UPDATE 7-Sunoco to sell refinery business, keep retail

Tue Sep 6, 2011 5:55pm EDT

 * Latest shake-up of U.S. refining sector
 * Sunoco seeks to sell Philadelphia, Marcus Hook plants
 * Plants to be idled in July 2012 if no deal completed
 * Credit Suisse to assist in strategic review
 (Adds comments on Conoco in paragraphs 11, 12)
 By Jeffrey Kerr and Janet McGurty
 NEW YORK, Sept 6 (Reuters) - Sunoco Inc SUN.N plans to
end nearly 120 years in the U.S. refining business, selling its
two remaining plants as higher crude prices and slumping demand
squeezed profits in the latest restructuring of the sector.
 The Philadelphia-based company will remain a gasoline
retailer through its 4,900 stations across the East Coast and
Midwest, but will put its 335,000-barrels-per-day (bpd)
Philadelphia refinery and 178,000-bpd Marcus Hook, Pennsylvania
refinery on the block.
 The move is the latest shift in the U.S. refining sector,
which has seen a wave of companies disposing of refining
assets, selling plants or mothballing them over the past two
years as firms reorganize businesses to adjust to changing
economics in oil product markets. [ID:nN1E7850V8]
 U.S. refiners have seen profits squeezed by sluggish demand
due to the weaker economy and strong crude oil prices. Sunoco
Chief Executive Lynn Elsenhans said the refining segment
operated at a loss in eight of the last 10 quarters.
 "It is in the best interests of shareholders to exit this
business and focus on our profitable retail and logistics
businesses," Elsenhans said in a statement on Tuesday.
 Sunoco's share price rose $1.92, or 5 percent, on the day
to $38.03 after the news.
 If the company is unable to strike a deal to sell the
plants by July 2012, it plans to idle the two main processing
units at the facilities.
 One option if no buyers can be found is to turn the
refineries into terminals. Marcus Hook offers the better site
for a terminal facility as it has storage tanks for crude oil
and refined products as well as caverns for natural gas liquids
storage, Elsenhans said.
 The Philadelphia refinery would likely be better used as an
industrial site and could process ethane from Marcellus Shale
natural gas into ethylene, Elsenhans said.
 The 513,000 bpd of refining capacity Sunoco is selling
represents a significant portion of East Coast capacity. The
U.S. Energy Information Administration estimated East Coast
refining capacity at 1.7 million bpd, of which 1.27 million bpd
is operating capacity, in a report from early 2011.
 Energy investment bank Simmons & Co said in a Tuesday note
that ConocoPhillips (COP.N) may be the next to put East Coast
refineries up for sale, although the company said it had no
such plan.
 Conoco owns the 238,000-bpd Bayway refinery in Linden, New
Jersey, as well as the 185,000-bpd Trainer, Pennsylvania
refinery. [ID:nN1E7851RU]
 In addition to its gasoline stations, Sunoco plans on
retaining its logistics business, which has refined product and
oil pipelines as well as terminals and is operated by Sunoco
Logistics Partners (SXL.N).
 The company will hold a strategic review, assisted by
Credit Suisse (CSGN.VX), to explore ways to use its "strong
cash position and maximize the potential for its logistics and
retail businesses".
 Sunoco bought its first refinery in the 1890s as part of an
early effort to diversify its oil production business.
 Sunoco has had some initial interest from potential buyers,
a company spokesman said, without elaborating further. Industry
watchers said big refining players on the East Coast such as
PBF and ConocoPhillips could be barred from purchasing due to
concerns about market concentration.
 "It would have to be private equity," said Mark Gilman of
New York-based The Benchmark Company, echoing comments from
other analysts.
 PBF, which purchased two East Coast plants -- the idled
Delaware City, Delaware refinery and the Paulsboro, New Jersey
refinery -- in recent years, declined comment. ConocoPhillips
also declined comment.
 Norwegian integrated oil company Statoil, a supplier of
crude to refiners in the region, also declined to comment.
 While refiners in other parts of the United States have
somewhat rebounded from paltry margins because they can process
cheap, dirty crude or sit near growing U.S. supply, East Coast
refineries have lagged.
 Midwest refiners, for example, have seen robust margins for
months because of close access to increased supply from U.S.
and Canadian shale oil plays. But East Coast refiners largely
rely on more expensive imports.
 U.S. Northeast refining margins have averaged $8.59 per
barrel so far this year, Credit Suisse said in a report, $3.84
per barrel higher than a year ago, but nowhere near the $26.18
per barrel margin seen in the Midwestern United States.
 Sunoco's plants, which ran expensive, light, sweet crudes
sourced from West Africa and other Atlantic Basin suppliers,
also lack sophisticated coking capacity that would enable them
profitably to run cheaper, heavy, sour crude, like refiners
along the Gulf Coast.
 "Sunoco has largely missed out on the strong recovery in
refining profits over the last year because of its reliance on
higher-cost waterborne feedstock and lack of Midcontinent
refining capacity," Morningstar Equity Research said in a
 In addition, East Coast plants are further from South
American markets, which Gulf Coast refiners have been supplying
in greater volumes as demand there grows.
 Elsenhans said the strategic review will look at every
aspect of the company and determine the best way to unlock
value for shareholders, including governance, management, uses
of cash and potential sales of other operating units.
 "Everything is on the table," she said.
 Sunoco expects a pretax non-cash charge of $1.9-$2.2
billion in the third quarter related to impairment of the plant
and equipment in its refineries. 
 If the processing units are idled, additional pretax
charges of up to $500 million may be incurred. 
 Sunoco has already completed the sale of its 170,000-bpd
Toledo refinery in Ohio to PBF Holding for $400 million. In
May, it sold a chemicals plant in Philadelphia to Honeywell
International (HON.N) for about $85 million. [ID:nN02242802]
 Sunoco also spun off its coal production unit SunCoke
Energy (SXC.N).
 (Additional reporting by Krishna N Das and Antonita Madonna in
Bangalore; Matt Daily, Selam Gebrekidan and Robert Gibbons in
New York; and Erwin Seba in Houston; Editing by Andrea Evans
and Matthew Robinson)

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