Sunoco to sell or close its refineries in Philadelphia, Marcus Hook
Originally published Sept. 7, 2011: Sunoco Inc., an iconic Philadelphia company and a manufacturing mainstay along the Delaware River for more than a century, is getting out of the refining business.
Sunoco said Tuesday that if it cannot find a buyer for its oil refineries in Marcus Hook and on the Schuylkill in South Philadelphia it will close the plants in July.
About 1,500 of Sunoco's 10,000 employees work in refining, according to the company.
The move is the latest and most dramatic divestiture initiated by Lynn L. Elsenhans, the chief executive officer who took over Sunoco three years ago and has dismantled the remnants of the former industrial powerhouse built by the Pew family.
Elsenhans said the refineries had lost money for eight of the last 10 quarters - $772 million since 2009. Sunoco can no longer justify the investment required to maintain the plants, much less to improve their competitiveness in a world where refining profits are increasingly elusive, a spokesman said.
Sunoco has been shedding assets since the 2008 arrival of Elsenhans, a career oil executive.
Under her leadership, Sunoco has sold two refineries in the Midwest, closed its Eagle Point refinery in Gloucester County, spun off its metallurgical coke business, and sold its home heating-oil business. Last month, it sold the last of its operations that manufacture chemicals.
Elsenhans telegraphed her willingness to get out of refining to focus the company on more profitable retail sales of motor fuel, as well as transporting fuel through Sunoco's network of pipelines and terminals.
"Anybody who didn't see it coming wasn't paying attention," said Jim Savage, president of United Steelworkers Local 10-1, which represents about 600 workers at the South Philadelphia refinery who could be out of work next year.
Still, the announcement came as a shock. After speaking with investment analysts, Elsenhans visited with employees at several Sunoco operations in the region.
"It was pretty subdued," said company spokesman Thomas P. Golembeski, describing the chief executive's meeting with employees at the Center City headquarters. "There were a lot of pretty good questions about the decision and where we are going."
Wall Street approved. While the broader stock market fell Tuesday, Sunoco shares closed up 5.32 percent at $38.03.
Sunoco said it had retained Credit Suisse Securities L.L.C. to help conduct a comprehensive strategic review of the company to determine the best way to deliver value to shareholders.
"No option is off the table," Elsenhans said in a conference call Tuesday with analysts.
Sunoco said it expected to record a pretax, noncash charge of between $1.9 billion and $2.2 billion in the third quarter related to impairment of the refineries. If the refineries are idled, the company could face additional pretax charges of up to $500 million related to contract terminations, staffing costs, and severance.
Sunoco opened the Marcus Hook refinery in 1902 to refine crude oil brought up by ship from Texas. In South Philadelphia, it acquired the Atlantic Petroleum Corp. refinery in 1988 and Chevron Corp. refinery in 1994 and merged the two Schuylkill plants into one of the nation's largest refineries.
Together the Marcus Hook and Philadelphia refineries can process more than 500,000 barrels of crude a day, making them one of the largest refining centers in the country.
The U.S. refining industry has suffered in recent years from reduced demand caused by the economic downturn, improved fuel mileage of vehicles, and the introduction of ethanol into motor fuels.
Domestic refiners say they are also at a competitive disadvantage with imported fuels from overseas refiners who face less rigid environmental controls.
Sunoco's refineries in Southeastern Pennsylvania have the added disadvantage of relying on more expensive low-sulfur crude as their raw material, which has depressed their profitability relative to other refineries.
Some analysts questioned whether Sunoco could find a buyer for the refineries. Sunoco closed its Eagle Point refinery at the end of 2009, and other refiners have struggled to find buyers.
"If they close this place, it's going to be devastating for the local communities," said David Miller, president of Steelworkers Local 10-901, which represents about 400 workers at the Marcus Hook plant.
Mark McDonald, Mayor Nutter's spokesman, said city officials would reach out to Sunoco to better understand its plans.
"Among the mayor's most pressing concerns is the impact on those who work at the refinery," he said.
Elsenhans said the plants had potential value as fuel terminals or other commercial or industrial activities. She noted that petrochemical manufacturers, looking to develop plants that use natural gas produced from the Marcellus Shale as a raw material, might be "a potential opportunity."
On Tuesday she asked investors for understanding.
"We hope you recognize our commitment to delivering value to shareholders, which at times requires us to make the tough decisions in the face of a challenging market environment," she told analysts.
Sunoco has refined petroleum for 116 of its 125 years. Founded by Joseph Newton Pew and Edward O. Emerson, the Pew family built the company into a worldwide enterprise during the automobile age, when it explored for oil and developed a huge shipbuilding operation.
Sunoco spun off its "upstream" exploration business in the 1980s to concentrate on refining and marketing.
Philip H. Weiss, a senior energy analyst for Argus Research Group, questioned whether the convenience-store business and logistics offered a strong growth potential. Sunoco owns only a minority stake in its profitable pipeline subsidiary, Sunoco Logistics Partners L.P.
"I wonder if it's a company that's just looking to liquidate itself," he said.
Sunoco Refineries by the Numbers
Number of employees in refining. Also working at the refineries are 425 contractors.
Barrels of crude oil that can be processed a day, making the refineries among country's largest refining centers.
Amount of losses in millions since 2009. The refineries have
lost money for eight of the last
Closing price for Sunoco's stock, which gained
5.3 percent in afternoon trading on the New York Stock Exchange.
The year Sunoco opened the Marcus Hook refinery. In 1988 and 1994, it acquired South Phila. refineries.
For more coverage of Sunoco Corp., including recent purchases and sales and an image gallery, go to www.philly.com/sunoco
Contact staff writer Andrew Maykuth at 215-854-2947 or email@example.com.