Sunoco's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Sunoco (SUN)

Q4 2011 Earnings Call

February 02, 2012 5:00 pm ET

Executives

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Lynn L. Elsenhans - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of the Board of Sunoco Partners LLC and Chief Executive Officer of Sunoco Partners LLC

Brian P. MacDonald - Chief Financial Officer and Senior Vice President

Clare McGrory -

Analysts

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Evan Calio - Morgan Stanley, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Chi Chow - Macquarie Research

Mark Gilman - The Benchmark Company, LLC, Research Division

Brad Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Faisel Khan - Citigroup Inc, Research Division

Presentation

Operator

Welcome to the Sunoco Incorporated's Q4 2011 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Lynn Elsenhans, Chairman and CEO. You may begin.

Lynn L. Elsenhans

Thanks, Craven. Thank you, and good evening. Welcome to Sunoco's quarterly conference call where we will discuss the company's fourth quarter pretax results that we reported today, as well as some strategic and other announcements made today. With me are Brian MacDonald, our Chief Financial Officer; and Clare McGrory, Manager of Investor Relations. I'll start by making a few introductory comments about our results and our strategic review process and then Brian will address business results and our overall financial position and conclude with remarks with some additional detail around the strategic review results.

As part of today's call, I would direct you to our website, www.sunocoinc.com, where we would have posted a number of presentation slides, which may provide a useful reference as we progress through our remarks. I would also refer you to the Safe Harbor statement referenced in Slide 2 on the slide package and is included in this afternoon's earnings release.

So let's begin. As you can see from Slide 3, we reported a pretax loss of $48 million for the fourth quarter. Our results are preliminary and shown on a pretax basis only due to income tax amount that has yet to be finalized. We expect to report after-tax financial results including accompanying financial information next week. We do not expect material changes to pretax results as reported.

When I look at our financial performance in the fourth quarter, I see a pattern that has become familiar. First, we had very strong performance from Logistics and Retail, the 2 growth areas of our portfolio. Logistics contributed $66 million in pretax income as Sunoco Logistics Partners generated record results for a third straight quarter, largely driven by market opportunities within our Crude Oil segment and growth in our ratable business. The $40 million in pretax income earned in Retail was another solid result, given market conditions during the quarter. Our Retail team did a good job of capturing available margins.

Second, market conditions in Refining and Supply continue to be every challenging and we aggressively are managing the economics of our [indiscernible]. Refining and Supply was negatively impacted by the rapid deterioration in market conditions that occurred in the fourth quarter, which resulted in the loss of $117 million pretax. This marks the 10th quarter out of the last 12 that we have lost money in Refining and Supply. Our Northeast refining business has not had a profitable year since 2008 and has lost over $900 million before tax cumulatively over the last 3 years. This is why we need to exit the refining business as difficult as this is for our employees and communities.

It is our view that the outlook for motor fuel demand and refining margins in the Northeast remains weak and may continue to get worse. As such, we accelerated the timeline for idling the Marcus Hook refinery to mitigate losses. From an operational perspective, the main processing units at Marcus Hook were idled in mid-December, although the Philadelphia refinery continues to operate. For as long as we own and operate the refinery, safety and reliability will remain key areas of focus.

Regarding the potential sale of one or both of the refineries, I will say that Sunoco has conducted a vigorous and thorough process over the past 5 months with the help of its financial advisor, Credit Suisse. The company initiated contact with more than 150 potential purchasers from around the world, including national oil companies, integrated oil companies, independent refiners, pipeline companies and private equity groups. The potential buyers we had spoken to has considered a range of options, including operating the refineries or only one refinery, operating specific units within the refinery or using the facilities for their storage and logistical capabilities.

At this time, the company has received some degree of interest in it's Philadelphia refinery and will continue to pursue a sale of that facility as an operating refinery. If a suitable transaction cannot be concluded, the company intends to idle the main processing units at Philadelphia by July as previously announced. Sunoco has not received a single proposal for the purchase of Marcus Hook as an operating refinery. But is continuing to pursue alternatives for the facility. Sunoco does not believe at this time that Marcus Hook will be purchased and restarted as an operating refinery. Marcus Hook haulted crude processing in December and it's idling process is expected to be complete within the next few weeks.

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