Frontier Oil (FTO) 10-Q 2008 Q3 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 SEPTEMBER 30, 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 November 3, 2008:  103,902,969

FRONTIER OIL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 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)
	Nine Months Ended September 30,						Three Months Ended September 30,
	2008			2007			2008			2007
Revenues:
Refined products	$	5,184,204		$	3,899,464		$	2,094,606		$	1,418,270
Other		(33,563	)		(30,361	)		103,696			(31,750	)
		5,150,641			3,869,103			2,198,302			1,386,520
Costs and expenses:
Raw material, freight and other costs		4,565,992			2,900,169			1,991,966			1,095,364
Refinery operating expenses, excluding depreciation		244,861			210,359			76,267			69,382
Selling and general expenses, excluding depreciation		32,379			41,855			9,876			17,240
Depreciation, amortization and accretion		48,072			37,963			16,635			14,770
Gain on sales of assets		(44	)		(15,232	)		-			(17,260	)
		4,891,260			3,175,114			2,094,744			1,179,496
Operating income		259,381	��		693,989			103,558			207,024
Interest expense and other financing costs		7,043			7,029			2,480			2,081
Interest and investment income		(4,691	)		(17,697	)		(1,056	)		(6,050	)
		2,352			(10,668	)		1,424			(3,969	)
Income before income taxes		257,029			704,657			102,134			210,993
Provision for income taxes		79,421			248,949			29,811			73,768
Net income	$	177,608		$	455,708		$	72,323		$	137,225
Comprehensive income	$	176,135		$	455,708		$	71,912		$	137,225
Basic earnings per share of common stock	$	1.72		$	4.23		$	0.70		$	1.30
Diluted earnings per share of common stock	$	1.71		$	4.19		$	0.70		$	1.28
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)
September 30, 2008 and December 31, 2007	2008			2007
ASSETS
Current assets:
Cash, including cash equivalents of $452,005 and $278,314 at 2008 and 2007,  respectively	$	464,028		$	297,399
Trade receivables, net of allowance of $500 at both years		234,611			155,454
Other receivables		50,336			29,292
Inventory of crude oil, products and other		638,906			501,927
Deferred income taxes		11,981			9,426
Commutation account		6,362			6,280
Other current assets		52,103			31,245
Total current assets		1,458,327			1,031,023
Property, plant and equipment, at cost:
Refineries and other equipment		1,233,576			1,082,275
Furniture, fixtures and other equipment		14,695			13,168
		1,248,271			1,095,443
Accumulated depreciation and amortization		(356,316	)		(317,993	)
Property, plant and equipment, net		891,955			777,450
Deferred turnaround costs		51,840			39,276
Deferred catalyst costs		11,042			6,540
Deferred financing costs, net of accumulated amortization of $2,029 and $1,619 at     2008 and 2007, respectively		6,480			2,556
Prepaid insurance, net of accumulated amortization		-			909
Intangible assets, net of accumulated amortization of $462 and $370 at 2008 and     2007, respectively		1,368			1,460
Other assets		4,891			4,634
Total assets	$	2,425,903		$	1,863,848
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	672,134		$	417,395
Derivative liabilities		-			15,089
Accrued liabilities and other		62,319			69,029
Total current liabilities		734,453			501,513
Long-term debt		347,168			150,000
Contingent income tax liabilities		28,765			32,257
Post-retirement employee liabilities		30,563			27,549
Long-term capital lease obligation		3,641			8
Other long-term liabilities		13,142			13,597
Deferred income taxes		117,652			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 periods		57,736			57,736
Paid-in capital		230,502			211,324
Retained earnings		1,255,351			1,095,540
Accumulated other comprehensive income		105			1,578
Treasury stock, at cost, 27,947,394 and 26,893,939 shares at 2008 and 2007, respectively		(393,175	)		(327,564	)
Total shareholders' equity		1,150,519			1,038,614
Total liabilities and shareholders' equity	$	2,425,903		$	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)
	Nine Months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	177,608		$	455,708
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion		61,082			48,499
Deferred income taxes		15,684			220
Stock-based compensation expense		13,736			16,759
Excess income tax benefits of stock-based compensation		(4,201	)		(6,109	)
Amortization of debt issuance costs		603			598
Senior Notes discount amortization		8			-
Allowance for investment loss		411			-
Gain on sales of assets		(44	)		(15,232	)
Decrease in commutation account		-			1,009
Amortization of long-term prepaid insurance		909			909
(Decrease) increase in other long-term liabilities		(1,331	)		28,515
Changes in deferred turnaround costs, deferred catalyst costs and other		(30,817	)		(22,112	)
Changes in working capital from operations		(13,258	)		(55,848	)
Net cash provided by operating activities		220,390			452,916
Cash flows from investing activities:
Additions to property, plant and equipment		(160,219	)		(229,208	)
Proceeds from sales of assets		45			22,240
El Dorado Refinery contingent earn-out payment		(7,500	)		(7,500	)
Other acquisitions and leasehold improvements		-			(3,144	)
Net cash used in investing activities		(167,674	)		(217,612	)
Cash flows from financing activities:
Proceeds from issuance of 8.5% Senior Notes, net of discount		197,160			-
Purchase of treasury stock		(66,403	)		(204,113	)
Proceeds from issuance of common stock		265			1,958
Dividends paid		(16,938	)		(12,010	)
Excess income tax benefits of stock-based compensation		4,201			6,109
Debt issuance costs and other		(4,372	)		(66	)
Net cash provided by (used in) financing activities		113,913			(208,122	)
Increase in cash and cash equivalents		166,629			27,182
Cash and cash equivalents, beginning of period		297,399			405,479
Cash and cash equivalents, end of period	$	464,028		$	432,661
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest, excluding capitalized interest	$	2,053		$	4,315
Cash paid during the period for income taxes		59,690			231,846
Cash refunds of income taxes		24,559			-
Noncash investing activities - accrued capital expenditures, end of period		17,450			20,752
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 (“SEC”) 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.  These interim financial statements are not indicative of annual results.

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:

	Nine Months Ended September 30,		Three Months Ended September 30,
	2008	2007	2008	2007
Basic	103,114,161	107,626,637	103,176,904	105,658,167
Diluted	103,784,836	108,889,658	103,919,817	106,913,142

        For the nine and three months ended September 30, 2008, 449,591 outstanding stock options that could potentially dilute EPS in future years were not included in the computation of diluted EPS as they were anti-dilutive.  For the nine and three months ended September 30, 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.  In April 2008, the Company announced an increase in the regular quarterly cash dividend, to $0.06 per share ($0.24 annualized) from the previous level of $0.05 per share ($0.20 annualized) and declared a quarterly cash dividend of $0.06 per share to shareholders of record on June 27, 2008, which was paid in July 2008. In August 2008, the Company declared a regular quarterly cash dividend of $0.06 per share, which was paid in October 2008.  The total cash required for the dividend declared in August 2008 was approximately $6.2 million and was reflected in “Accrued liabilities and other” on the Condensed Consolidated Balance Sheet as of September 30, 2008.

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 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 11 “Fair Value Measurement.”

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.  As of September 30, 2008, the Company 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.      Other Receivables

	September 30,		December 31,
	2008		2007
	(in thousands)
Investment fund receivable, net of allowance of $411	$	32,286	$	-
Income taxes receivable		4,613		24,056
Realized futures trading receivable		5,885		-
Other		7,552		5,236
	$	50,336	$	29,292

At September 30, 2008 other receivables included a net investment fund receivable of $32.3 million.  The Company had a $32.7 million money market investment in a J.P. Morgan money market fund called the Reserve Primary Fund (“Fund”) that was deemed illiquid. The Fund is currently overseen by the SEC, which is determining the amount and timing of liquidation.  Prior to September 30, 2008, the Company requested its funds in their entirety and reclassed the $32.7 million investment out of “Cash, including cash equivalents” to “Other receivables” on the Condensed Consolidated Balance Sheet.  In addition, it is currently estimated that approximately 1.3% of the Company’s investment is at-risk for recoverability, primarily due to the bankruptcy of Lehman Brothers, as the Fund had an investment in Lehman Brothers Holdings, Inc. commercial paper.  Therefore, an allowance of $411,000 was recorded resulting in a net investment fund receivable of $32.3 million.  The $411,000 loss is included in “Interest and investment income” on the Condensed Consolidated Statements of Income.  On October 31, 2008, the Company received a $16.6 million partial distribution against this receivable.

3.      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 16, “Amendment of Crude Oil Purchase and Sale Contract”).  The components of inventory as of September 30, 2008 and December 31, 2007 were as follows:

	September 30,		December 31,
	2008		2007
	(in thousands)
Crude oil	$	304,202	$	223,715
Unfinished products		173,192		152,572
Finished products		138,552		104,820
Process chemicals		1,451		1,300
Repairs and maintenance supplies and other		21,509		19,520
	$	638,906	$	501,927

4.      Other Current Assets

	September 30,		December 31,
	2008		2007
	(in thousands)
Margin deposits	$	26,497	$	11,997
Derivative assets		18,447		-
Prepaid income taxes		5,526		9,152
Prepaid insurance		752		7,312
Other		881		2,784
	$	52,103	$	31,245

5.      Accrued Liabilities and Other

	September 30,		December 31,
	2008		2007
	(in thousands)
Accrued compensation	$	7,150	$	16,119
Accrued Beverly Hills litigation settlement		10,000		10,000
Accrued income taxes		10,238		6,819
Accrued El Dorado Refinery contingent earn-out payment		-		7,500
Accrued dividends		6,684		5,825
Accrued environmental costs		8,648		8,750
Accrued property taxes		8,751		4,998
Accrued refinery incidents costs		305		2,800
Accrued interest		5,656		2,541
Other		4,887		3,677
	$	62,319	$	69,029

6.      Long-term Debt

	September 30,			December 31,
	2008			2007
	(in thousands)
6.625% Senior Notes (Due October 1, 2011)	$	150,000		$	150,000
8.5% Senior Notes (Due September 15, 2016)		200,000			-
Less discount		(2,832	)		-
8.5% Senior Notes, net		197,168			-
	$	347,168		$	150,000

On September 15, 2008, the Company issued $200.0 million aggregate principal amount of 8.5% Senior Notes.  The 8.5% Senior Notes, which mature on September 15, 2016, were issued at a 1.42% discount ($2.8 million) resulting in total senior notes, net of discount, of $197.2 million.  The Company received net proceeds (after underwriting fees) of $195.3 million.   Interest is paid semi-annually on March 15 and September 15.  The 8.5% Senior Notes are redeemable, at the option of the Company, at 104.25% after September 15, 2012, declining to 100.0% in 2014.  Prior to September 15, 2012, the Company may at its option redeem the 8.5% Senior Notes at a make-whole amount, plus accrued and unpaid interest.  The 8.5% Senior Notes may restrict payments, including dividends, and limit the incurrence of additional indebtedness based on covenants related to interest coverage ratio and restricted payments.  Frontier Holdings Inc. and its material subsidiaries are full and unconditional guarantors of the 8.5% Senior Notes (see Note 18 for consolidating financial statements).

7.      Income Taxes

The Company is currently under a U.S. Federal income tax examination for 2005 and 2006.  As of September 30, 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		521
Additions for tax positions of prior years		1,130
Reductions for tax positions of prior years		(4	)
Settlements		-
Reductions due to lapse of applicable statutes of limitations		(4,764	)
Balance as of September 30, 2008	$	25,207

The total contingent income tax liabilities and accrued interest of $28.8 million and $32.3 million at September 30, 2008 and December 31, 2007, respectively, are reflected in the Condensed Consolidated Balance Sheets under “Contingent income tax liabilities.”  The Company recognized interest expense on contingent income tax liabilities of $340,000 and $1.7 million during the nine month periods ended September 30, 2008 and 2007, respectively.   Both the nine months ended and three months ended September 30, 2008 included a reversal of accrued interest expense on contingent income tax liabilities of $1.3 million due to the lapse of applicable statutes of limitations. Interest expense on contingent income tax liabilities was a credit of $785,000 and $626,000 expense during the three months ended September 30, 2008 and 2007, respectively.

8.      Treasury Stock

The Company accounts for its treasury stock under the cost method on a FIFO basis.  Through December 31, 2007, the Company’s Board of Directors 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 nine months ended September 30, 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.  A rollforward of treasury stock for the nine months ended September 30, 2008 is as follows:

	Number of shares			Amount
	(in thousands except share amounts)
Balance as of December 31, 2007		26,893,939		$	327,564
Shares repurchased under stock repurchase plans		1,561,367			56,260
Shares received to fund withholding taxes		335,360			10,143
Shares received to fund stock option exercises		9,224			306
Shares issued for stock option exercises		(130,000	)		(172	)
Shares issued for restricted stock unit vestings		(99,750	)		(113	)
Shares issued for restricted stock grants, net of forfeits		(622,746	)		(813	)
Balance as of September 30, 2008		27,947,394		$	393,175

 9.     Stock-based Compensation

Stock-based compensation costs and income tax benefits recognized in the Condensed Consolidated Statements of Income and Comprehensive Income for the nine and three months ended September 30, 2008 and 2007 were as follows:

	Nine Months Ended September 30,				Three Months Ended September 30,
	2008		2007		2008		2007
	(in thousands)
Restricted shares and units	$	3,477	$	5,362	$	1,183	$	1,486
Stock options		677		1,289		226		223
Contingently issuable stock unit awards		9,582		10,108		2,525		2,960
Total stock-based compensation expense	$	13,736	$	16,759	$	3,934	$	4,669
Income tax benefit recognized in the income statement	$	4,348	$	6,368	$	1,496	$	1,774

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 September 30, 2008, 4,646,612 shares remained available to be awarded under the Plan assuming maximum payout is achieved on the contingently issuable awards made in 2008 (see “Contingently Issuable 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 nine months ended September 30, 2008, treasury shares were re-issued for stock, restricted stock awards and for shares issued due to the exercise of stock options.  The fair value of restricted stock awards is determined using the closing stock price of the Company on the date of grant.  As of September 30, 2008, there was $26.8 million of total unrecognized compensation cost related to Awards issued under the Plan, including costs for stock options, restricted stock, restricted stock units and contingently issuable awards.  This amount is expected to be recognized as expense over a weighted-average period of 1.9 years.

Stock Options.  Stock option changes during the nine months ended September 30, 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		(130,000	)		4.3933
Expired or forfeited		-			-
Outstanding at end of period		494,591		$	27.1356	$	619
Vested or expected to vest		483,672		$	27.0849	$	619
Exercisable at end of period		265,029		$	25.1873	$	619

The Company received $265,000 of cash for stock options exercised during the nine months ended September 30, 2008.  The total intrinsic value of stock options exercised during the nine months ended September 30, 2008 was $3.5 million.  The Company realized $1.3 million and $4.4 million of income tax benefit, nearly all of which was excess income tax benefit, for the nine months ended September 30, 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 September 30, 2008:

Stock Options Outstanding at September 30, 2008
Number Outstanding		Weighted-Average Remaining Contractual Life (Years)		Exercise Price		Exercisable		Vested or Expected to Vest
	449,591		2.57	$	29.3850		220,029		438,672
	45,000		0.40	$	4.6625		45,000		45,000

Restricted Shares and Restricted Stock Units.  The following table summarizes the changes in the Company’s restricted shares and restricted stock units during the nine months ended September 30, 2008:

	Shares/Units			Weighted-Average Grant-Date Market Value
Nonvested at beginning of period		1,053,083		$	24.0234
Conversion of 2007 contingently issuable stock units		459,171			29.3850
Granted		191,603			29.2920
Vested		(968,195	)		23.6665
Forfeited		(1,778	)		28.5735
Nonvested at end of period		733,884			29.2134

The total fair value of restricted shares and restricted stock units which vested during the nine months ended September 30, 2008 was $22.9 million, and the Company realized $10.8 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 nine months ended September 30, 2007 was $14.2 million, and the Company realized $5.4 million of income tax benefit related to these vestings, of which $2.0 million 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 contingently issuable stock unit awards.  One-third of this restricted stock vested 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 second quarter due to retirement of an honorary Board member and the remainder will vest on December 31, 2008.  In the nine months ended September 30, 2008, an additional 161,884 shares (net of forfeits) 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 of which vested on June 30, 2008, one-third will vest on June 30, 2009 and the final one-third will vest on June 30, 2010.

Contingently Issuable Awards.  During the nine months ended September 30, 2008, the Company granted 242,680 contingently issuable stock unit awards to be earned if certain net income goals are met for 2008.  As of September 30, 2008, the Company believes these net income goals will not be met, and thus all prior stock-based compensation expense recorded for these awards was reversed during the third quarter ended September 30, 2008.

During the nine months ended September 30, 2008, the Company granted 242,669 contingently issuable stock unit awards to be earned based on return of capital employed compared to the Company’s peers.  Depending on achievement of the performance goals, awards earned could be between 0% and 125% of the base number of contingently issuable stock units.  As of September 30, 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.  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 242,671 stock unit awards contingent upon certain criteria being met over a three-year period ending on December 31, 2010.  As of September 30, 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 September 30, 2008, the Company also had outstanding 229,607 contingently issuable stock unit awards that were issued during the quarter ended March 31, 2007, to be earned should certain criteria be met over a three-year period ending December 31, 2009.  Depending on achievement of the goals, awards earned could be between 0% and 125% of the base number of contingently issuable stock units.  As of September 30, 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 contingently issuable 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.”

10.         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 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 the required regulatory review, the Company estimates that it will take approximately one year to complete the termination.  Plan participants will receive 100% of their account balance, including interest, upon termination.

As of September 30, 2008, the fair market value of the pension plan assets was $11.1 million.  The expected lump sum payment to participants based on a December 2008 payout is estimated at $11.4 million.  The Company has increased its 2008 net periodic benefit cost accrual because of the expected termination.

The pension plan assets are held in a Trust Fund whose trustee is Frost National Bank (“trustee”).  The Company contributed $800,000 to the Trust Fund during 2008.  Frontier’s pension plan weighted-average asset allocations in the Trust Fund at September 30, 2008 and December 31, 2007, by asset category are as follows:

	Percentage of Plan Assets at
Asset Category:	September 30, 2008			December 31, 2007
Cash and cash equivalents		89	%		9	%
Equity common trust funds		-			65	%
Fixed income common trust funds		11	%		25	%
Real estate		-			1	%
Total		100	%		100	%

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 September 30, 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 employees’ 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 nine and three months ended September 30, 2008 and 2007:

	Nine Months Ended September 30,						Three Months Ended September 30,
Pension Benefits	2008			2007			2008			2007
	(in thousands)
Components of net periodic benefit cost and other amounts recognized in other comprehensive income:
Service cost	$	-		$	-		$	-		$	-
Interest cost		463			426			155			142
Expected return on plan assets		(609	)		(558	)		(203	)		(186	)
Amortization of prior service cost		-			-			-			-
Amortized net actuarial loss		200			-			200			-
Net periodic benefit cost		54			(132	)		152			(44	)
Changes in assets and benefit obligations recognized in other comprehensive income:
Net loss		484			-			484			-
Amortization of prior service cost		-			-			-			-
Amortization of gain		-			-			-			-
Total recognized in other comprehensive income		484			-			484			-
Total recognized in net periodic benefit cost and other comprehensive income	$	538		$	(132	)	$	636			(44	)

	Nine Months Ended September 30,						Three Months Ended September 30,
Post-retirement Healthcare and Other Benefits	2008			2007			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	$	568		$	564		$	188		$	188
Interest cost		1,306			1,208			436			403
Expected return on plan assets		-			-			-			-
Amortization of prior service cost		(1,190	)		(1,407	)		(396	)		(469	)
Amortized net actuarial loss		653			853			217			284
Net periodic benefit cost		1,337			1,218			445			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		1,190			-			396			-
Amortization of loss		(653	)		-			(217	)		-
Total recognized in other comprehensive income		1,887			-			179			-
Total recognized in net periodic benefit cost and other comprehensive income	$	3,224		$	1,218		$	624		$	406

11.                  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 September 30, 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		Level 3		Total
Derivative assets	$	16,302	$	2,145	$	-	$	18,447

As of September 30, 2008, the Company’s derivative contracts giving rise to the assets 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 assets under Level 2 are valued using pricing models based on NYMEX crude oil contracts.  The Company’s crude call options that relate to lease crude purchases are measured under Level 3, meaning that the options were valued using internal contract pricing; at September 30, 2008 the options had no value.   The following table provides a reconciliation of the beginning and ending balances of the Company’s Level 3 derivative asset crude call options which at September 30, 2008, had no value (in thousands):

	Nine Months Ended September 30,					Three Months Ended September 30,
	2008			2007		2008			2007
	(in thousands)
Beginning derivative asset balance	$	-		$	-	$	647		$	-
Net increase (decrease) in derivative assets		437			-		(475	)		-
Net settlements		(437	)		-		(172	)		-
Transfers in (out) of Level 3		-			-		-			-
Ending derivative asset balance	$	-		$	-	$	-		$	-
Change in unrealized gains (losses) included in earnings related to level 3 derivatives still held as of September 30, 2008:	$	-		$	-	$	647		$	-

12.                  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, forward 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 mark-to-market accounting and gains and losses on transactions 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 (none at September 30, 2008 and $15.1 million at December 31, 2007), or in “Other current assets” when the unrealized value is a gain ($18.5 million at September 30, 2008 and none at December 31, 2007).

Mark-to-market activities.  During the nine and three months ended September 30, 2008 and 2007, the Company (directly or indirectly) had the following derivative contracts which, while economic hedges, were not accounted for as hedges under FAS No. 133. Gains or losses on these derivatives are reflected in “Other revenues” on the Condensed Consolidated Statements of Income and Comprehensive Income:

Crude purchases in-transit.  As of September 30, 2008, the Company had open derivative contracts held on Frontier’s behalf by Utexam on 1.2 million barrels of crude oil to hedge the cost of in-transit Canadian crude oil.  As of September 30, 2008, these positions had unrealized gains of $2.1 million.  During the nine months ended September 30, 2008 and 2007, the Company reported in “Other revenues” a $19.0 million net realized and unrealized loss and a $6.7 million net realized and unrealized loss, respectively, on positions to hedge in-transit crude oil, mainly Canadian crude oil for the El Dorado Refinery.  During the three months ended September 30, 2008 and 2007, the Company reported in “Other revenues” an $18.5 million net gain and an $8.5 million net loss, 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 the El Dorado Refineries.  As of September 30, 2008, the Company had open derivative contracts on 2.5 million barrels of crude oil to hedge crude oil, and intermediate and finished product inventories in excess of established base levels.  At September 30, 2008, these positions had unrealized gains of $16.3 million.  During the nine months ended September 30, 2008 and 2007, the Company reported in “Other revenues” $20.9 million and $29.0 million, respectively, in net realized and unrealized losses on these types of positions.  During the three months ended September 30, 2008 and 2007, the Company reported in “Other revenues” an $85.5 million net realized and unrealized gain and a $23.5 million net realized and unrealized loss, respectively, on these types of positions.

13.           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 continue 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 expects to spend $20.0 million for new process unit capacity and intermediate inventory handling equipment at the Cheyenne Refinery.  In addition, new federal benzene regulations and anticipated state requirements for reduction in gasoline Reid Vapor Pressure (“RVP”) suggest that additional capital expenditures may be required for compliance projects.  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 September 30, 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 September 30, 2008, $24.3 million of the estimated $83.0 million had been incurred.  Substantially all of the estimated $83.0 million of expenditures relates to the El Dorado Refinery’s 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.

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. In the nine months ended September 30, 2008, Frontier sold 38.9 billion (ppm-gallons) of the 174 billion (ppm-gallons) available sulfur credits for total proceeds of $4.6 million, which was recorded in “Other revenues” on the Condensed Consolidated Statements of Income and Comprehensive Income.

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 $70.0 million at the El Dorado Refinery ($13.5 million of the $70.0 million had been incurred as of September 30, 2008) may 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, to be discounted for a related $96,000 penalty and associated supplemental environment project (“SEP”) paid to the State of Wyoming in 2005 and further offset by $902,000 for the completion of additional mutually agreed SEPs.  The EPA has also attached to this settlement resolution an enforcement action against the Company’s El Dorado Refinery related to allegations of violation of certain requirements of the EPA Risk Management Program (“RMP”).  Negotiated civil penalties regarding resolution of this issue will total approximately $484,000 to be reduced to $358,000 by completion of an approved SEP.  The Company has made accruals for the balance of these estimated penalties at September 30, 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 September 30, 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 $4.7 million, as of September 30, 2008 and $4.8 million, as of 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 accruals of $995,000 at September 30, 2008 and $1.2 million at December 31, 2007 for additional work related to the corrective measures.  The Company is also currently in settlement negotiations for various NOVs from the Wyoming Department of Environmental Quality for certain alleged solid and hazardous waste violations noted during site inspection.

Pursuant to an agreement with the City of Cheyenne, the Company will contribute $1.5 million toward a project (estimated to be completed in 2009) 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 Oil Products US (“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.

Other Future Environmental Considerations.  Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases” and including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere.  In response to such studies, the U.S. Congress has been actively considering legislation to reduce emissions of greenhouse gases, primarily through the development of greenhouse gas cap and trade programs that would require obtaining and surrendering emission allowances.  It is possible that we could be required to purchase and surrender allowances, either for greenhouse gas emissions resulting from our operations or from combustion of fuels that we produce.  In addition, more than one-third of the states already have begun implementing legal measures to reduce emissions of greenhouse gases.  On April 2, 2007, the U.S. Supreme Court in Massachusetts, et al. v. EPA held that carbon dioxide may be regulated as an “air pollutant” under the federal Clean Air Act and that the EPA must consider whether it is required to regulate greenhouse gas emissions from mobile sources such as cars and trucks.  In July 2008, the EPA released an Advance Notice of Proposed Rulemaking regarding possible future regulation of greenhouse gas emissions under the Clean Air Act, in response to the Supreme Court’s decision in Massachusetts.  In the notice, the EPA evaluated the potential regulation of greenhouse gases under the Clean Air Act and other potential methods of regulating greenhouse gases.  Although the notice did not propose any specific, new regulatory requirements for greenhouse gases, it indicates that federal regulation of greenhouse gas emissions could occur in the near future.  Thus, there may be restrictions imposed on the emission of greenhouse gases even if the U.S. Congress does not adopt new legislation specifically addressing emissions of greenhouse gases.  Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any such future laws and regulations could result in increased compliance costs or additional operating restrictions, and could have a material adverse effect on our business, financial condition and results of operations, including demand for the refined petroleum products that we produce.

14.                  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 $6.4 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 September 30, 2008, the commutation account balance was approximately $6.4 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 September 30, 2008 and December 31, 2007 the $10.0 million settlement (“Accrued liabilities and other” on the Condensed Consolidated Balance Sheets) because it is probable and reasonably estimable and a receivable from insurance providers of $3.6 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 and Occupational Safety and Health Administration (“OSHA”) regulatory actions 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.  We have agreed to pay a penalty of $102,000 in connection with citations issued by OSHA alleging violations of applicable process safety management standards at our El Dorado Refinery.

15.                  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.  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.

16.                  Amendments of Revolving Credit Facility Agreement

On June 23, 2008, the Company entered into a second amendment to the Third Amended and Restated Revolving Credit Agreement which increased the maximum amount available under this agreement from $250 million to $350 million.  On August 19, 2008, the Company entered into a Fourth Amended and Restated Revolving Credit Agreement expiring August 17, 2012.  This agreement increases the maximum commitment from $350 million to $500 million and increases the applicable margin by 50 basis points to a range from 1.5% to 2% plus the base rate or LIBOR rate, as applicable.  This agreement also reduced the amount of permitted consolidated long-term funded indebtedness and added a current ratio covenant. At September 30, 2008, the Company had $268.4 million of borrowing base availability for cash borrowings under its $500.0 million revolving credit facility. The Company had $231.6 million of letters of credit outstanding under its revolving credit facility.

17.                  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 maximum amount available under this contract from $200.0 million to $250.0 million and also allows for Utexam to sell crude oil to FORC at a location near Guernsey, Wyoming as well as at a location near Cushing, Oklahoma.

18.                  Consolidating Financial Statements

Frontier Holdings Inc. and its subsidiaries (“FHI”) are full and unconditional guarantors of Frontier Oil Corporation’s 6⅝% Senior Notes.  In addition, on September 15, 2008 the Company issued 8.5% Senior Notes in which Frontier Holdings Inc. and its material subsidiaries are full and unconditional guarantors.   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. Frontier Oil Corporation’s investments in subsidiaries are presented according to the equity method of accounting.   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.  Accordingly, the equity in earnings of subsidiaries recorded for Frontier Oil Corporation is equal to the subsidiaries’ net income adjusted for consolidating pre-tax adjustments and for the portion of the subsidiaries’ income tax provision which is eliminated in consolidation.

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	5,184,204		$	-	$	-		$	5,184,204
Other		(7	)		(33,704	)		148		-			(33,563	)
		(7	)		5,150,500			148		-			5,150,641
Costs and expenses:
Raw material, freight and other costs		-			4,565,992			-		-			4,565,992
Refinery operating expenses, excluding     depreciation		-			244,861			-		-			244,861
Selling and general expenses, excluding     depreciation		13,613			18,766			-		-			32,379
Depreciation, amortization and     accretion		39			47,875			-		158			48,072
Gain on sales of assets		(37	)		(7	)		-		-			(44	)
		13,615			4,877,487			-		158			4,891,260
Operating income (loss)		(13,622	)		273,013			148		(158	)		259,381
Interest expense and other financing    costs		8,719			3,824			-		(5,500	)		7,043
Interest and investment income		(2,494	)		(2,197	)		-		-			(4,691	)
Equity in earnings of subsidiaries		(275,883	)		-			-		275,883			-
		(269,658	)		1,627			-		270,383			2,352
Income before income taxes		256,036			271,386			148		(270,541	)		257,029
Provision for income taxes		78,428			87,081			58		(86,146	)		79,421
Net income	$	177,608		$	184,305		$	90	$	(184,395	)	$	177,608

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	3,899,464		$	-	$	-		$	3,899,464
Other		2			(30,395	)		32		-			(30,361	)
		2			3,869,069			32		-			3,869,103
Costs and expenses:
Raw material, freight and other costs		-			2,900,169			-		-			2,900,169
Refinery operating expenses, excluding     depreciation		-			210,359			-		-			210,359
Selling and general expenses, excluding     depreciation		24,850			17,005			-		-			41,855
Depreciation, amortization and     accretion		47			38,201			-		(285	)		37,963
Loss (gain) on sales of assets		2,028			(17,260	)		-		-			(15,232	)
		26,925			3,148,474			-		(285	)		3,175,114
Operating income (loss)		(26,923	)		720,595			32		285			693,989
Interest expense and other financing    costs		9,474			3,161			-		(5,606	)		7,029
Interest and investment income		(8,573	)		(9,124	)		-		-			(17,697	)
Equity in earnings of subsidiaries		(732,030	)		-			-		732,030			-
		(731,129	)		(5,963	)		-		726,424			(10,668	)
Income before income taxes		704,206			726,558			32		(726,139	)		704,657
Provision for income taxes		248,498			257,005			11		(256,565	)		248,949
Net income	$	455,708		$	469,553		$	21	$	(469,574	)	$	455,708

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	2,094,606		$	-	$	-		$	2,094,606
Other		(7	)		103,646			57		-			103,696
		(7	)		2,198,252			57		-			2,198,302
Costs and expenses:
Raw material, freight and other costs		-			1,991,966			-		-			1,991,966
Refinery operating expenses, excluding     depreciation		-			76,267			-		-			76,267
Selling and general expenses, excluding     depreciation		3,967			5,909			-		-			9,876
Depreciation, amortization and     accretion		12			16,516			-		107			16,635
		3,979			2,090,658			-		107			2,094,744
Operating income (loss)		(3,986	)		107,594			57		(107	)		103,558
Interest expense and other financing    costs		2,433			1,688			-		(1,641	)		2,480
Interest and investment income		(230	)		(826	)		-		-			(1,056	)
Equity in earnings of subsidiaries		(107,570	)		-			-		107,570			-
		(105,367	)		862			-		105,929			1,424
Income before income taxes		101,381			106,732			57		(106,036	)		102,134
Provision for income taxes		29,058			34,600			26		(33,873	)		29,811
Net income	$	72,323		$	72,132		$	31	$	(72,163	)	$	72,323

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Refined products	$	-		$	1,418,270		$	-	$	-		$	1,418,270
Other		-			(31,761	)		11		-			(31,750	)
		-			1,386,509			11		-			1,386,520
Costs and expenses:
Raw material, freight and other costs		-			1,095,364			-		-			1,095,364
Refinery operating expenses, excluding     depreciation		-			69,382			-		-			69,382
Selling and general expenses, excluding     depreciation		10,934			6,306			-		-			17,240
Depreciation, amortization and     accretion		14			14,808			-		(52	)		14,770
Gain on sales of assets		-			(17,260	)		-		-			(17,260	)
		10,948			1,168,600			-		(52	)		1,179,496
Operating income (loss)		(10,948	)		217,909			11		52			207,024
Interest expense and other financing    costs		3,203			959			-		(2,081	)		2,081
Interest and investment income		(3,231	)		(2,819	)		-		-			(6,050	)
Equity in earnings of subsidiaries		(221,532	)		-			-		221,532			-
		(221,560	)		(1,860	)		-		219,451			(3,969	)
Income before income taxes		210,612			219,769			11		(219,399	)		210,993
Provision for income taxes		73,387			76,948			4		(76,571	)		73,768
Net income	$	137,225		$	142,821		$	7	$	(142,828	)	$	137,225

FRONTIER OIL CORPORATION
Condensed Consolidating Balance Sheet
As of September 30, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	260,419		$	203,609		$	-	$	-		$	464,028
Trade and other receivables, net		11,356			273,581			10		-			284,947
Receivable from affiliated companies		-			3,380			449		(3,829	)		-
Inventory of crude oil, products and    other		-			638,906			-		-			638,906
Deferred tax assets		11,981			11,158			-		(11,158	)		11,981
Commutation account		6,362			-			-		-			6,362
Other current assets		5,815			46,288			-		-			52,103
Total current assets		295,933			1,176,922			459		(14,987	)		1,458,327
Property, plant and equipment, at cost		1,203			1,237,914			-		9,154			1,248,271
Accumulated depreciation and    amortization		(982	)		(363,175	)		-		7,841			(356,316	)
Property, plant and equipment, net		221			874,739			-		16,995			891,955
Deferred turnaround costs		-			51,840			-		-			51,840
Deferred catalyst costs		-			11,042			-		-			11,042
Deferred financing costs, net		3,849			2,631			-		-			6,480
Intangible assets, net		-			1,368			-		-			1,368
Other assets		2,928			1,963			-		-			4,891
Investment in subsidiaries		1,379,756			-			-		(1,379,756	)		-
Total assets	$	1,682,687		$	2,120,505		$	459	$	(1,377,748	)	$	2,425,903
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	460		$	671,659		$	15	$	-		$	672,134
Accrued liabilities and other		33,399			28,731			189		-			62,319
Total current liabilities		33,859			700,390			204		-			734,453
Long-term debt		347,168			-			-		-			347,168
Contingent income tax liabilities		26,825			1,940			-		-			28,765
Long-term capital lease obligations		-			3,641			-		-			3,641
Other long-term liabilities		2,835			40,870			-		-			43,705
Deferred income taxes		117,652			113,535			-		(113,535	)		117,652
Payable to affiliated companies		3,829			80,324			128		(84,281	)		-
Shareholders' equity		1,150,519			1,179,805			127		(1,179,932	)		1,150,519
Total liabilities and shareholders' equity	$	1,682,687		$	2,120,505		$	459	$	(1,377,748	)	$	2,425,903

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 and other receivables, net		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
Derivative liabilities		-			15,089			-		-			15,089
Accrued liabilities and other		25,947			42,893			189		-			69,029
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
Long-term capital lease obligations		-			8			-		-			8
Other long-term liabilities		3,208			37,938			-		-			41,146
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 Nine Months Ended September 30, 2008
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	177,608		$	184,305		$	90		$	(184,395	)	$	177,608
Adjustments to reconcile net income to  net cash from operating activities:
Equity in earnings of subsidiaries		(275,883	)		-			-			275,883			-
Depreciation, amortization and    accretion		39			60,885			-			158			61,082
Deferred income taxes		15,684			-			-			-			15,684
Stock-based compensation expense		13,736			-			-			-			13,736
Excess income tax benefits of    stock-based compensation		(4,201	)		-			-			-			(4,201	)
Income taxes eliminated in    consolidation		-			86,088			58			(86,146	)		-
Amortization of debt issuance costs		375			228			-			-			603
Senior notes discount amortization		8			-			-			-			8
Allowance for investment loss		34			377			-			-			411
Gain on sales of assets		(37	)		(7	)		-			-			(44	)
Amortization of long-term prepaid    insurance		909			-			-			-			909
(Decrease) increase  in other long-term    liabilities		(2,989	)		1,658			-			-			(1,331	)
Changes in deferred turnaround costs,    deferred catalyst costs and other		385			(31,202	)		-			-			(30,817	)
Changes in components of working    capital from operations		31,010			(43,723	)		5			(550	)		(13,258	)
Net cash (used in) provided by operating    activities		(43,322	)		258,609			153			4,950			220,390
Cash flows from investing activities:
Additions to property, plant and    equipment		(82	)		(155,187	)		-			(4,950	)		(160,219	)
Proceeds from sales of assets		37			8			-			-			45
El Dorado Refinery contingent earn-out    payment		-			(7,500	)		-			-			(7,500	)
Net cash used in investing activities		(45	)		(162,679	)		-			(4,950	)		(167,674	)
Cash flows from financing activities:
Proceeds from issuance of 8.5% Senior    Notes, net of discount		197,160			-			-			-			197,160
Purchase of treasury stock		(66,403	)		-			-			-			(66,403	)
Proceeds from issuance of common stock		265			-			-			-			265
Dividends paid		(16,938	)		-			-			-			(16,938	)
Excess income tax benefits of    stock-based compensation		4,201			-			-			-			4,201
Debt issuance costs and other		(2,081	)		(2,291	)		-			-			(4,372	)
Intercompany transactions		1,214			(1,061	)		(153	)		-			-
Net cash (used in) provided by   financing activities		117,418			(3,352	)		(153	)		-			113,913
Increase in cash and cash equivalents		74,051			92,578			-			-			166,629
Cash and cash equivalents, beginning of    period		186,368			111,031			-			-			297,399
Cash and cash equivalents, end of    period	$	260,419		$	203,609		$	-		$	-		$	464,028

FRONTIER OIL CORPORATION
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2007
(Unaudited, in thousands)
	FOC (Parent)			FHI (Guarantor Subsidiaries)			Other Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	455,708		$	469,553		$	21		$	(469,574	)	$	455,708
Adjustments to reconcile net income to  net cash from operating activities:
Equity in earnings of subsidiaries		(732,030	)		-			-			732,030			-
Depreciation, amortization and    accretion		47			48,737			-			(285	)		48,499
Deferred income taxes		220			-			-			-			220
Stock-based compensation expense		16,759			-			-			-			16,759
Excess income tax benefits of    stock-based compensation		(6,109	)		-			-			-			(6,109	)
Income taxes eliminated in    consolidation		-			256,554			11			(256,565	)		-
Amortization of debt issuance costs		362			236			-			-			598
Loss (gain) on sales of assets		2,028			(17,260	)		-			-			(15,232	)
Decrease in commutation account		1,009			-			-			-			1,009
Amortization of long-term prepaid    insurance		909			-			-			-			909
Increase (decrease) in other long-term    liabilities		30,225			(1,710	)		-			-			28,515
Changes in deferred turnaround costs,    deferred catalyst costs and other		(295	)		(21,817	)		-			-			(22,112	)
Changes in components of working    capital from operations		(5,289	)		(47,123	)		-			(3,436	)		(55,848	)
Net cash (used in) provided by operating    activities		(236,456	)		687,170			32			2,170			452,916
Cash flows from investing activities:
Additions to property, plant and    equipment		(4,310	)		(222,728	)		-			(2,170	)		(229,208	)
Proceeds from sale of assets		2,290			19,950			-			-			22,240
El Dorado Refinery contingent earn-out    payment		-			(7,500	)		-			-			(7,500	)
Other		-			(3,144	)		-			-			(3,144	)
Net cash used in investing activities		(2,020	)		(213,422	)		-			(2,170	)		(217,612	)
Cash flows from financing activities:
Purchase of treasury stock		(204,113	)		-			-			-			(204,113	)
Proceeds from issuance of common stock		1,958			-			-			-			1,958
Dividends paid		(12,010	)		-			-			-			(12,010	)
Excess income tax benefits of    stock-based compensation		6,109			-			-			-			6,109
Debt issuance costs and other		-			(66	)		-			-			(66	)
Intercompany transactions		468,926			(468,894	)		(32	)		-			-
Net cash provided by (used in) financing activities		260,870			(468,960	)		(32	)		-			(208,122	)
Increase in cash and cash equivalents		22,394			4,788			-			-			27,182
Cash and cash equivalents, beginning of    period		215,049			190,430			-			-			405,479
Cash and cash equivalents, end of    period	$	237,443		$	195,218		$	-		$	-		$	432,661

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 182,000 barrels per day (“bpd”).  The crude oil capacity increased from 162,000 bpd in April 2008, because of the completion 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 inventory gains (lower cost of sales) when crude oil prices increase and inventory losses (higher cost of sales) 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.

Nine months ended September 30, 2008 compared with the same period in 2007

Overview of Results

We had net income for the nine months ended September 30, 2008 of $177.6 million, or $1.71 per diluted share, compared to net income of $455.7 million, or $4.19 per diluted share, earned in the same period in 2007.  Our operating income of $259.4 million for the nine months ended September 30, 2008 decreased $434.6 million from the $694.0 million for the comparable period in 2007.  Our results for the nine months ended September 30, 2008 were negatively impacted by several factors, the primary ones being the rapid increase in crude oil prices during the first seven months of 2008 and the weakening U.S. economy.  These factors reduced the demand for gasoline, causing a substantial drop in gasoline margins.  In addition, our margins on asphalt and other products declined substantially during the first seven months of 2008 as sales prices for these products increased only modestly in comparison to the increase in crude prices.  The average gasoline crack spread of $6.35 per barrel during the nine months ended September 30, 2008 was substantially lower than the $23.41 per barrel in the same period of 2007.  The average diesel crack spread increased to $25.21 per barrel during the nine months ended September 30, 2008 from $24.76 per barrel in the comparable period in 2007.  Product yields and product revenues were significantly lower during the nine months ended September 30, 2008 because of the major turnaround work conducted at the El Dorado Refinery during March and April of 2008.

Specific Variances

Refined product revenues.  Refined product revenues increased $1.28 billion, or 33%, from $3.90 billion to $5.18 billion for the nine months ended September 30, 2008 compared to the same period in 2007.  This increase resulted primarily from higher crude oil prices, which supported higher refined product prices ($37.32 higher average per sales barrel), despite a decline in sales volumes.

Manufactured product yields.  Yields decreased 14,511 bpd at the El Dorado Refinery and increased 614 bpd at the Cheyenne Refinery for the nine months ended September 30, 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 March and April of 2008.

Other revenues.  Other revenues decreased $3.2 million to a loss of $33.6 million for the nine months ended September 30, 2008, compared to a loss of $30.4 million for the same period in 2007, the primary source of which was $39.9 million in net realized and unrealized losses from derivative contracts to hedge in-transit crude oil and excess inventories in the nine months ended September 30, 2008 compared to $35.7 million in net realized and unrealized losses from derivative contracts to hedge in-transit crude oil and excess inventories in the nine months ended September 30, 2007.  See “Price Risk Management Activities” under Item 3 for a discussion of our utilization of commodity derivative contracts.  We had gasoline sulfur credit sales of $4.6 million in the nine months ended September 30, 2008 compared to $4.8 million in the comparable 2007 period and $950,000 of ethanol Renewable Identification Number (“RIN”) sales in 2008 (none in the comparable period of 2007).  Ethanol RINs were created as a tracking tool in order to ensure that nationwide a certain EPA regulated volume of renewable fuels are blended into gasoline on a percentage basis.

Raw material, freight and other costs.  Raw material, freight and other costs increased by $1.67 billion, from $2.90 billion in the nine months ended September 30, 2007 to $4.57 billion 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 nine months ended September 30, 2008 when compared to the same period in 2007.  For the nine months ended September 30, 2008, we realized a reduction in raw material, freight and other costs as a result of inventory gains of approximately $87.8 million after tax ($140.8 million pretax, consisting of a $34.4 million gain at the Cheyenne Refinery and a $106.4 million gain at the El Dorado Refinery).  For the nine months ended September 30, 2007, we realized a reduction in raw material, freight and other costs as a result of inventory gains of approximately $37.6 million after tax ($60.5 million pretax, comprised of a $25.7 million gain at the Cheyenne Refinery and a $34.8 million gain at the El Dorado Refinery).

The Cheyenne Refinery raw material, freight and other costs of $98.70 per sales barrel for the nine months ended September 30, 2008 increased from $59.02 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.  The light/heavy crude oil differential for the Cheyenne Refinery averaged $17.95 per barrel in the nine months ended September 30, 2008 compared to $15.27 per barrel in the same period in 2007.

The El Dorado Refinery raw material, freight and other costs of $108.78 per sales barrel for the nine months ended September 30, 2008 increased from $62.40 per sales barrel in the same period in 2007 due to a lower volume of product sales 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 $4.38 per barrel in the nine-month period ended September 30, 2007 to $4.13 per barrel in the same period in 2008.  The light/heavy crude oil differential increased from an average of $17.26 per barrel in the nine-month period ended September 30, 2007 to $19.48 per barrel in the same period in 2008.

Refinery operating expenses.  Refinery operating expenses, excluding depreciation, were $244.9 million in the nine months ended September 30, 2008 compared to $210.4 million in the comparable period of 2007.

The Cheyenne Refinery operating expenses, excluding depreciation, were $86.8 million for the nine months ended September 30, 2008 compared to $71.5 million in the comparable period of 2007.  Primary areas of increased costs were: maintenance costs ($3.2 million, of which $1.4 million related to various coker maintenance costs), natural gas costs ($2.4 million due to increased prices partially offset by lower volumes), turnaround amortization ($2.4 million due to amortization costs of 2007 turnarounds), additives and chemicals costs ($2.0 million), salaries and benefits expenses ($1.3 million), environmental costs ($990,000), electricity costs ($779,000) and property and other taxes ($575,000).

The El Dorado Refinery operating expenses, excluding depreciation, were $158.1 million for the nine months ended September 30, 2008, increasing from $138.9 million in the same nine-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 ($11.4 million, primarily related to demolition, catalyst and repair costs incurred during the March 2008 turnaround), natural gas costs ($2.7 million due to increased prices, partially offset by lower volumes), 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), consulting and legal expenses ($987,000), and operating supplies expenses ($683,000).

Selling and general expenses.  Selling and general expenses, excluding depreciation, decreased $9.5 million, or 23%, from $41.9 million for the nine months ended September 30, 2007 to $32.4 million for the nine months ended September 30, 2008, due to the $6.3 million recognition of the loss on the Beverly Hills settlement in the third quarter of 2007 and $2.9 million of lower salaries and benefit expenses (including stock-based compensation expense) in 2008.

Depreciation, amortization and accretion.  Depreciation, amortization and accretion increased $10.1 million, or 27%, for the nine months ended September 30, 2008 compared to the same period in 2007 because of increased capital investments in our Refineries, including our El Dorado Refinery crude unit and vacuum tower expansion project placed into service in the second quarter of 2008.  We also had higher depreciation expense during the nine months ended September 30, 2008 due to changes made during the third quarter of 2007 in the estimated useful lives of assets that have been or are expected to be retired in connection with certain capital projects in 2008 and 2009.

Gain on sale of assets.  The $44,000 gain on the sale of assets during the nine months ended September 30, 2008 compares to a $15.2 million gain during the nine months ended September 30, 2007.

Interest expense and other financing costs.  Interest expense and other financing costs of $7.0 million for the nine months ended September 30, 2008 increased $14,000, from $7.0 million in the comparable period in 2007.  Increases in interest expense related to interest on the new 8.5% senior notes offering of $614,000, $393,000 higher interest expense on the Utexam Arrangement and $285,000 increased interest and facility fees on our revolving credit facility.  These increased expenses were offset by a $1.3 million reversal of a 2004 income tax contingency interest accrual due to the statute of limitations expiring.  Capitalized interest for the nine months ended September 30, 2008 was $5.7 million compared to $5.6 million for the same period in 2007.  Average debt outstanding was $248.1 million and $150.0 during the nine months ended September 30, 2008 and 2007, respectively (excluding amounts payable to Utexam under the Utexam Arrangement).

Interest and investment income.  Interest and investment income decreased $13.0 million, or 73%, from $17.7 million in the nine months ended September 30, 2007, to $4.7 million in the nine months ended September 30, 2008, because of lower average cash balances and lower interest rates.  The nine months ended September 30, 2008 also included a $411,000 loss allowance on an investment in relation to an at-risk investment.

Provision for income taxes.  The provision for income taxes for the nine months ended September 30, 2008 was $79.4 million on pretax income of $257.0 million (or 30.9%).  Our provision for income taxes for the nine months ended September 30, 2007 was $248.9 million on pretax income of $704.7 million (or 35.3%).  The effective tax rate for the nine months ended September 30, 2008 was lower than the effective tax rate in the comparable period in 2007 primarily because of a lower Kansas state income tax provision for the 2008 period resulting from recognizing the benefit from $18.1 million of Kansas income tax credits for expansion projects at our El Dorado Refinery.  Other benefits which reduced our Kansas income tax provision included a benefit of $492,000 for Kansas state income taxes due to a recent favorable ruling by the Kansas Board of Tax Appeals and a reduction of Kansas corporate income tax rates from 7.35% to 7.1%.  The income tax provision for the nine months ended September 30, 2007 included a $4.2 million ultra-low sulfur diesel credit benefit to the provision.  The benefit of the Section 199 production activities deduction for manufacturers (based on taxable income) was $10.0 million less in the nine months ended September 30, 2008, than in the comparable period of 2007 because taxable income was substantially less during the first nine months of 2008.

Three months ended September 30, 2008 compared with the same period in 2007

Overview of Results

We had net income for the three months ended September 30, 2008 of $72.3 million, or $0.70 per diluted share compared to net income of $137.2 million, or $1.28 per diluted share, earned in the same period in 2007.  Our operating income of $103.6 million for the three months ended September 30, 2008 decreased $103.5 million from the $207.0 million for the comparable period in 2007.  Our results for the three months ended September 30, 2008 were negatively impacted by several factors, the primary ones being  the volatile change in the all time high crude oil prices that dropped dramatically during the third quarter of 2008 and the weakening U.S. economy.  These factors reduced the demand for gasoline, causing a substantial drop in gasoline margins.   The average gasoline crack spread of $9.52 per barrel during the third quarter of 2008 was substantially lower than the $20.51 per barrel in the third quarter of 2007.  However, the average diesel crack spread increased to $26.86 per barrel during the third quarter of 2008 from $23.43 per barrel in the comparable period in 2007.

Specific Variances

Refined product revenues.  Refined product revenues increased $676.3 million, or 48%, from $1.42 billion to $2.09 billion for the three months ended September 30, 2008 compared to the same period in 2007.  This increase resulted primarily from higher crude oil prices, which supported higher refined product prices ($39.92 higher average per sales barrel).

Manufactured product yields.  Yields increased 3,392 bpd at the El Dorado Refinery and decreased 2,098 bpd at the Cheyenne Refinery for the three months ended September 30, 2008 compared to same period in 2007.

Other revenues.  Other revenues increased $135.4 million to a gain of $103.7 million for the three months ended September 30, 2008, compared to a loss of $31.8 million for the same period in 2007, the primary source of which was $104.0 million in net realized and unrealized gains from derivative contracts to hedge in-transit crude oil and excess inventories in the three months ended September 30, 2008 compared to $31.9 million in net realized and unrealized losses from derivative contracts to hedge in-transit crude oil and excess inventories in the three months ended September 30, 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 $896.6 million, from $1.10 billion in the three months ended September 30, 2007, to $1.99 billion in the same period for 2008.  The increase in raw material, freight and other costs was due to higher average crude oil prices, increased overall crude oil charges, lower light/heavy crude oil differentials and increased purchased products during the three months ended September 30, 2008 when compared to the same period in 2007.  For the three months ended September 30, 2008, we realized an increase in raw material, freight and other costs as a result of inventory losses of approximately $77.5 million after tax ($125.1 million loss pretax, consisting of a $34.8 million loss at the Cheyenne Refinery and a $90.3 million loss at the El Dorado Refinery).  For the three months ended September 30, 2007, we realized a reduction in raw material, freight and other costs as a result of inventory gains of approximately $15.5 million after tax ($25.0 million pretax, comprised of a $2.2 million gain at the Cheyenne Refinery and a $22.8 million gain at the El Dorado Refinery).

The Cheyenne Refinery raw material, freight and other costs of $117.09 per sales barrel for the three months ended September 30, 2008 increased from $63.83 per sales barrel in the same period in 2007 due to higher average crude oil prices, lower light/heavy crude oil differentials and increased purchased products partially offset by decreased crude oil charges.  The light/heavy crude oil differential for the Cheyenne Refinery averaged $13.92 per barrel in the three months ended September 30, 2008 compared to $18.40 per barrel in the same period in 2007.

The El Dorado Refinery raw material, freight and other costs of $124.19 per sales barrel for the three months ended September 30, 2008 increased from $70.45 per sales barrel in the same period in 2007 due to increased overall crude charges, increased volumes of sales barrels, and lower light/heavy crude oil differentials.  The WTI/WTS crude oil differential decreased from an average of $4.20 per barrel in the three-month period ended September 30, 2007, to $2.77 per barrel in the same period in 2008.  The light/heavy crude oil differential decreased from an average of $20.60 per barrel in the three-month period ended September 30, 2007 to $14.23 per barrel in the same period in 2008.

Refinery operating expenses.  Refinery operating expenses, excluding depreciation, were $76.3 million in the three months ended September 30, 2008 compared to $69.4 million in the comparable period of 2007.

The Cheyenne Refinery operating expenses, excluding depreciation, were $27.6 million in the three months ended September 30, 2008 compared to $23.7 million in the comparable period of 2007.  Primary areas of increased costs were: environmental costs ($1.2 million), additives and chemicals costs ($964,000), salaries and benefits expenses ($670,000), nitrogen costs ($233,000), and turnaround amortization ($231,000).

The El Dorado Refinery operating expenses, excluding depreciation, were $48.7 million in the three months ended September 30, 2008, increasing from $45.7 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 ($1.4 million), electricity costs ($694,000) and property taxes ($556,000).

Selling and general expenses.  Selling and general expenses, excluding depreciation, decreased $7.4 million, or 43%, from $17.2 million for the three months ended September 30, 2007 to $9.9 million for the three months ended September 30, 2008, primarily due to $6.6 million of costs related to the Beverly Hills litigation incurred in third quarter 2007 and  lower salaries and benefits expenses (including stock-based compensation expense) of $843,000, in the third quarter of 2008 compared to the comparable period in 2007.

Depreciation, amortization and accretion.  Depreciation, amortization and accretion increased $1.9 million, or 13%, for the three months ended September 30, 2008 compared to the same period in 2007 because of increased capital investments in our Refineries, including our El Dorado Refinery crude unit and vacuum tower expansion project placed into service in the second quarter of 2008.

Interest expense and other financing costs.  Interest expense and other financing costs of $2.5 million for the three months ended September 30, 2008 increased $399,000, or 19%, from $2.1 million in the comparable period in 2007.  The primary cause of the increase was interest expense on the new 8.5% senior notes of $614,000, $460,000 higher interest expense on the Utexam Arrangement and $439,000 decreased capitalized interest.  These increased costs were partially offset by the $1.3 million reversal of a 2004 income tax contingency interest accrual due to the statute of limitations expiring. Average debt outstanding was $200.0 million and $150.0 during the three months ended September 30, 2008 and 2007, respectively (excluding amounts payable to Utexam under the Utexam Arrangement).

Interest and investment income.  Interest and investment income decreased $5.0 million, or 83%, from $6.1 million in the three months ended September 30, 2007, to $1.1 million in the three months ended September 30, 2008, because of lower average cash balances and lower interest rates. The three months ended September 30, 2008 also included a $411,000 loss allowance on an investment in relation to an at-risk investment.

Provision for income taxes.  The provision for income taxes for the three months ended September 30, 2008 was $29.8 million on pretax income of $102.1 million (or 29.2%).  Our provision for income taxes for the three months ended September 30, 2007 was $73.8 million on pretax income of $211.0 million (or 35.0%).  The effective tax rate for the three months ended September 30, 2008 was lower than the effective tax rate in the comparable period in 2007 primarily because of the reversal of income tax contingencies and a lower Kansas state income tax provision for the 2008 period resulting from recognizing the benefit from $5.6 million of Kansas income tax credits for expansion projects at our El Dorado Refinery.  Another benefit which reduced our Kansas income tax provision included a reduction of Kansas corporate income tax rates from 7.35% to 7.10%.  The income tax provision for the three months ended September 30, 2007 included a $2.1 million ultra-low sulfur diesel credit benefit to the provision.  The benefit of the Section 199 production activities deduction for manufacturers (based on taxable income) was $2.5 million less in the third quarter of 2008, than in the comparable period of 2007 because taxable income was substantially less during the third quarter of 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities.  Net cash provided by operating activities was $220.4 million for the nine months ended September 30, 2008 compared to net cash provided by operating activities of $452.9 million during the nine months ended September 30, 2007.  Lower operating income decreased cash flow partially offset by a lower use of cash flows from working capital changes during the 2008 period compared to the same period in 2007.  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 $13.3 million of cash during the first nine months of 2008 compared to a use of $55.8 million for the same period in 2007.  The most significant components of the working capital change were an increase in inventories of $137.0 million in the 2008 period compared to an increase in inventories of $70.4 million in the 2007 comparable period, and an increase in receivables of $96.6 million in the first nine months of 2008 compared to an increase in receivables of $37.7 million in the 2007 comparable period, and an increase in current accrued liabilities of $198,000 in the nine months ended September 30, 2008 compared to an increase of $21.4 million during the comparable period in 2007, offset by an increase in trade and crude payables of $257.1 million in 2008 compared to an increase in 2007 of $26.5 million.  The increase in inventories and crude payables during the nine months ended September 30, 2008 was principally due to higher prices of crude oil.  During the nine months ended September 30, 2008, we received income tax refunds of $24.6 million, consisting mostly of our estimated federal income tax overpayment from 2007, however receivables increased by $32.7 million for the receivable of the investment fund as discussed in Note 2 “Other Receivables” in the “Notes to Condensed Consolidated Financial Statements.”  At September 30, 2008, we had $464.0 million of cash and cash equivalents, $723.9 million of working capital and $268.4 million of borrowing base availability for cash borrowings under our $500.0 million revolving credit facility.

Cash flows used in investing activities.  Capital expenditures during the first nine months of 2008 were $160.2 million, which included approximately $111.7 million for the El Dorado Refinery and $48.2 million for the Cheyenne Refinery. The $111.7 million of capital expenditures for our El Dorado Refinery included $33.5 million to complete the crude unit and vacuum tower expansion ($154.0 million total cost), $24.8 million on the coke drum replacement which was substantially completed in the third quarter of 2008 ($60.4 million estimated total cost), and $14.0 million on the gasoil hydrotreater revamp, as well as operational, payout, safety, administrative, environmental and optimization projects.  The $48.2 million of capital expenditures for our Cheyenne Refinery included approximately $6.3 million for the boiler replacement, $7.3 million for the amine plant, $7.0 for the new Cheyenne Refinery office building, and $3.2 million for the coker expansion, 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 were 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.  A payment of $7.5 million was paid in early 2008, based on 2007 results, and was accrued as of December 31, 2007.  Including the final payment made in early 2008, we paid a total of $37.5 million for contingent earn-out payments and are no longer subject to this provision of the Shell agreement.

Cash flows from financing activities.  On September 15, 2008, the Company issued $200.0 million aggregate principal amount of 8.5% Senior Notes.  The 8.5% Senior Notes, which mature on September 15, 2016, were issued at a 1.42% discount ($2.8 million) resulting in total senior notes net of discount of $197.2 million, and the Company received net proceeds (after underwriting fees) of $195.3 million.   Interest on the notes is paid semi-annually.  The 8.5% Senior Notes are redeemable, at the option of the Company, at 104.25% after September 15, 2012, declining to 100.0% in 2014.  Prior to September 15, 2012, the Company may at its option redeem the 8.5% Senior Notes at a make-whole amount, plus accrued and unpaid interest.  The proceeds from the notes offering will be used for general corporate purposes.

During the nine months ended September 30, 2008, we spent $56.3 million to repurchase stock under the stock repurchase program discussed below.  Treasury stock increased by 335,360 shares ($10.1 million) from stock surrendered by employees and members of the Board of Directors to pay withholding taxes on stock-based compensation which vested during the first nine months of 2008.  We also paid $16.9 million in dividends during the nine months ended September 30, 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 $56.3 million to repurchase stock under this program during the nine months ended September 30, 2008, leaving a remaining authorization of $100.2 million.

During the nine months ended September 30, 2008, we issued 130,000 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 $265,000 in cash and 9,224 shares ($306,000) of our common stock in stock swaps where mature stock was surrendered to facilitate the exercise of the option. As of September 30, 2008, we had $347.2 million of long-term debt outstanding and no borrowings under our revolving credit facility.  We also had $231.6 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 September 30, 2008.  Shareholders’ equity as of September 30, 2008 was $1.15 billion.

Our Board of Directors declared regular quarterly cash dividends of $0.05 per share in December 2007 and February 2008, which were paid in January and April 2008, respectively.  In April 2008, our Board of Directors announced an increase in the regular quarterly cash dividend to $0.06 per share ($0.24 annualized) for shareholders of record on June 27, 2008, which was paid in July 2008.  In August 2008, the Company declared a regular quarterly cash dividend of $0.06 per share, which was paid in October 2008.  The total cash required for the dividend declared in August 2008 was approximately $6.2 million and was included in “Accrued liabilities and other” on the September 30, 2008 Condensed Consolidated Balance Sheet.

FUTURE CAPITAL EXPENDITURES

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 ($24.3 million incurred as of September 30, 2008) (see “Environmental” in Note 13 in the “Notes to Condensed Consolidated Financial Statements”).  The project will also result in a significant yield improvement for the catalytic cracking unit and is anticipated to be completed in the fall of 2009.  As of September 30, 2008, outstanding purchase commitments for the gasoil hydrotreater revamp were $8.2 million.  The El Dorado Refinery’s planned $84 million catalytic cracker expansion project ($10.7 million incurred as of September 30, 2008) is currently under evaluation because of the currently low gasoline margin and generally weak economic conditions.  This evaluation is likely to result in a reduced scope of work and reduced project costs by approximately fifty percent.  The project is anticipated to be completed in the fall of 2009 and had outstanding purchase commitments at September 30, 2008 of $3.5 million.  The El Dorado Refinery catalytic cracker regenerator emission control project, with a fall 2009 estimated completion date and total estimated cost of $34 million ($12.8 million incurred as of September 30, 2008), 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 13 in the “Notes to Condensed Consolidated Financial Statements”).  At September 30, 2008, the catalytic cracker regenerator emission control project had outstanding purchase commitments of $2.2 million.  The above amounts include estimated capitalized interest.

2008 capital expenditures.  Including the projects discussed above, 2008 capital expenditures aggregating approximately $239.0 million are currently planned, of which $160.2 million had been incurred through September 30, 2008, and include $141.0 million at our El Dorado Refinery, $97.0 million at our Cheyenne Refinery, $500,000 at our products terminal and blending facility and $236,000 at our Denver and Houston offices.  We have reduced our 2008 capital expenditures by deferring $65.0 million to future years because of the decline in our operating profits.  The $141.0 million of planned capital expenditures for our El Dorado Refinery includes $21.0 million for the gasoil hydrotreater revamp project, $27.0 million for  the coke drum replacement project, $33.5 million for the crude unit and vacuum expansion project, $10.0 million for the catalytic cracker expansion project and $12.0 million for the catalytic cracker regenerator emission control project, as mentioned above, as well as environmental, operational, safety, payout and administrative projects.  The $97.0 million of planned capital expenditures for our Cheyenne Refinery includes $15.0 million for the Refinery main office building replacement, $13.0 million for a new boiler project ($14.0 million total cost) and $7.3 million for the new amine plant as well as environmental, operational, safety, payout and administrative projects.  The estimated total cost of $21.1 million (including capitalized interest) for the new amine unit at the Cheyenne Refinery was designed to result in improved alkylation unit reliability and provide a partial backup unit if the main amine unit is not operating. At September 30, 2008,  this project was nearly completed and unit start-up occurred in October 2008.  We expect that our remaining 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 will continue to review our capital expenditures in light of market conditions.  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 nine and three months ended September 30, 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:
	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Charges (bpd)
Light crude		27,109		34,987		38,207		27,514
Heavy and intermediate crude		107,312		114,384		118,676		123,980
Other feed and blendstocks		19,436		17,901		17,071		19,749
Total		153,857		167,272		173,954		171,243
Manufactured product yields (bpd)
Gasoline		72,508		78,592		78,755		78,302
Diesel and jet fuel		53,205		57,376	��	66,424		55,389
Asphalt		4,449		5,796		4,306		7,363
Other		19,277		21,571		19,337		26,475
Total		149,439		163,335		168,822		167,529
Total product sales (bpd)
Gasoline		81,923		90,123		88,217		92,422
Diesel and jet fuel		52,786		58,424		65,049		54,949
Asphalt		4,826		6,062		4,853		8,345
Other		18,240		18,319		19,100		18,400
Total		157,775		172,928		177,219		174,116
Refinery operating margin information    (per sales barrel)
Refined products revenue	$	119.92	$	82.60	$	128.46	$	88.54
Raw material, freight and other costs    (FIFO inventory accounting)		105.62		61.43		122.17		68.38
Refinery operating expenses, excluding depreciation		5.66		4.46		4.68		4.33
Depreciation, amortization and accretion		1.11		0.80		1.02		0.92
Average WTI Cushing crude oil price (per barrel)	$	113.80	$	65.20	$	118.42	$	75.10
Average light/heavy differential (per barrel)		18.47		15.84		14.00		19.02
Average gasoline crack spread (per barrel)		6.35		23.41		9.52		20.51
Average diesel crack spread (per barrel)		25.21		24.76		26.86		23.43
Average sales price (per sales barrel)
Gasoline	$	123.40	$	90.53	$	131.38	$	97.25
Diesel and jet fuel		143.36		90.12		146.38		98.79
Asphalt		64.11		45.59		100.39		48.68
Other		51.21		31.86		61.17		32.23

Cheyenne Refinery:
	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Charges (bpd)
Light crude		7,970		12,560		8,673		9,245
Heavy and intermediate crude		34,578		29,337		35,484		36,817
Other feed and blendstocks		930		1,083		715		741
Total		43,478		42,980		44,872		46,803
Manufactured product yields (bpd)
Gasoline		18,621		17,311		18,413		17,500
Diesel		12,543		12,739		14,107		12,875
Asphalt		4,449		5,796		4,306		7,363
Other		6,549		5,702		6,788		7,974
Total		42,162		41,548		43,614		45,712
Total product sales (bpd)
Gasoline		26,729		26,983		25,643		28,656
Diesel		12,089		12,878		13,185		13,410
Asphalt		4,826		6,062		4,853		8,345
Other		5,815		3,534		6,816		4,019
Total		49,459		49,457		50,497		54,430
Refinery operating margin information    (per sales barrel)
Refined products revenue	$	113.11	$	81.31	$	126.62	$	84.90
Raw material, freight and other costs    (FIFO inventory accounting)		98.70		59.02		117.09		63.83
Refinery operating expenses, excluding depreciation		6.41		5.29		5.93		4.73
Depreciation, amortization and accretion		1.43		1.27		1.36		1.29
Average light/heavy crude oil differential (per barrel)	$	17.95	$	15.27	$	13.92	$	18.40
Average gasoline crack spread (per barrel)		7.71		23.30		15.41		19.50
Average diesel crack spread (per barrel)		28.58		28.49		33.88		25.24
Average sales price (per sales barrel)
Gasoline	$	121.59	$	91.10	$	135.17	$	96.97
Diesel		146.33		95.14		156.77		101.13
Asphalt		64.11		45.59		100.39		48.68
Other		45.75		17.35		54.86		19.93

El Dorado Refinery:
	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Charges (bpd)
Light crude		19,139		22,427		29,534		18,269
Heavy and intermediate crude		72,735		85,047		83,193		87,163
Other feed and blendstocks		18,506		16,818		16,355		19,009
Total		110,380		124,292		129,082		124,441
Manufactured product yields (bpd)
Gasoline		53,887		61,281		60,342		60,802
Diesel and jet fuel		40,662		44,637		52,317		42,514
Other		12,728		15,870		12,550		18,501
Total		107,277		121,788		125,209		121,817
Total product sales (bpd)
Gasoline		55,194		63,140		62,574		63,766
Diesel and jet fuel		40,697		45,547		51,864		41,540
Other		12,425		14,785		12,284		14,382
Total		108,316		123,472		126,722		119,688
Refinery operating margin information (per sales barrel)
Refined products revenue	$	123.03	$	83.12	$	129.20	$	90.20
Raw material, freight and other costs    (FIFO inventory accounting)		108.78		62.40		124.19		70.45
Refinery operating expenses, excluding depreciation		5.32		4.12		4.18		4.15
Depreciation, amortization and accretion		0.96		0.61		0.88		0.75
Average WTI/WTS crude oil differential (per barrel)	$	4.13	$	4.38	$	2.77	$	4.20
Average light/heavy crude oil differential (per barrel)		19.48		17.26		14.23		20.60
Average gasoline crack spread (per barrel)		5.69		23.45		7.10		20.96
Average diesel crack spread (per barrel)		24.21		23.71		25.08		22.85
Average sales price (per sales barrel)
Gasoline	$	124.28	$	90.28	$	129.83	$	97.38
Diesel and jet fuel		142.47		88.70		143.73		98.03
Other		53.77		35.33		64.67		35.68

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 12 “Price Risk Management Activities” in the “Notes to Condensed Consolidated Financial Statements.”

Our outstanding derivatives sell contracts and net unrealized gains as of September 30, 2008 are summarized below:

Commodity	Period	Volume (thousands of bbls)		Expected Close Out Date	Unrealized Net Gain (in thousands)
Crude Oil	November 2008		1,963	October 2008	$	9,597
Crude Oil	December 2008		698	November 2008		4,512
Crude Oil	January 2009		966	December 2008		4,338

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 6.625% Senior Notes due 2011 and $200 million 8.5% Senior Notes due 2016 that were outstanding at September 30, 2008 have fixed interest rates.  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 6.625% Senior Notes was $141.8 million and our 8.5% Senior Notes was $192.5 million at September 30, 2008.

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 Notes 13 and 14 in the Notes to Condensed Consolidated Financial Statements.
ITEM 1A.	Risk Factors – Our risk management activities may generate substantial losses and limit potential gains In order to hedge and limit potential financial losses on certain of our inventories, we from time to time enter into derivative contracts to make forward sales or purchases of crude oil, refined products, natural gas and other commodities.  We may also use options or swaps to accomplish similar objectives.  Our inventory hedging strategies generally produce losses when hedged crude oil or refined products increase in value.  In the nine months ended September 30, 2008, we incurred a pre-tax hedging loss of $39.5 million recorded in “Other revenues” in the Condensed Consolidated Statements of Income and Comprehensive Income.  Offsetting the cost of our hedges is the economic value realized when we liquidate inventory which had been hedged.  The value of the hedged inventory generally moves in an opposite direction to the value of the hedge contract.  However, due to mark to market accounting requirements and cash margin requirements of commodities exchanges and various counterparties, there may be timing differences between when hedging losses are incurred and when the related physical inventories are sold.  In certain instances, these derivative contracts are accounted for as hedges, but there is potential risk that these hedges may not be considered effective from an accounting perspective and would be marked to market in our financial statements.  As we use progressively more Canadian crude oil at our refineries, both our total crude oil inventories and the amount hedged inventories are likely to increase in future periods.  See “Quantitative and Qualitative Disclosures about Market Risk” in Part I, Item 3. Instability and volatility in the financial markets could have a negative impact on our business, financial condition, results of operations and cash flows. The financial markets have recently experienced substantial and unprecedented volatility as a result of dislocations in the credit markets.  Market disruptions such as those currently being experienced in the United States and abroad may increase our cost of borrowing or adversely affect our ability to access sources of liquidity upon which we may rely to finance our operations and satisfy our obligations as they become due, and capital may not be available on terms that are reasonably acceptable to us, or at all.  These disruptions may include turmoil in the financial services industry, including substantial uncertainty surrounding particular lending institutions with which we do business, reduction in available trade credit due to counterparties liquidity concerns, more strict lending requirements, unprecedented volatility in the markets where our outstanding securities trade, and general economic downturns in the areas where we do business.  In addition, a general economic slowdown or the lack of liquidity may result in contractual counterparties with which we do business being unable to satisfy their obligations to us in a timely manner, or at all. We maintain significant amounts of cash and cash equivalents at several financial institutions that are in excess of federally insured limits.  In the third quarter of 2008, we recorded a loss of $411,000 on money market funds that had investments in Lehman Brothers, which filed for bankruptcy.  Given the current instability of financial institutions, we may experience further losses on our cash and cash equivalents. Our Refineries face operating hazards, and the potential limits on insurance coverage could expose us to significant liability costs. Our operations could be subject to significant interruption, and our profitability could be impacted if either of our Refineries experienced a major accident or fire, was damaged by severe weather or other natural disaster, or was otherwise forced to curtail its operations or shut down.  If a crude oil pipeline became inoperative, crude oil would have to be supplied to our Refineries through an alternative pipeline or from additional tank trucks to the Refineries.  Alternative supply arrangements could require additional capital expenditures, hurt our business and profitability and cause us to operate the affected Refinery at less than full capacity until pipeline access was restored or crude oil transportation was fully replaced.  In addition, a major accident, fire or other event could damage our Refineries or the environment or cause personal injuries.  If either of our Refineries experiences a major accident or fire or other event or an interruption in supply or operations, our business could be materially adversely affected if the damage or liability exceeds the amounts of business interruption, property, terrorism and other insurance that we maintain against these risks. Our Refineries consist of many processing units, a number of which have been in operation for many years.  One or more of the units may require additional unscheduled down time for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for such units.  Scheduled and unscheduled maintenance could reduce our revenues during the period of time that our units are not operating.
ITEM 4.	Submission of Matters to a Vote of Security Holders –  None.

ITEM 6. Exhibits – 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: November 6, 2008