requires retirees to pay between 20% and 40% of total healthcare costs based on age and length of service.  The plan’s prescription drug benefits are at least equivalent to Medicare Part D benefits.  The plan was amended in the first quarter of 2008 to limit the pre-Medicare insurance premium to 125% of the active employee rate, which increased the benefit obligation by $1.4 million.

The following table sets forth the net periodic benefit costs recognized for these benefit plans in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2008 and 2007:

	Three Months Ended March 31,
Pension Benefits	2008			2007
	(in thousands)
Components of net periodic benefit cost and other amounts recognized in other comprehensive income:
Service cost	$	-		$	-
Interest cost		154			142
Expected return on plan assets		(203	)		(186	)
Amortization of prior service cost		-			-
Amortized net actuarial loss		-			-
Net periodic benefit cost		(49	)		(44	)
Changes in assets and benefit obligations recognized in other comprehensive income:
Net gain		-			-
Amortization of prior service cost		-			-
Amortization of loss		-			-
Total recognized in other comprehensive income		-			-
Total recognized in net periodic benefit cost and other comprehensive income	$	(49	)	$	(44	)

	Three Months Ended March 31,
Post-retirement Healthcare and Other Benefits	2008			2007
	(in thousands)
Components of net periodic benefit cost and other amounts recognized in other comprehensive income:
Components of net periodic benefit cost:
Service cost	$	190		$	188
Interest cost		435			403
Expected return on plan assets		-			-
Amortization of prior service cost		(397	)		(469	)
Amortized net actuarial loss		218			284
Net periodic benefit cost		446			406
Changes in assets and benefit obligations recognized in other comprehensive income:
Increase in benefit obligation for plan amendment		1,350			-
Amortization of prior service cost		397			-
Amortization of loss		(218	)		-
Total recognized in other comprehensive income		1,529			-
Total recognized in net periodic benefit cost and other comprehensive income	$	1,975		$	406

As of March 31, 2008, the Company had not made any contributions to its cash balance pension plan in 2008, and is not required to make contributions during the remainder of 2008.

8.      Fair Value Measurement

FAS No. 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.  The three levels are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

Description	Level 1	Level 2	Total
Derivative liabilities	$1,753	$2,284	$4,037

As of March 31, 2008, the Company had no assets or liabilities measured at fair value on a recurring basis that meet the definition of Level 3.  The Company’s derivative contracts giving rise to the liabilities measured under Level 1 are NYMEX crude oil contracts and thus are valued using quoted market prices at the end of each period.  The Company’s derivative contracts giving rise to the liabilities under Level 2 are valued using pricing models based on NYMEX crude oil contracts.

9.      Price Risk Management Activities

The Company, at times, enters into commodity derivative contracts to manage its price exposure to its inventory positions, purchases of foreign crude oil and consumption of natural gas in the refining process or to fix margins on certain future production.  The commodity derivative contracts used by the Company may take the form of futures contracts, collars or price swaps and are entered into with creditworthy counterparties.  The Company believes that there is minimal credit risk with respect to its counterparties.  The Company accounts for its commodity derivative contracts under the hedge (or deferral) method of accounting when the derivative contracts are designated as hedges for accounting purposes, or mark-to-market accounting through earnings if the Company elects not to designate derivative contracts as accounting hedges or if such derivative contracts do not qualify for hedge accounting under FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  As such, gains or losses on commodity derivative contracts accounted for as fair value hedges are recognized in the related inventory in “Inventory of crude oil, products and other” on the Condensed Consolidated Balance Sheets and ultimately, when the inventory is charged or sold, in “Raw material, freight and other costs” on the Condensed Consolidated Statements of Income and Comprehensive Income.  Gains and losses on transactions accounted for using mark-to-market accounting are reflected in “Other revenues” on the Condensed Consolidated Statements of Income and Comprehensive Income at each period end.  The Company has derivative contracts which it holds directly and also derivative contracts, in connection with its crude oil purchase and sale contract, held on Frontier’s behalf by Utexam Limited (“Utexam”), a wholly-owned subsidiary of BNP Paribas Ireland.  The market value of open derivative contracts is included on the Condensed Consolidated Balance Sheets in “Derivative liabilities” when the unrealized value is a loss ($4.0 million at March 31, 2008 and $15.1 million at December 31, 2007), or in “Other current assets” when the unrealized value is a gain.

Mark-to-market activities.  During the three months ended March 31, 2008 and 2007, the Company (directly or indirectly) had the following derivative activities which, while economic hedges, were not accounted for as hedges and whose gains or losses are reflected in “Other revenues” on the Condensed Consolidated Statements of Income and Comprehensive Income:

Crude purchases in-transit.  As of March 31, 2008, the Company had open derivative contracts held on Frontier’s behalf by Utexam on 1.2 million barrels of crude oil to hedge in-transit Canadian crude oil costs.  As of March 31, 2008, these positions had unrealized losses of $2.3 million.  During the three months ended March 31, 2008 and 2007, the Company reported in “Other revenues” $8.7 million in net losses, and $1.0 million in net gains, respectively, on positions to hedge in-transit crude oil, mainly Canadian crude oil for the El Dorado Refinery.

Derivative contracts on crude oil to hedge excess intermediate, normal butane, finished product and excess crude oil inventory for both the Cheyenne and El Dorado Refineries.  As of March 31, 2008, the Company had open derivative contracts on 2.4 million barrels of crude oil to hedge crude oil, intermediate and finished product inventories.  At March 31, 2008, these positions had unrealized losses of $1.8 million.  During the three months ended March 31, 2008 and 2007, the Company reported in “Other revenues” $18.4 million and $3.3 million, respectively, in net losses on these types of positions.

Hedging activities.  During the three months ended March 31, 2008 and 2007, the Company had no derivative contracts that were designated and accounted for as hedges.

10.     Environmental

The Company’s operations and many of its 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 production of cleaner transportation fuels and the installation of certain air pollution control devices at the Refineries during the next several years.

The Environmental Protection Agency (“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 such as Frontier.  As allowed by subsequent regulation, Frontier elected to extend its small refinery interim gasoline sulfur standard at each of the Refineries until January 1, 2011 by complying with the highway ultra low sulfur diesel standard by June 2006.  The Cheyenne Refinery has spent approximately $28.9 million (including capitalized interest) to meet the interim gasoline sulfur standard, which was required by January 1, 2004.  To meet final federal gasoline sulfur standards, the Company has identified expenditures of $9.3 million in new process unit capacity plus $10.0 million for intermediate inventory handling equipment at the Cheyenne Refinery.  However, new federal benzene regulations and anticipated state requirements for reduction in Reid Vapor Pressure (“RVP”) suggest that additional capital expenditures may be required to meet these standards.  The Company is presently estimating the total cost in connection with an overall compliance strategy for the Cheyenne Refinery.  Total capital expenditures estimated as of March 31, 2008 for the El Dorado Refinery to comply with the final gasoline sulfur standard are approximately $83.0 million, including capitalized interest, and are expected to be incurred by the end of 2009.  As of March 31, 2008, $15.8 million of the estimated $83.0 million had been incurred.  Substantially all of the estimated $83.0 million of expenditures relates to the Company’s El Dorado Refinery gasoil hydrotreater revamp project.  The gasoil hydrotreater revamp project will address most of the El Dorado Refinery’s modifications needed to achieve gasoline sulfur compliance, and the Company anticipates this project will provide a substantial economic benefit.

As of December 31, 2007, the Company had available to sell or use approximately 174 billion (parts per million (“ppm”)-gallons) gasoline sulfur credits that were generated by its Cheyenne and El Dorado Refineries and its EMC blending facility by producing gasoline with a lower sulfur content than the small refiner EPA requirement. In the first quarter of 2008, Frontier sold 33.9 billion (ppm-gallons) of the 174 billion (ppm-gallons) available sulfur credits for total proceeds of $4.3 million, which was recorded in “Other revenue” on the Consolidated Statements of Income and Comprehensive Income for the quarter ended March 31, 2008.

The EPA has embarked on a Petroleum Refining Initiative (“Initiative”) alleging industry-wide noncompliance with certain longstanding regulatory programs.  These programs are:

• New Source Review (“NSR”) – a program requiring permitting of certain facility modifications,

• New Source Performance Standards – a program establishing emission standards for new emission sources as defined in the regulations,

• Benzene Waste National Elimination System for Hazardous Air Pollutants (“NESHAPS”) – a program limiting the amount of benzene allowable in industrial wastewaters, and

• Leak Detection and Repair (“LDAR”) – a program designed to control hydrocarbon emissions from refinery pipes, pumps and valves.

The Initiative has caused many refiners to enter into consent decrees typically requiring substantial expenditures for penalties and the installation of additional pollution control equipment.  In anticipation of such a consent decree, the Company has undertaken certain modifications at each of the Company’s Refineries.  At the Cheyenne Refinery, the Company has spent $4.6 million on the flare gas recovery system which was completed in 2006.  At the El Dorado Refinery, the flare gas recovery system was completed in 2007 for a total cost of $4.7 million.  Settlement negotiations with the EPA and state regulatory agencies regarding additional regulatory issues associated with the Initiative are underway.  The Company now estimates that, in addition to the flare gas recovery systems discussed above, capital expenditures totaling approximately $56.0 million at the Cheyenne Refinery and $70 million at the El Dorado Refinery ($8.0 million of the $70.0 million had been incurred as of March 31, 2008) will be required prior to 2015 to satisfy these issues.  Notwithstanding these anticipated regulatory settlements, many of these same expenditures would be required for the Company to implement its planned facility expansions.  In addition to the capital costs described above, the EPA has proposed a civil penalty in the amount of $1.9 million as of March 31, 2008, to be discounted for a related $100,000 penalty and associated supplemental environment project (“SEP”) paid to the State of Wyoming in 2005 and further offset up to 50 percent by the completion of mutually agreed upon additional SEPs.  The Company has made an accrual for this estimated penalty at March 31, 2008 and December 31, 2007.

The EPA has promulgated regulations to enact the provisions of the Energy Policy Act of 2005 regarding mandated blending of renewable fuels in gasoline.  The Energy Independence and Security Act of 2007 significantly increases the amount of renewable fuels that had been required by the 2005 legislation. The Company, as a small refiner, will be exempt until 2012 from these requirements. While not yet enacted or promulgated, other pending legislation or regulation regarding the mandated use of alternative or renewable fuels and/or the reduction of greenhouse gas emissions from either transportation fuels or manufacturing processes is under consideration by the U.S. Congress and certain federal regulatory agencies.  If enacted or promulgated, these requirements may impact the operations of the Company.

On February 26, 2007, the EPA promulgated regulations limiting the amount of benzene in gasoline.  These regulations take effect for large refiners on January 1, 2011 and for small refiners, such as Frontier, on January 1, 2015.  While not yet estimated, the Company anticipates that potentially material capital expenditures may be necessary to achieve compliance with the new regulation at its Cheyenne Refinery as discussed above.  Gasoline manufactured at the El Dorado Refinery typically contains benzene concentrations near the new standard.  The Company therefore believes that necessary benzene compliance expenditures at the El Dorado Refinery will be substantially less than those at its Cheyenne Refinery.

As is the case with companies engaged in similar industries, the Company faces 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 the Company may have manufactured, handled, used, released or disposed.

Cheyenne Refinery.  The Company is party to an agreement with the State of Wyoming requiring investigation and interim remediation actions at the Cheyenne Refinery’s property that may have been impacted by past operational activities.  As a result of past and ongoing 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.  In addition, the Company estimates that an ongoing groundwater remediation program will be required for approximately ten more years.  As of March 31, 2008 and December 31, 2007, the Company had a $5.0 million accrual included on the Condensed Consolidated Balance Sheets, reflecting the estimated present value of the $410,000 estimated to be spent during the remaining portion of 2008 and a $700,000 annual cost for 2009 through 2018, assuming a 3% inflation rate and discounted at a rate of 7.5%.  The Company also had accrued a total of $4.8 million, as of March 31, 2008 and December 31, 2007, for the cleanup of a waste water treatment pond located on land adjacent to the Cheyenne Refinery which the Company had historically leased from the landowner.  The lease expired, and the Company ceased use of the pond on June 30, 2006.  The waste water pond will be cleaned up pursuant to the aforementioned agreement with the State of Wyoming.  Depending upon the results of the ongoing investigation, or by a subsequent administrative order or permit, additional remedial action and costs could be required.  Pursuant to this agreement, the Company has also committed to the installation of a groundwater boundary control system to be constructed in the near future.  The costs associated with this system are under development.

The Company has completed the negotiation of a settlement of a Notice of Violation (“NOV”) from the Wyoming Department of Environmental Quality alleging non-compliance with certain refinery waste management requirements.  A negotiated penalty in the amount of $631,000 was paid in 2007 as part of the settlement of this NOV.  The Company has estimated that the capital cost for required corrective measures will be approximately $2.7 million.  In addition, the Company had an accrual at both March 31, 2008 and December 31, 2007 of $1.2 million for additional work related to the corrective measures.

Pursuant to an agreement with the City of Cheyenne, the Company will contribute $1.5 million toward a project (estimated to take place in 2008) to relocate a city storm water conveyance pipe, which is presently located on Refinery property and therefore is potentially subject to contaminants from Refinery operations.

El Dorado Refinery.  The El Dorado Refinery is subject to a 1988 consent order with the Kansas Department of Health and Environment (“KDHE”).  Subject to the terms of the purchase and sale agreement for the El Dorado Refinery entered into between the Company and Shell, Shell is responsible for the costs of continued compliance with this order.  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 Refinery are met.

11.     Litigation

Beverly Hills Lawsuits.  On October 12, 2007, following the court rulings discussed below, the Company announced that it had reached agreement in principle on the terms of a settlement with the attorneys for the plaintiffs in the Beverly Hills lawsuits.  Under the terms of the settlement, the plaintiffs will receive $10.0 million from the Company, its subsidiary and its insurance provider.  Frontier’s share of the cost is approximately $6.3 million, which will be funded from the Company’s commutation account that had previously been established with an insurance provider. Once a settlement agreement is finalized between the plaintiffs and the Company and its subsidiary, including releases by the plaintiffs, the settlement will be subject to approval by the Los Angeles Superior Court.  Following court approval, the settlement should resolve all of the litigation against the Company and its subsidiary currently pending in both the Los Angeles Superior Court and the California Court of Appeal.  The following provides more information about the Beverly Hills litigation and associated insurance coverage.

A Frontier 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 oil field are located at the campus of the Beverly Hills High School.  In April 2003, a law firm began filing claims against 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 seven such suits: Moss et al. v. Venoco, 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. Venoco, Inc. et al., filed in August 2003; Jacobs v. Wainoco Oil & Gas Company et al., filed in December 2003; Bussel et al. v. Venoco, Inc. et al., filed in January 2004; Steiner et al. v. Venoco, Inc. et al., filed in May 2004; and Kalcic et al. v. Venoco, Inc. et al., filed in April 2005.  Of the approximately 1,025 plaintiffs in the seven lawsuits, Wainoco Oil & Gas Company and Frontier are named as defendants by approximately 450 of those plaintiffs.  Other defendants in these lawsuits include the Beverly Hills Unified School District, the City of Beverly Hills, three other oil and gas companies (and their related companies), and one company (and its related companies) involved in owning or operating a power plant adjacent to the Beverly Hills High School.  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 seven lawsuits and two lawsuits that do not name Wainoco Oil & Gas Company or Frontier as defendants have been consolidated and are pending before 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 was entered pursuant to which 12 plaintiffs were selected as the initial group of plaintiffs to proceed to trial.

The oil production site operated by Frontier’s subsidiary was a modern facility and was operated with a high level of safety and responsibility.  Frontier believes that its 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, Frontier purchased insurance in 2003 from a highly-rated insurance company 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, the Company paid $6.25 million to the insurance company for loss mitigation insurance and also funded with the insurance company a commutation account of approximately $19.5 million, which is funding the first costs incurred 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 Frontier of up to $3.9 million of the coverage between $40 million and $120 million.  As of March 31, 2008, the commutation account balance was approximately $6.3 million and was included in current assets on the Condensed Consolidated Balance Sheet.  The Company also has been seeking coverage with respect to the Beverly Hills, California claims from the insurance companies that provided policies to Frontier during the 1985 to 1995 period. The Company has reached a settlement on some of the policies and is continuing to pursue coverage efforts on other policies.

On October 27, 2006, the Los Angeles Superior Court granted summary judgment in favor of the parent, Frontier Oil Corporation.  As a result of this order, the plaintiffs in all of the lawsuits in which Frontier is a defendant can no longer prosecute claims against Frontier Oil Corporation, either for Frontier Oil Corporation’s alleged direct liability or for any of the plaintiffs’ claims against its subsidiary.  The order does not affect unresolved indemnity claims asserted by or against Frontier Oil Corporation.  In addition, on November 22, 2006, the Court entered a ruling granting summary judgment in favor of all of the defendants, including Wainoco Oil & Gas Company and Frontier Oil Corporation, against the initial 12 trial plaintiffs.  A final judgment was entered by the Los Angeles Superior Court on January 31, 2007 that included the ruling in favor of Frontier Oil Corporation in October and the ruling in favor of all of the defendants in November.  The plaintiffs’ notice of appeal from this final judgment was filed March 29, 2007 and is currently pending before the California Court of Appeal.

Additional rulings by the Los Angeles Superior Court include a January 9, 2007 ruling granting summary judgment in favor of the City of Beverly Hills, concluding that the City has no liability to the plaintiffs in any of the lawsuits in which the City is a defendant under the California governmental tort liability statutes, and a March 23, 2007 ruling granting summary judgment in favor of the Beverly Hills Unified School District, concluding that the School District has no liability under the California governmental tort liability statutes. The entry of a final judgment by the Court in favor of the City and the School District on these recent rulings remains subject to appeal.

In accordance with FAS No. 5, “Accounting for Contingencies,” Frontier accrued as of March 31, 2008 and December 31, 2007 the $10.0 million settlement (“Accrued Beverly Hills litigation settlement” on the Condensed Consolidated Balance Sheets) because it is probable and reasonably estimable and a receivable from insurance providers of $3.7 million (included in “Other receivables” on the Condensed Consolidated Balance Sheet).  Frontier does not believe that any potential future claims or litigation, by which similar or related claims may be asserted against the Company or its subsidiary, will result in any material liability or have any material adverse effect upon the Company.

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

12.     Other Contingencies

El Dorado Earn-out Payments.  On November 16, 1999, Frontier acquired the crude oil refinery located in El Dorado, Kansas from Equilon Enterprises LLC, now known as Shell Oil Products US (“Shell”).  Under the provisions of the purchase and sale agreement, the Company was required to make contingent earn-out payments for each of the years 2000 through 2007 equal to one-half of the excess over $60.0 million per year of the El Dorado Refinery’s revenues less its material costs and operating costs, other than depreciation.  The total amount of these contingent earn-out payments was capped at $40.0 million, with an annual cap of $7.5 million.  Any contingent earn-out payment was recorded as an additional acquisition cost when determinable.  A contingent earn-out payment of $7.5 million was required based on 2007 results, and was accrued at December 31, 2007 and paid in January 2008.  Including the final payment under the agreement, made in January 2008, the Company paid a total of $37.5 million for contingent earn-out payments.

13.     Amendment of Crude Oil Purchase and Sale Contract

Effective March 10, 2006, the Company’s subsidiary, Frontier Oil and Refining Company (“FORC”), entered into a Master Crude Oil Purchase and Sale Contract (“Contract”) with Utexam.  Under this $200.0 million Contract, Utexam purchases, transports and subsequently sells crude oil to FORC at a location near Cushing, Oklahoma or other locations as agreed.  Under this agreement, Utexam is the owner of record of the crude oil as it is transported from the point of injection, typically Hardisty, Alberta, Canada to the point of ultimate sale to FORC.  The Company has provided a guarantee of FORC’s obligations under this Contract, primarily to receive crude oil and make payment for crude oil purchases arranged under this Contract.  The Company accounts for the transactions under this Contract as a financing arrangement, whereby the inventory and the associated liability are recorded in the Company’s financial statements when the crude oil is injected into the pipeline in Canada.

On March 12, 2008, FORC entered into an amendment of this Contract which increased the total commitment to $250.0 million and also allows for Utexam to sell crude oil to FORC at a location near Cushing, Oklahoma as well as at a location near Guernsey, Wyoming.

14.     Consolidating Financial Statements

Frontier Holdings Inc. and its subsidiaries (“FHI”) are full and unconditional guarantors of Frontier Oil Corporation’s 6⅝% Senior Notes.  Presented on the following pages are the Company’s condensed consolidating balance sheets, statements of income, and statements of cash flows as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended.  As specified in Rule 3-10, the condensed consolidating balance sheets, statements of income, and statements of cash flows presented on the following pages meet the requirements for financial statements of the issuer and each guarantor of the notes because the guarantors are all direct or indirect wholly-owned subsidiaries of Frontier Oil Corporation, and all of the guarantees are full and unconditional on a joint and several basis.  The Company files a consolidated U.S. federal income tax return and consolidated state income tax returns in the majority of states in which it does business.  Each subsidiary calculates its income tax provisions on a separate company basis, which are eliminated in the consolidation process.

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2008
(in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	1,207,588		$	-	$	-		$	1,207,588
Other		-			(21,830	)		25		-			(21,805	)
		-			1,185,758			25		-			1,185,783
Costs and expenses:
Raw material, freight and other costs		-			999,128			-		-			999,128
Refinery operating expenses, excluding     depreciation		-			87,560			-		-			87,560
Selling and general expenses, excluding     depreciation		4,235			6,120			-		-			10,355
Depreciation, amortization and accretion		14			14,958			-		(32	)		14,940
Gain on sales of assets		(37	)		-			-		-			(37	)
		4,212			1,107,766			-		(32	)		1,111,946
Operating income (loss)		(4,212	)		77,992			25		32			73,837
Interest expense and other financing    costs		3,184			939			-		(2,484	)		1,639
Interest and investment income		(1,560	)		(753	)		-		-			(2,313	)
Equity in earnings of subsidiaries before    income taxes		(80,297	)		-			-		80,297			-
		(78,673	)		186			-		77,813			(674	)
Income before income taxes		74,461			77,806			25		(77,781	)		74,511
Provision for income taxes		28,492			28,833			9		(28,792	)		28,542
Net income	$	45,969		$	48,973		$	16	$	(48,989	)	$	45,969

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	1,050,056		$	-	$	-		$	1,050,056
Other		-			(2,185	)		12		-			(2,173	)
		-			1,047,871			12		-			1,047,883
Costs and expenses:
Raw material, freight and other costs		-			839,865			-		-			839,865
Refinery operating expenses, excluding     depreciation		-			71,163			-		-			71,163
Selling and general expenses, excluding     depreciation		6,223			4,809			-		-			11,032
Depreciation, amortization and accretion		19			11,177			-		(73	)		11,123
Loss on sales of assets		2,028			-			-		-			2,028
		8,270			927,014			-		(73	)		935,211
Operating income (loss)		(8,270	)		120,857			12		73			112,672
Interest expense and other financing    costs		3,087			1,187			-		(1,318	)		2,956
Interest and investment income		(2,560	)		(2,767	)		-		-			(5,327	)
Equity in earnings of subsidiaries before    income taxes		(123,840	)		-			-		123,840			-
		(123,313	)		(1,580	)		-		122,522			(2,371	)
Income before income taxes		115,043			122,437			12		(122,449	)		115,043
Provision for income taxes		40,323			43,015			4		(43,019	)		40,323
Net income	$	74,720		$	79,422		$	8	$	(79,430	)	$	74,720

FRONTIER OIL CORPORATION
Condensed Consolidating Balance Sheet
As of March 31, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	118,700		$	35,561		$	-	$	-		$	154,261
Trade, income tax and other receivables		4,626			176,644			-		-			181,270
Receivable from affiliated companies		20,835			-			321		(21,156	)		-
Inventory of crude oil, products and    other		-			596,554			-		-			596,554
Deferred tax assets		2,606			6,404			-		(6,404	)		2,606
Commutation account		6,294			-			-		-			6,294
Other current assets		7,571			19,025								26,596
Total current assets		160,632			834,188			321		(27,560	)		967,581
Property, plant and equipment, at cost		1,137			1,151,949			-		6,112			1,159,198
Accumulated depreciation and    amortization		(957	)		(339,611	)		-		8,057			(332,511	)
Property, plant and equipment, net		180			812,338			-		14,169			826,687
Deferred turnaround costs		-			53,601			-		-			53,601
Deferred catalyst costs		-			8,599			-		-			8,599
Deferred financing costs, net		1,689			697			-		-			2,386
Prepaid insurance, net		606			-			-		-			606
Intangible assets, net		-			1,429			-		-			1,429
Other assets		3,100			1,335			-		-			4,435
Investment in subsidiaries		1,185,011			-			-		(1,185,011	)		-
Total assets	$	1,351,218		$	1,712,187		$	321	$	(1,198,402	)	$	1,865,324
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	263		$	441,236		$	-	$	-		$	441,499
Accrued liabilities and other		32,556			31,665			189		-			64,410
Total current liabilities		32,819			472,901			189		-			505,909
Long-term debt		150,000			-			-		-			150,000
Contingent income tax liabilities		32,415			1,097			-		-			33,512
Other long-term liabilities		2,994			39,919			-		-			42,913
Deferred income taxes		111,143			114,366			-		(114,366	)		111,143
Payable to affiliated companies					38,908			79		(38,987	)		-
Shareholders' equity		1,021,847			1,044,996			53		(1,045,049	)		1,021,847
Total liabilities and shareholders'    equity	$	1,351,218		$	1,712,187		$	321	$	(1,198,402	)	$	1,865,324

FRONTIER OIL CORPORATION
Condensed Consolidating Balance Sheet
As of December 31, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	186,368		$	111,031		$	-	$	-		$	297,399
Trade, income tax and other receivables		27,948			156,798			-		-			184,746
Receivable from affiliated companies		-			2,319			296		(2,615	)		-
Inventory of crude oil, products and    other		-			501,927			-		-			501,927
Deferred tax assets		9,426			13,507			-		(13,507	)		9,426
Commutation account		6,280			-			-		-			6,280
Other current assets		9,646			21,599			-		-			31,245
Total current assets		239,668			807,181			296		(16,122	)		1,031,023
Property, plant and equipment, at cost		1,121			1,090,695			-		3,627			1,095,443
Accumulated depreciation and    amortization		(943	)		(325,076	)		-		8,026			(317,993	)
Property, plant and equipment, net		178			765,619			-		11,653			777,450
Deferred turnaround costs		-			39,276			-		-			39,276
Deferred catalyst costs		-			6,540			-		-			6,540
Deferred financing costs, net		1,810			746			-		-			2,556
Prepaid insurance, net		909			-			-		-			909
Intangible assets, net		-			1,460			-		-			1,460
Other assets		3,313			1,321			-		-			4,634
Investment in subsidiaries		1,106,243			-			-		(1,106,243	)		-
Total assets	$	1,352,121		$	1,622,143		$	296	$	(1,110,712	)	$	1,863,848
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	242		$	417,153		$	-	$	-		$	417,395
Accrued liabilities and other		25,947			57,982			189		-			84,118
Total current liabilities		26,189			475,135			189		-			501,513
Long-term debt		150,000			-			-		-			150,000
Contingent income tax liabilities		31,185			1,072			-		-			32,257
Other long-term liabilities		3,208			37,946			-		-			41,154
Deferred income taxes		100,310			107,652			-		(107,652	)		100,310
Payable to affiliated companies		2,615			3,365			70		(6,050	)		-
Shareholders' equity		1,038,614			996,973			37		(997,010	)		1,038,614
Total liabilities and shareholders'    equity	$	1,352,121		$	1,622,143		$	296	$	(1,110,712	)	$	1,863,848

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	45,969		$	48,973		$	16		$	(48,989	)	$	45,969
Adjustments to reconcile net income to  net cash from operating activities:
Equity in earnings of subsidiaries before    income taxes		(80,297	)		-			-			80,297			-
Depreciation, amortization and    accretion		14			18,930			-			(32	)		18,912
Deferred income taxes		18,232			-			-			-			18,232
Stock-based compensation expense		4,124			-			-			-			4,124
Excess income tax benefits of    stock-based compensation		(3,661	)		-			-			-			(3,661	)
Income taxes eliminated in    consolidation		-			28,783			9			(28,792	)		-
Amortization of debt issuance costs		121			49			-			-			170
Gain on sales of assets		(37	)		-			-			-			(37	)
Amortization of long-term prepaid    insurance		303			-			-			-			303
Increase  in other long-term liabilities		518			388			-			-			906
Changes in deferred charges and other		213			(20,370	)		-			-			(20,157	)
Changes in components of working    capital from operations		35,979			(124,608	)		-			(2,484	)		(91,113	)
Net cash provided by (used in) operating    activities		21,478			(47,855	)		25			-			(26,352	)
Cash flows from investing activities:
Additions to property, plant and    equipment		(16	)		(43,587	)		-			-			(43,603	)
Proceeds from sales of assets		37			-			-			-			37
El Dorado Refinery contingent earn-out    payment		-			(7,500	)		-			-			(7,500	)
Other acquisitions and leasehold    improvements		-			-			-			-			-
Net cash provided by (used in) investing activities		21			(51,087	)		-			-			(51,066	)
Cash flows from financing activities:
Purchase of treasury stock		(64,084	)		-			-			-			(64,084	)
Proceeds from issuance of common stock		126			-			-			-			126
Dividends paid		(5,420	)		-			-			-			(5,420	)
Excess income tax benefits of    stock-based compensation		3,661			-			-			-			3,661
Debt issuance costs and other		-			(3	)		-			-			(3	)
Intercompany transactions		(23,450	)		23,475			(25	)		-			-
Net cash provided by (used in)   financing activities		(89,167	)		23,472			(25	)		-			(65,720	)
Decrease in cash and cash equivalents		(67,668	)		(75,470	)		-			-			(143,138	)
Cash and cash equivalents, beginning of    period		186,368			111,031			-			-			297,399
Cash and cash equivalents, end of    period	$	118,700		$	35,561		$	-		$	-		$	154,261

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	74,720		$	79,422		$	8		$	(79,430	)	$	74,720
Adjustments to reconcile net income to  net cash from operating activities:
Equity in earnings of subsidiaries before    income taxes		(123,840	)		-			-			123,840			-
Depreciation, amortization and    accretion		19			14,467			-			(73	)		14,413
Deferred income taxes		(97	)		-			-			-			(97	)
Stock-based compensation expense		5,544			-			-			-			5,544
Excess income tax benefits of    stock-based compensation		(1,944	)		-			-			-			(1,944	)
Income taxes eliminated in    consolidation		-			43,015			4			(43,019	)		-
Amortization of debt issuance costs		121			78			-			-			199
Loss on sales of assets		2,028			-			-			-			2,028
Decrease in commutation account		1,015			-			-			-			1,015
Amortization of long-term prepaid    insurance		304			-			-			-			304
Increase in other long-term liabilities		28,989			207			-			-			29,196
Changes in deferred charges and other		(235	)		(2,541	)		-			-			(2,776	)
Changes in components of working    capital from operations		1,838			14,414			-			853			17,105
Net cash provided by (used in) operating    activities		(11,538	)		149,062			12			2,171			139,707
Cash flows from investing activities:
Additions to property, plant and    equipment		(4,276	)		(45,487	)		-			(2,171	)		(51,934	)
Proceeds from sale of assets		2,290			-			-			-			2,290
El Dorado Refinery contingent earn-out    payment		-			(7,500	)		-			-			(7,500	)
Other acquisitions and leasehold    improvements		-			(2,995	)		-			-			(2,995	)
Net cash used in investing activities		(1,986	)		(55,982	)		-			(2,171	)		(60,139	)
Cash flows from financing activities:
Purchase of treasury stock		(29,661	)		-			-			-			(29,661	)
Proceeds from issuance of common stock		485			-			-			-			485
Dividends paid		(3,312	)		-			-			-			(3,312	)
Excess income tax benefits of    stock-based compensation		1,944			-			-			-			1,944
Debt issuance costs and other		-			(3	)		-			-			(3	)
Intercompany transactions		14,017			(14,005	)		(12	)		-			-
Net cash used in financing activities		(16,527	)		(14,008	)		(12	)		-			(30,547	)
Decrease in cash and cash equivalents		(30,051	)		79,072			-			-			49,021
Cash and cash equivalents, beginning of    period		215,049			190,430			-			-			405,479
Cash and cash equivalents, end of    period	$	184,998		$	269,502		$	-		$	-		$	454,500

ITEM 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

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 approximately 172,000 barrels per day (“bpd”).  The crude oil capacity increased from 162,000 bpd because of the completion in April 2008 of the crude unit and vacuum tower expansion at our El Dorado Refinery.  To assist in understanding our operating results, please refer to the operating data at the end of this analysis, which provides key operating information for our Refineries.  Refinery operating data is also included in our annual report on Form 10-K, our quarterly reports on Form 10-Q and on our web site at http://www.frontieroil.com.  We make our web site content available for informational purposes only.  The web site should not be relied upon for investment purposes.  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, proxy statements, 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.

Overview

The terms “Frontier,” “we” and “our” refer to Frontier Oil Corporation and its subsidiaries.  The four significant indicators of our profitability, which are reflected and defined in the operating data at the end of this analysis, are the gasoline crack spread, the diesel crack spread, the light/heavy crude oil differential and the WTI/WTS crude oil differential.  Other significant factors that influence our results are refinery utilization, crude oil price trends, asphalt and by-product margins and refinery operating expenses (including natural gas prices and maintenance).  Under our first-in, first-out (“FIFO”) inventory accounting method, crude oil price trends can cause significant fluctuations in the inventory valuation of our crude oil, unfinished products and finished products, thereby resulting in FIFO inventory gains when crude oil prices increase and FIFO inventory losses when crude oil prices decrease during the reporting period.  We typically do not use derivative instruments to offset price risk on our base level of operating inventories.  See “Price Risk Management Activities” under Item 3 for a discussion of our utilization of futures trading.

Three months ended March 31, 2008 compared with the same period in 2007

Overview of Results

We had net income for the three months ended March 31, 2008 of $46.0 million, or $0.44 per diluted share, compared to net income of $74.7 million, or $0.68 per diluted share, earned in the same period in 2007.  Our operating income of $73.8 million for the three months ended March 31, 2008 decreased $38.8 million from the $112.7 million for the comparable period in 2007.  Our net income and operating income declined because the average gasoline crack spread of $4.04 per barrel during the first quarter of 2008 was substantially lower than the $12.92 per barrel in the first quarter of 2007, and the average diesel crack spread decreased to $20.71 per barrel during the first quarter of 2008 from $21.66 per barrel in the comparable period in 2007.  In addition, product yields and product revenues were significantly lower during the first quarter of 2008 because of the major turnaround work conducted at the El Dorado Refinery during all of March 2008.

Specific Variances

Refined product revenues.  Refined product revenues increased $157.5 million, or 15%, from $1.05 billion to $1.21 billion for the three months ended March 31, 2008 compared to the same period in 2007.  This increase resulted primarily from higher crude oil prices, which supported higher refined product prices ($28.44 higher average per sales barrel), despite a decline in sales volumes.

Manufactured product yields.  Yields decreased 37,489 bpd at the El Dorado Refinery and 2,312 bpd at the Cheyenne Refinery for the three months ended March 31, 2008 compared to same period in 2007.  The decrease in yields at the El Dorado Refinery was due to the planned major turnaround work on the crude unit, the coker and the reformer during all of March of this year.

Other revenues.  Other revenues decreased $19.6 million to a loss of $21.8 million for the three months ended March 31, 2008, compared to a loss of $2.2 million for the same period in 2007, the primary source of which was $27.1 million in net losses from derivative contracts in the three months ended March 31, 2008 compared to $2.3 million in net losses from derivative contracts in the three months ended March 31, 2007.  The increased hedge losses were partially offset by $4.3 million in gasoline sulfur credit sales in 2008 (none in the comparable period of 2007).  See “Price Risk Management Activities” under Item 3 for a discussion of our utilization of commodity derivative contracts.

Raw material, freight and other costs.  Raw material, freight and other costs increased by $159.3 million, from $839.9 million in the three months ended March 31, 2007, to $999.1 million in the same period for 2008.  The increase in raw material, freight and other costs was due to higher average crude oil prices and increased purchased products partially offset by decreased overall crude oil charges and higher light/heavy crude oil differentials during the three months ended March 31, 2008 when compared to the same period in 2007.  For the three months ended March 31, 2008, we realized a reduction in raw material, freight and other costs as a result of inventory gains of approximately $62.5 million after tax ($100.7 million pretax, consisting of a $20.9 million gain at the Cheyenne Refinery and a $79.8 million gain at the El Dorado Refinery).  For the three months ended March 31, 2007, we realized a reduction in raw material, freight and other costs as a result of inventory gains of approximately $2.0 million after tax ($3.3 million pretax, comprised of a $1.6 million gain at the Cheyenne Refinery and a $1.7 million at the El Dorado Refinery).

The Cheyenne Refinery raw material, freight and other costs of $79.58 per sales barrel for the three months ended March 31, 2008 increased from $51.49 per sales barrel in the same period in 2007 due to higher average crude oil prices and increased purchased products partially offset by increased light/heavy crude oil differentials and lower overall crude oil charges.  The light/heavy crude oil differential for the Cheyenne Refinery averaged $18.56 per barrel in the three months ended March 31, 2008 compared to $13.24 per barrel in the same period in 2007.

The El Dorado Refinery raw material, freight and other costs of $80.35 per sales barrel for the three months ended March 31, 2008 increased from $55.91 per sales barrel in the same period in 2007 due to a lower volume of sales barrels and higher average crude oil prices partially offset by decreased overall crude charges and higher light/heavy crude oil differentials.  The WTI/WTS crude oil differential increased from an average of $4.34 per barrel in the three month period ended March 31, 2007, to $4.64 per barrel in the same period in 2008.  The light/heavy crude oil differential increased from an average of $12.39 per barrel in the three month period ended March 31, 2007, to $21.68 per barrel in the same period in 2008.

Refinery operating expenses.  Refinery operating expenses, excluding depreciation, were $87.6 million in the three months ended March 31, 2008 compared to $71.2 million in the comparable period of 2007.

The Cheyenne Refinery operating expenses, excluding depreciation, were $29.2 million in the three months ended March 31, 2008 compared to $25.0 million in the comparable period of 2007.  Primary areas of increased costs were: natural gas costs ($1.7 million due to increased volumes and price), maintenance costs ($1.2 million, $720,000 of which related to the remaining costs of the coker fire in December 2007), turnaround amortization ($830,000 due to amortization costs of 2007 turnarounds), and salaries and benefits expenses ($193,000).

The El Dorado Refinery operating expenses, excluding depreciation, were $58.4 million in the three months ended March 31, 2008, increasing from $46.2 million in the same three-month period of 2007.  Primary areas of increased costs and the variance amounts for the 2008 period compared to the 2007 period were: maintenance costs ($6.6 million, primarily related to demolition, catalyst and repair costs incurred during the March 2008 turnaround), salaries and benefits expenses ($1.8 million, mostly due to increased overtime in relation to the March 2008 turnaround), property and other taxes ($1.6 million), natural gas costs ($1.1 million due to increased volumes and prices), consulting and legal expenses ($658,000), and operating supplies ($530,000).

Selling and general expenses.  Selling and general expenses, excluding depreciation, decreased $677,000, or 6%, from $11.0 million for the three months ended March 31, 2007 to $10.4 million for the three months ended March 31, 2008, due to legal expenses incurred in the 2007 acquisition of EMC ($228,000), lower salaries and benefit expenses (including stock-based compensation expense) in 2008 ($227,000) and lower rental and lease equipment costs ($182,000).

Depreciation, accretion and amortization.  Depreciation, accretion and amortization increased $3.8 million, or 34%, for the three months ended March 31, 2008 compared to the same period in 2007 because of increased capital investment in our Refineries, including our Cheyenne Refinery coker expansion project placed into service in the second quarter of 2007.  We also had higher depreciation expense during the three months ended March 31, 2008 due to changes made during the third quarter of 2007, in the estimated useful lives of certain assets that are expected to be retired in connection with certain of our capital projects in 2008 and 2009.

Gain on sale of assets.  The $37,000 gain on the sale of assets during the three months ended March 31, 2008 compares to a $2.0 million loss from the buyout and sale of a leased aircraft during the three months ended March 31, 2007.

Interest expense and other financing costs.  Interest expense and other financing costs of $1.6 million for the three months ended March 31, 2008 decreased $1.3 million, or 45%, from $3.0 million in the comparable period in 2007.  The primary component of the decrease was higher capitalized interest in the first quarter of 2008 of $2.6 million compared to $1.3 million in 2007.  Average debt outstanding was $150.5 million and $150.0 during the three months ended March 31, 2008 and 2007 (excluding amounts payable to Utexam under the Utexam Arrangement).

Interest and investment income.  Interest and investment income decreased $3.0 million from $5.3 million in the three months ended March 31, 2007, to $2.3 million in the three months ended March 31, 2008, because of lower average cash balances.

Provision for income taxes.  The provision for income taxes for the three months ended March 31, 2008 was $28.5 million on pretax income of $74.5 million (or 38.3%).  Our provision for income taxes for the three months ended March 31, 2007 was $40.3 million on pretax income of $115.0 million (or 35.1%).  The effective tax rate for the three months ended March 31, 2008 was higher than the effective tax rate in the comparable period in 2007 because 2007 included a $1.4 million ultra-low sulfur diesel credit benefit to the provision and the 2008 provision was higher due to certain executive compensation that exceeded the limits allowed as a tax deduction.  The benefit of the Section 199 production activities deduction for manufacturers (based on taxable income) was also less in the three months ended March 31, 2008, than in the comparable period of 2007 because taxable income was substantially less during the first quarter of 2008.  The provision for income taxes for the three months ended March 31, 2008 includes a benefit of $487,000 for Kansas state income taxes due to a recent favorable ruling by the Kansas Board of Tax Appeals.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities.  Net cash used in operating activities was $26.4 million for the three months ended March 31, 2008 compared to net cash provided by operating activities of $139.7 million during the three months ended March 31, 2007.  Cash flows from working capital changes used a substantial amount of cash during the 2008 period compared to providing cash for the same period in 2007 in addition to lower operating income which decreased cash flow.  Operating cash flows are affected by crude oil and refined product prices and other risks as discussed in “Item 3. Quantitative and Qualitative Disclosures About Market Risks.”

Working capital changes used a total of $91.1 million of cash during the 2008 period compared to providing $17.1 million of cash for the same period in 2007.  The most significant component of the working capital change was an increase in inventories of $94.6 million in the first three months of 2008 compared to an decrease in inventories of $27.8 million in the 2007 comparable period, partially offset by an increase in trade and crude payables of $6.1 million in 2008 compared to a decrease in 2007 of $43.0 million.  The increase in inventories during the three months ended March 31, 2008, was due to higher crude oil inventories from crude oil stored during the March turnaround at the El Dorado Refinery, as well as other increased inventory levels and higher prices.  During the three months ended March 31, 2008, we received a federal income tax refund of $24.0 million which was our estimated overpayment from 2007.  At March 31, 2008, we had $154.3 million of cash and cash equivalents, $461.7 million of working capital and $210.5 million of borrowing base availability for cash borrowings under our $225.0 million revolving credit facility.

Cash flows used in investing activities.  Capital expenditures during the first three months of 2008 were $43.6 million, which included approximately $33.4 million for the El Dorado Refinery and $10.1 million for the Cheyenne Refinery.  The $33.4 million of capital expenditures for our El Dorado Refinery included $9.6 million for the crude unit and vacuum tower expansion, $9.2 million on the coke drum replacement and $6.1 million on the gasoil hydrotreater revamp, as well as operational, payout, safety, administrative, environmental and optimization projects.  The $10.1 million of capital expenditures for our Cheyenne Refinery included approximately $2.2 million for the coker expansion and $2.1 million for the amine plant as well as environmental, operational, safety, administrative and payout projects.

Under the provisions of the purchase agreement with Shell for our El Dorado Refinery, we have been required to make contingent earn-out payments for each of the years 2000 through 2007 equal to one-half of the excess over $60.0 million per year of the El Dorado Refinery’s annual revenues less material costs and operating costs, other than depreciation.  The total amount of these contingent payments was capped at $40.0 million, with an annual cap of $7.5 million. Such contingency payments were recorded as an additional acquisition cost when the payment was considered probable and estimable.  Payments of $7.5 million each were paid in early 2005, 2006, 2007 and 2008, based on 2004, 2005, 2006 and 2007 results, and were accrued as of December 31, 2004, 2005, 2006 and 2007, respectively.  Including the payment made in early 2008, we paid a total of $37.5 million to date for contingent earn-out payments and will no longer be subject to this provision of the Shell agreement.

Cash flows used in financing activities.  During the three months ended March 31, 2008, we spent $64.1 million to repurchase stock under the stock repurchase program discussed below.  Treasury stock increased by 238,379 shares ($7.8 million) from stock surrendered by employees and members of the Board of Directors to pay their withholding taxes on stock-based compensation which vested during the first three months of 2008.  We also paid $5.4 million in dividends during the three months ended March 31, 2008.

Through December 31, 2007, our Board of Directors had approved a total of $300 million for share repurchases, of which $243.6 million had been spent.  In February 2008, our Board of Directors approved an additional $100 million to be utilized for share repurchases.  As indicated above, we used $64.1 million to repurchase stock under this program during the three months ended March 31, 2008, leaving a remaining authorization of $100.2 million.

During the three months ended March 31, 2008, we issued 70,000 shares of common stock from our treasury stock in connection with stock option exercises by employees and members of our Board of Directors, for which we received $126,000. As of March 31, 2008, we had $150.0 million of long-term debt outstanding and no borrowings under our revolving credit facility.  We also had $14.5 million of letters of credit outstanding under our revolving credit facility.  We were in compliance with the financial covenants of our revolving credit facility as of March 31, 2008.  Shareholders’ equity as of March 31, 2008 was $1.0 billion.

Our Board of Directors declared a regular quarterly cash dividend of $0.05 per share in December 2007, which was paid in January 2008.  In February 2008, our Board of Directors declared a regular quarterly cash dividend of $0.05 per share for shareholders of record on March 28, 2008, which was paid in April 2008.  The total cash required for the dividend declared in February 2008 was approximately $5.1 million and was included in “Accrued dividends” on the March 31, 2008 Condensed Consolidated Balance Sheet.

FUTURE CAPITAL EXPENDITURES

 Significant future capital projects.  Both the Cheyenne and El Dorado Refineries will continue working on significant, multi-year projects in 2008 and 2009.  The new amine unit at the Cheyenne Refinery has an estimated total cost of $20.5 million (including capitalized interest) and is intended to result in improved alkylation unit reliability and provide a partial backup unit if the main amine unit is not operating.  The project is expected to be completed and start-up is expected to occur in mid-2008.

The approximate $153 million crude unit and vacuum tower expansion at the El Dorado Refinery, substantially completed during the first quarter of 2008, allows for higher crude charge rates (including a significantly greater percentage of heavy crude oil) and higher gasoline and distillate yields.  This project also includes a significant metallurgical upgrade to the unit which allows for running high napthenic acid crude oils, a characteristic typical of crude types found in Western Canada, West Africa and the North Sea.  At March 31, 2008, there were $2.0 million of outstanding purchase commitments for this project.  The coke drum replacement project estimated at $60 million for our El Dorado Refinery includes safety and reliability components as well as overall throughput support for the Refinery and is expected to be completed by mid-2008.  The gasoil hydrotreater revamp at the El Dorado Refinery is the key project to achieve gasoline sulfur compliance for our El Dorado Refinery and has a total estimated cost of $82 million (see “Environmental” in Note 10 in the “Notes to Condensed Consolidated Financial Statements”).  The project will also result in significant yield improvement for the catalytic cracking unit and is anticipated to be completed in the fall of 2009.  As of March 31, 2008, outstanding purchase commitments for the gasoil hydrotreater revamp were $8.2 million.  The El Dorado Refinery $84 million catalytic cracker expansion project includes a revamp component and new technology which will increase charge rates and improve product yields and is also anticipated to be completed in the fall of 2009 with outstanding purchase commitments at March 31, 2008 of $2.7 million.  The El Dorado Refinery catalytic cracker regenerator emission control project, with a fall 2009 estimated completion date and total estimated cost of $36 million, will add a scrubber to improve the environmental performance of the unit, specifically as it relates to flue-gas emissions.  This project is necessary to support the catalytic cracking expansion project and to meet a portion of the expected requirements of the EPA Petroleum Refining Initiative (see “Environmental” in Note 10 in the “Notes to Condensed Consolidated Financial Statements”).  At March 31, 2008 the catalytic cracker regenerator emission control project had outstanding purchase commitments of $3.6 million.  The above amounts include estimated capitalized interest.

2008 capital expenditures.  Including the projects discussed above, 2008 capital expenditures aggregating approximately $309.0 million are currently planned, and include $191.0 million at our El Dorado Refinery, $116.0 million at our Cheyenne Refinery, $1.5 million at our products terminal and blending facility and $600,000 at our Denver and Houston offices.  The $191.0 million of planned capital expenditures for our El Dorado Refinery includes $26.0 million for the gasoil hydrotreater revamp project, $28.0 million for  the coke drum replacement project, $29.0 million for the crude unit and vacuum expansion project, $20.0 million for the catalytic cracker expansion project and $20.0 million for the catalytic cracker regenerator emission control project, as mentioned above, as well as environmental, operational, safety, payout and administrative projects.  The $116.0 million of planned capital expenditures for our Cheyenne Refinery includes $15.0 million for the Refinery main office replacement, $13.0 million for a new boiler project ($14.0 million total cost), $8.0 million for a waste water selenium treatment project ($15.0 million total cost), and $8.0 million for the new amine plant ($20.5 million total cost), as well as environmental, operational, safety, payout and administrative projects.  We expect that our 2008 capital expenditures will be funded with cash generated by our operations and by using a portion of our existing cash balance, if necessary.  We may experience cost overruns and/or schedule delays on any of these projects because of the strong industry demand for material, labor and engineering resources.

Operating Data

The following tables set forth the refining operating statistical information on a consolidatedbasis and for each Refinery for the three months ended March 31, 2008 and 2007.  The statistical information includes the following terms:

·   WTI Cushing crude oil price - the benchmark West Texas Intermediate crude oil priced at Cushing, Oklahoma (ConocoPhillips WTI crude oil posting plus).

·   Charges - the quantity of crude oil and other feedstock processed through Refinery units on a 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 Cushing crude oil price.

·   Cheyenne light/heavy crude oil differential - the average differential between the WTI Cushing crude oil price and the heavy crude oil delivered to the Cheyenne Refinery.

·   WTI/WTS crude oil differential - the average differential between the WTI Cushing crude oil price and the West Texas sour crude oil priced at Midland, Texas.

·   El Dorado Refinery light/heavy crude oil differential - the average differential between the WTI Cushing crude oil price and Canadian heavy crude oil delivered to the El Dorado Refinery.

Consolidated:
	Three Months Ended March 31,
	2008		2007
Charges (bpd)
Light crude		11,060		41,942
Heavy and intermediate crude		92,813		108,091
Other feed and blendstocks		22,145		16,496
Total		126,018		166,529
Manufactured product yields (bpd)
Gasoline		65,498		77,545
Diesel and jet fuel		38,824		61,367
Asphalt		5,568		4,247
Other		12,973		19,507
Total		122,863		162,666
Total product sales (bpd)
Gasoline		75,328		85,436
Diesel and jet fuel		38,588		61,576
Asphalt		5,281		4,695
Other		17,932		19,037
Total		137,129		170,744
Refinery operating margin information (per sales barrel)
Refined products revenue	$	96.77	$	68.33
Raw material, freight and other costs (FIFO inventory accounting)		80.06		54.65
Refinery operating expenses, excluding depreciation		7.02		4.63
Depreciation, accretion and amortization		1.19		0.72
Average WTI Cushing crude oil price (per barrel)	$	97.88	$	57.27
Average gasoline crack spread (per barrel)		4.04		12.92
Average diesel crack spread (per barrel)		20.71		21.66
Average sales price (per sales barrel)
Gasoline	$	103.46	$	70.55
Diesel and jet fuel		119.70		79.58
Asphalt		34.07		35.57
Other		37.81		30.10

	Three Months Ended March 31,
	2008		2007
Cheyenne Refinery:
Charges (bpd)
Light crude		8,141		16,839
Heavy and intermediate crude		35,009		29,114
Other feed and blendstocks		1,644		1,895
Total		44,794		47,848
Manufactured product yields (bpd)
Gasoline		20,472		20,736
Diesel		13,394		14,685
Asphalt		5,568		4,247
Other		4,295		6,373
Total		43,729		46,041
Total product sales (bpd)
Gasoline		29,036		26,680
Diesel		12,399		13,178
Asphalt		5,281		4,695
Other		4,402		4,063
Total		51,118		48,616
Refinery operating margin information (per sales barrel)
Refined products revenue	$	93.64	$	67.03
Raw material, freight and other costs (FIFO inventory accounting)		79.58		51.49
Refinery operating expenses, excluding depreciation		6.28		5.71
Depreciation, accretion and amortization		1.43		1.13
Average light/heavy crude oil differential (per barrel)	$	18.56	$	13.24
Average gasoline crack spread (per barrel)		2.36		12.63
Average diesel crack spread (per barrel)		21.75		23.02
Average sales price (per sales barrel)
Gasoline	$	102.25	$	72.57
Diesel		123.38		83.55
Asphalt		34.07		35.57
Other		24.67		13.37

	Three Months Ended March 31,
	2008		2007
El Dorado Refinery:
Charges (bpd)
Light crude		2,918		25,103
Heavy and intermediate crude		57,804		78,977
Other feed and blendstocks		20,501		14,600
Total		81,223		118,680
Manufactured product yields (bpd)
Gasoline		45,027		56,809
Diesel and jet fuel		25,431		46,682
Other		8,678		13,134
Total		79,136		116,625
Total product sales (bpd)
Gasoline		46,292		58,756
Diesel and jet fuel		26,189		48,399
Other		13,530		14,974
Total		86,011		122,129
Refinery operating margin information (per sales barrel)
Refined products revenue	$	98.63	$	68.85
Raw material, freight and other costs (FIFO inventory accounting)		80.35		55.91
Refinery operating expenses, excluding depreciation		7.45		4.20
Depreciation, accretion and amortization		1.05		0.56
Average WTI/WTS crude oil differential (per barrel)	$	4.64	$	4.34
Average light/heavy crude oil differential (per barrel)		21.68		12.39
Average gasoline crack spread (per barrel)		5.10		13.05
Average diesel crack spread (per barrel)		20.22		21.29
Average sales price (per sales barrel)
Gasoline	$	104.22	$	69.63
Diesel and jet fuel		117.96		78.50
Other		42.09		34.65

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Impact of Changing Prices.  Our earnings and cash flows and estimates of future cash flows are sensitive to changes in energy prices.  The prices of crude oil and refined products have fluctuated substantially in recent years.  These prices depend on many factors, including the overall demand for crude oil and refined products, which in turn depend on, among other factors, 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 regulations and global market dynamics.  The prices we receive for refined products are also affected by factors such as local market conditions and the level of operations of other refineries in our markets.  The prices at which we can sell gasoline and other refined products are strongly influenced by the 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.  The timing of the relative movement of the prices, however, can impact profit margins, which could significantly affect our earnings and cash flows.

Under our FIFO inventory accounting method, crude oil price movements can cause significant fluctuations in the valuation of our crude oil, unfinished products and finished products inventories, resulting in inventory gains when crude oil prices increase and inventory losses when crude oil prices decrease during the reporting period.

   Price Risk Management Activities.  At times, we enter into commodity derivative contracts to manage our price exposure to our inventory positions, purchases of foreign crude oil and consumption of natural gas in the refining process or to fix margins on future production.  Gains or losses on commodity derivative contracts accounted for as hedges are recognized in the Condensed Consolidated Statements of Income and Comprehensive Income as “Raw material, freight and other costs” or “Refinery operating expenses, excluding depreciation” when the associated transactions are consummated, while gains and losses on transactions accounted for using mark-to-market accounting are reflected in “Other revenues” in the Condensed Consolidated Statements of Income and Comprehensive Income at each period end.  See Note 9 “Price Risk Management Activities” in the “Notes to Condensed Consolidated Financial Statements.”

   Interest Rate Risk.  Borrowings under our revolving credit facility bear a current market rate of interest.  A one percent increase or decrease in the interest rates on our revolving credit facility would not significantly affect our earnings or cash flows.  Our $150.0 million principal of 6⅝% Senior Notes that were outstanding at March 31, 2008, and due 2011, have a fixed interest rate.  Thus, our long-term debt is not exposed to cash flow risk from interest rate changes.  Our long-term debt, however, is exposed to fair value risk.  The estimated fair value of our 6⅝% Senior Notes at March 31, 2008 was $148.1 million.

ITEM 4.      CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  As of the end of the period covered by this report, we evaluated, under the supervision and with the participation of our management, including our Chairman of the Board, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act.  Based on that evaluation, our Chairman of the Board, President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings – See Note 11 in the Notes to Condensed Consolidated Financial Statements.
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds - (c) Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (2)
January 1, 2008 to January 31, 2008		630,000	$	35.2529		630,000	$	34,223,268
February 1, 2008 to February 29, 2008		931,367		36.5601		931,367		100,172,431
March 1, 2008 to March 31, 2008		-		-		-		100,172,431
Total first quarter		1,561,367	$	36.0326		1,561,367	$	100,172,431

	(1)Through December 31, 2007, our Board of Directors had approved a total of $300 million for share repurchases, of which $243.6 million had been spent.  In February 2008, our Board of Directors approved an additional $100 million to be utilized for share repurchases.  As indicated above, we used $56.3 million to repurchase stock under this program during the three months ended March 31, 2008, leaving a remaining authorization of $100.2 million.  The program has no expiration date but may be terminated by the Board of Directors at any time.  No shares were repurchased during the periods shown other than through publicly-announced programs. (2)Amounts shown in this column reflect approximate dollar value of shares remaining as of each month end which may be repurchased under the stock repurchase programs referenced in note 1 above.
ITEM 4.	Submission of Matters to a Vote of Security Holders – None.
ITEM 6.	Exhibits – 10.1 – Form of Stock Unit / Restricted Stock agreement for James R. Gibbs. 10.2 – Form of Stock Unit / Restricted Stock agreement for other employees. 31.1 – Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 – Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FRONTIER OIL CORPORATION
By:	/s/ Nancy J. Zupan
	Nancy J. Zupan
	Vice President - Controller (principal accounting officer)

Date: May 8, 2008