An annual review of company strategy with its board last week appears to have been the spur for Sunoco’s announcement Tuesday that it would sell or idle its remaining refineries in Philadelphia and Marcus Hook, Pa., and reboot a strategic review that began with the start of Chairman and CEO Lynn Elsenhans’ tenure just two years ago.

More tantalizing were senior management’s comments about how the Philadelphia company would — post-refining, post-chemicals, post-SunCoke IPO — reposition itself in the marketplace.   
The latest review will look at governance, corporate structure and internal organization and options go well beyond just the sale of the refineries. In a morning conference call, Elsenhans spoke of a “fresh look” at the company, acceding to an analyst’s suggestion that all options were on the table, including a corporate sale, monetization of the Sunoco Logistics Partners (SXL) general partnership and accelerated buyback.   

“We’ve got clarity that (logistics and retail) are the two businesses that we are going to continue to invest in and grow and (which are) going to be the future of this company that we need to look at all aspects, including what’s the most attractive corporate structure,” Elsenhans said.   

That could mean a change in the way Sunoco’s retail business is run. “We’ve indicated to the marketplace that we believe there’s more opportunity in convenience retailing,” she said. “So … in order to really unlock that value could mean organizational change in the way we manage the business.”   Asked if Sunoco was taking back the notion of turning the company into a master limited partnership, Elsenhans reiterated that “no option is off the table.”   

Also very much on the table for Sunoco Logistics and the retail business are acquisitions and other growth opportunities. A “big part” of the strategies for both “include growth and we would continue to implement that growth,” during the strategic review period, Elsenhans said.

Casting a Wide Net for Buyers of Philly, Marcus Hook Sites

Regarding the impending disposal of the 335,000-b/d Philadelphia refinery and 178,000-b/d Marcus Hook plant, Sunoco played up the benefits of the sites — to both refiners and other industrial interests.   

Marcus Hook’s dock facilities, caverns and product tank farm make it a good choice for terminal conversion, according to Elsenhans. As noted previously by OPIS, Sunoco is said to have entertained inquiries from parties interested in combining the Marcus Hook refinery with ConocoPhillips’ nearby refinery in Trainer, Pa.   
The Philadelphia plant could also be made into a terminal given adjacent tankage that’s suitable for storage, but to Elsenhans its large plot size and close proximity to the center of Philadelphia make it attractive to non-refining, commercial industrial interests.

Perhaps at the top of the list of potential, non-refining suitors are chemical producers interested in building ethylene capacity to use growing ethane production from the nearby Marcellus Shale. Sunoco Logistics itself recently announced a project with a partner to take ethane from the Marcellus to Philadelphia which could involve the Eagle Point or Marcus Hook sites.   

It remains to be seen whether Sunoco can manage a sale like Valero’s in Delaware in early 2010. Like the Delaware City refinery, refining margins at Sunoco’s Philadelphia and Marcus Hook plants have suffered from an increasingly competitive global refining market and unreliability issues. Worse for Sunoco has been the plants’ dependence on light, sweet crude, such as West African blends, that have been selling for some $25/bbl above U.S. benchmark crude West Texas Intermediate.   

Valero got help with its sale of Delaware City to PBF Energy in the form of vigorous matchmaking efforts by Delaware’s governor as well as state grants and loans to the new owner. Sunoco said Tuesday that it has not so far engaged in any discussions about its actions with the state of Pennsylvania.   

In addition, though postponed until mid-2015, Sunoco Marcus Hook faces a consent decree that requires capital outlays of some $150-$200 million for environmental projects at the refinery.   Elsenhans quantified the capital commitments associated with the refineries as more than $516 million over the next three years and more than $900 million over the next five years. Both numbers were “stay in business” capital, taking in environmental projects and maintenance turnarounds but not margin-improvement projects.