“Given the unacceptable financial performance of these assets, it is clear that it is in the best interests of shareholders to exit this business,” says Sunoco CEO.
Sunoco Inc. announced today, Tuesday, Sept. 6, 2011, that it plans to exit the refining business.
Philadelphia-based Sunoco, which owns two refineries—one in Philadelphia and one in Marcus Hook, Pa., which can process a combined 505,000 barrels of oil per day—is looking to sell those refineries and focus on its pipelines and retail gas stations that provide a more stable cash flow, the Associated Press reported.
If the company is unable to sell the assets, it plans to shut down its main processing units in July 2012.
“We have made progress in increasing the efficiency of our refineries over the last several years, but given the unacceptable financial performance of these assets, it is clear that it is in the best interests of shareholders to exit this business,” Lynn Elsenhans, Sunoco’s chairman and CEO, said in a statement. In addition to refineries, Sunoco operates 4,900 gas stations in 24 states and runs a pipeline network that transports crude oil and refined fuels throughout the Northeast, Midwest and south central regions of the U.S.
The decision to exit the refining business is expected to cost the company up to $2.2 billion in the third quarter. Sunoco could pay another $500 million over the next 12 months in costs related to contract terminations, employee severance payments and other expenses. Sunoco noted its refineries could generate a $2 billion gain at current market prices.
The move by Sunoco follows that of Marathon Oil Corp. and ConocoPhillips, which decided to distance themselves from refining, and to spin off their downstream businesses, earlier this year. Analysts point to the volatility of oil refining as the reason why some companies are moving in other directions. Refineries are only profitable when a company can sell refined petroleum products for a higher price than the crude oil it buys as a feedstock, which is not always possible, the Associated Press noted.
Sunoco also announced that it has almost finished repurchasing $500 million in shares. It bought 13.1 million shares at an average price of $34.74 per share. The company’s shares rose 17 cents to $36.17 in morning trading.