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WIKI ANALYSIS
Sunoco Inc. (NYSE:SUN) is one of largest independent refiners in the United States in terms of capacity and is capable of producing 910,000 barrels of refined crude product per day.[1] Its refineries are located all over the U.S. and produce gasoline, jet fuel, heating oil, and diesel fuel. Through its logistics department, Sunoco transports its crude oil and refined products through a network of company-owned pipelines spanning approximately 6,000 miles.[2] While Sunoco distributes refined products all over the U.S., its sells its refined products primarily on the east coast.[3]
Because Sunoco's revenues come from a variety of sources, the company's earnings are not as exposed to volatile oil prices.[4]
Company Overview
Sunoco's segments of operation include Refining and Supply, Retail Marketing, Chemicals, and Coke. Although in 2010 refining margins improved from 2009 levels, Sunoco's earnings improvement largely was driven by other key factors such as cost savings initiatives and improvements in its non-refining operations.[5] Through self-help initiatives focused on improving margins and controlling costs, Sunoco's Refining and Supply business has improved its profit margins[6] The company's Chemicals, Coke, and Retail Marketing segments reported pretax turnarounds compared to as well.
Business Segments and Products
Refining and Supply (Net loss from continuing operations of $8 million in 2010):
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Sunoco's refining operations manufacture refined-petroleum products and commodity petrochemicals at its Marcus Hook, Philadelphia and Toledo refineries and sells these products to other Sunoco businesses and to wholesale and industrial customers.[7] Since 2009, many of Sunoco's refineries have not remained profitable and were shut down temporarily as a result. In the final quarter of 2010, Sunoco entered in an agreement to sell the Toledo refinery for $400 million.[8]
While wholesale margins improved from $3.66 in 2009 to $5.04 in 2010, throughputs declined 7.3% on a year-over-year basis.[9] This decline from 2009 levels can be partially attributed to the fourth-quarter-2009 shut down of Sunoco's Eagle Point refinery and the sale of its discontinued Tulsa operations in the second-quarter of 2009.[10] The amount of petro-products available for sale also declined; products available for sale declined from 689.8 barrels/day in 2009 to 642.8 barrels/day in 2009.[11] However, Sunoco's earnings improved due to improved margins as well as due to lower expenses in 2010.[12]
Retail Marketing (Net Income of $110 million in 2010):
Retail gas stations are primarily involved in the sale of products, such as gasoline and middle distillates (heating oil and diesel) as well as operating convenience stores in the gas stations. Sunoco has locations in 26 states, primarily located on the East Coast and in the Midwest region of the U.S. Sunoco's retail marketing segment income increased $24 million compared to 2010 as a result of higher gasoline margins as well as lower average expenses of $32 million compared to 2009.[13] Gasoline margins were $3.72 per gallon in 2009, but they improved to $3.93 per gallon in 2010.[14] However, these gains were partially offset by lower distillate margins. Overall, sales remained virtually the same between 2009 and 2010.[15]
Chemicals (Net Income of $15 million in 2010): The chemical segment comprises operations, such as production, distribution and marketing of petrochemicals, including phenol and polypropylene.[16] For 2010, the Chemicals segment reported for 2010 a rise of $28 million in income continuing operations from 2009 levels.[17] Margins for its chemicals products increased from an average of 8.0¢ per pound in 2009 to 8.8¢ per pound in 2010.[18] As a result, year-over-year margins improved $9 million in 2010. Sales for 2010 were $22 million. On a per pound basis, 2010 sales increased 21.2% from 2009 levels.[19]
On March 31, 2010, Sunoco completed the sale of the common stock of its polypropylene business to Braskem S.A.[20]
Logistics (Net Income of $86 million in 2010): Sunoco's Logistics segment operates pipelines and terminals that aid in the transportation of refined products and crude oil.[21] The segment also engages in crude oil acquisition and marketing activities.[22] At the end of 2008, Sunoco owned and operated approximately 3,800 miles of crude pipelines and 2,200 miles of refined product pipelines.[23] Sunoco's logistics operations reported a year-over-year decline of $11 million in 2010 due to lower lease crude acquisition results brought on by lower contango profits and lower throughputs.[24] Sunoco reported daily throughputs of 3.31 million in 2010 versus throughputs of 2.89 million in 2009.While profits declined compared to 2009, Sunoco reported higher income contributions from acquisitions and internal growth projects.[25]
Coke (Net Income of $132 million in 2010): Sunoco's Coke segment operates metallurgical coke plants and metallurgical coal mines that produce metallurgical coke for use in the steel industry. Net income increased $75 million in 2009 compared to 2008.[26] $280 million of growth capital has been allocated to the Coke business for the construction of a new coke plant at Middletown, Ohio and some logistics operations.[27]
Due to the absence of a $41 million tax-credit received in 2009, Sunoco's coke operations reported a $48 million declined in income compared to 2009.[28] Also contributing to the decline in income were lower production numbers from two of its coal and coke operations.[29] Coke production in 2010 from the U.S. and Brazil increased compared to their 2009 levels by 25.4% and 29.5%, respectively.[30]
In January 2011, Sunoco acquired Harold Keene Coal for $40 million in cash. The acquisition is designed to boost Sunoco's coal reserves for its Coke business.[31] The coal reserves are estimated to be 16 million tons.[32] Sunoco has announced the plans to spin off its metallurgical coke operations in 2011, and this deal has the potential of making its operations more attractive to potential buyers.[33]
In March 2011, Sunoco filed a registration statement for a proposed initial public offering with a potential worth of $100 million.[34] Sunoco plans to own 80% of its Suncoke shares after the offering, with the remaining shares going to Sunoco shareholder in a spinoff.[35]
Trends and Forces
Sunoco logistics seeks to expand through acquisitions
Through acquisitions, Sunoco plans to expand its transportation fuel business, which includes pipelines, storage, and terminal assets, as the company diversifies away from oil refining.[36] Over the past several quarters, Sunoco's logistics business has performed well, especially relative to its lagging refining business.[37] While margins improves, the demand for biofuel blending and transportation also have the potential of increasing.[38]
Downturns for Gasoline, Chemical Consumption force Sunoco to take action to reduce costs and improve liquidity
For independent refiners, future profits depend heavily on rising demand for gasoline and diesel. Low levels of gasoline consumption have the potential of significantly impacting the balance sheets of U.S. refiners by forcing many refiners to shut down idle refineries and write down their value.[39] However, demand is not likely to reach 2007 peaks according to the Wall Street Journal. Factors the have the potential of curtailing gasoline demand include the long-term transition to more fuel-efficient vehicles, high unemployment rates, and growing concerns over environmental protection.[40] According to analysts at the brokerage firm Caris, refining margins are capable of remaining low through the second half of 2009.[41]
According to Zack's Investment Research, lack of geographic diversity and refining flexibility are two issues that, in addition to low refining margins, have the potential of playing a significant role in Sunoco's financial performance.[42] In response to these factors, Sunoco has taken several steps in 2009 and during the first quarter of 2010 in order to reduce costs.[43] In the third quarter of 2009, Sunoco shut down its New Jersey refinery in order to cut costs amid small profit margins.[44] Including the New Jersey shutdown, Sunoco reduced overall refinery utilization to 78% of capacity in 2009. Although refinery shutdowns eliminate potential losses from refining, they have the potential of burdening the operational refineries.[45] With less refineries operating, Sunoco has had to increase utilization rates at its larger refineries in order to prevent a shortage of fuel at its retail gasoline stations. Cutting costs has been the focal point of Sunoco's operations 2009 due to rising crude prices and shrinking refining margins.[46] Also, Sunoco sold its Tulsa refinery and Retail Home Heating Oil business in 2009.[47] The company announced in February 2010 that it reached an agreement to sell its polypropylene business.[48] In addition to refinery shutdowns and sales of businesses, the company also has cut its dividends by half to converse its cash balances.[49] Sunoco expects these strategic moves to save $300 annually in 2010.[50]
Sunoco moves in renewable energy market with ethanol plant purchase
In June 2009, Sunoco completed its purchase of a Northeast Biofuel plant for $8.5 million.[51] Through its purchase, Sunoco has acquired an ethanol plant with annual production capacity of 100 million gallons.[52] The plant has the largest production capacity in the northeastern United States, which is Sunoco primary market in terms of 2008 sales[53].The company has the potential of increasing its production capacity, through acquisitions or plant improvements, because the plant purchased from Northeast Biofuel is capable of supplying one quarter of Sunoco's ethanol needs.[54]
Four years ago most investment banks were on the brink of etinictxon. Lehman Bros, Bear Stearns and 427 other banks went belly up. Banks that did survive received bailout and Tarp money from the federal government. The banks took our taxpayer money and invested in commodities and in the currency market. By January 2008 the oil market had hit bottom; oil was selling for $34 a barrel. So the banks and hedge funds invested in oil, betting that it would go up. After all, they had been previously successful in driving up the price to $140 dollars a barrel. They began hoarding oil, storing it in tank farms and on supertankers.Then the bankers hired an army of oil traders to bid the price of oil up. Even though world consumption was down, they were successful at pumping oil up again with the resurrection of the big lie of peak oil and a few geopolitical crises'.Drilling will do nothing to the price of oil. Opening the reserves will do nothing to the price of oil. The present price of oil has nothing to do with supply and demand (there is a glut of oil and no place to store it.) Instead of the price of oil being determined by supply and demand, the oil and currency traders now control the price of oil. These American and international bankers didn't believe that the Obama administration would be successful combating the crisis that these very banks created. As the deficit grew and the treasury printed more money to bail out the banks, their traders and analysts declared the Obama administration dead on arrival when it came to the economy. They bet that the US dollar would lose its value. The US dollar has lost between 25-30% in the last four years. They bid it down and they made lots! Their cynical efforts to make a buck impoverished all of us by devaluing our currency. When your currency becomes devalued, the cost of everything goes up, especially oil and other commodities.The banks scored twice; first by betting that oil would go up, then shorting the greenback, insuring that oil would go up. Don't forget, we loaned the banks the money to do this, and for years those banks have made record profits.Two years ago there was still a lot of idle money around that was frightened of the stock market, and the insolvency of banks. That money was put into the commodity markets and fueled the rise of the price of commodities world wide. It's been a good couple of years for Goldman Sachs, J P Morgan, and their commodity and currency trading subsidiaries. A bright guy who ran an oil trading subsidiary for Citi Bank made 100 million as compensation. Their hoarding practices have started to be emulated by other countries; we now see China, The US, and others building vast oil storage facilities to take advantage of climbing oil prices. OPEC, big oil and the bank's speculative efforts have and will cost American consumers billions.Then there is the continued greed of oil producers. With the price so high, think of the money to be made! Problem is, there is no place to store it anymore and everyone continues to pump it out of the ground. And world consumption continues to be low.Those of us who heat our homes, drive our cars, and use oil products in a myriad of ways, are paying way more than we should. And we have been for some time. Bernie Madoff ripped off his clients to the tune of 50 billion dollars, a monumental theft. So what do you call this oil market that has taken 50 times that amount? We have paid $2.5 trillion dollars more than we should! The irony of all of this is that we the taxpayers provided the seed money for this, the greatest rip off in history.All of this hoarding and manipulation needs to end. Why aren’t the Justice Department and state Attorney Generals applying the RICO act against these criminals? Why haven’t we repealed the Commodity Futures Modernization Act of 2000 and The Financial Services Modernization Act of 1999?
Notes
- ↑ Sunoco 2008 Annual Report
- ↑ Sunoco 2008 Annual Report
- ↑ Sunoco 2008 Annual Report
- ↑ Sunoco 2008 Annual Report
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco Full Year 2009 Results
- ↑ Sunoco Full Year 2009 Results
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Sunoco 2010 Annual Report, March 2011
- ↑ Bloomberg.com: Sunoco unit buys Harold Keene Coal for $40 million, January 2011
- ↑ Bloomberg.com: Sunoco unit buys Harold Keene Coal for $40 million, January 2011
- ↑ Bloomberg.com: Sunoco unit buys Harold Keene Coal for $40 million, January 2011
- ↑ Businessweek.com: Sunoco files for spinoff IPO of SunCoke, March 2011
- ↑ Businessweek.com: Sunoco files for spinoff IPO of SunCoke, March 2011
- ↑ WSJ:Sunoco Unit Buys Butane Blending Business For $140 Million, July 2010
- ↑ WSJ:Sunoco Unit Buys Butane Blending Business For $140 Million, July 2010
- ↑ WSJ:Sunoco Unit Buys Butane Blending Business For $140 Million, July 2010
- ↑ WSJ: Oil Refiners May Never See the Good Times Come Back, September 2009
- ↑ WSJ: Oil Refiners May Never See the Good Times Come Back, September 2009
- ↑ WSJ: Oil Refiners May Never See the Good Times Come Back, September 2009
- ↑ Zacks.com: Sunoco Downgraded, March 2010
- ↑ Zacks.com: Sunoco Downgraded, March 2010
- ↑ Market Watch: Sunoco slashes dividend, shuts New Jersey refinery, October 2009
- ↑ Market Watch: Sunoco slashes dividend, shuts New Jersey refinery, October 2009
- ↑ Market Watch: Sunoco slashes dividend, shuts New Jersey refinery, October 2009
- ↑ Zacks.com: Sunoco Downgraded, March 2010
- ↑ Zacks.com: Sunoco Downgraded, March 2010
- ↑ Market Watch: Sunoco slashes dividend, shuts New Jersey refinery, October 2009
- ↑ Zacks.com: Sunoco Downgraded, March 2010
- ↑ Domestic Fuel : Sunoco Completes Purchase of Ethanol Plant in NY, June 2009
- ↑ Domestic Fuel : Sunoco Completes Purchase of Ethanol Plant in NY, June 2009
- ↑ Domestic Fuel : Sunoco Completes Purchase of Ethanol Plant in NY, June 2009
- ↑ Domestic Fuel : Sunoco Completes Purchase of Ethanol Plant in NY, June 2009
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