UPDATE:Sunoco To Sell Retail Heating Oil,Propane-Distribution Operations
03 September 2009 - 7:01AM
Dow Jones News
Sunoco Inc. (SUN), the U.S.'s second-largest independent refiner
by volume, continued to streamline its operations by agreeing
Wednesday to sell its retail heating oil and propane-distribution
business to Canada's Superior Plus Corp. (SUUIF).
The $82.5 million cash transaction is expected to close by the
end of the month, after it is vetted by regulators.
"In general, those assets are less profitable" compared to
Sunoco's other businesses, said Phil Weiss, senior analyst at Argus
Research. The size of the deal is relatively small, "but in general
it's a positive" as a way to shore up the balance sheet," he
added.
Sunoco sold the Pennsylvania-based retail operations to focus
more on its refining and retail gasoline businesses.
A number of refiners and integrated oil companies have been
making similar moves to shed businesses with little to no growth.
This creates an attractive opportunity for Superior. Wednesday's
deal is part of a broad effort to snap upunwanted assets of U.S.
refiners and integrated oil companies to consolidate a fragmented
market.
"Superior intends to pursue additional acquisition and
consolidation opportunities in the industry," to enhance the Sunoco
acquisition and build on the company's Canadian assets, said Grant
Billing, chairman and chief executive officer of Superior Plus, in
a press release.
Sunoco, which was selling the heating oil and propane it
produced directly to customers in the northeast, has an agreement
to supply those products to Superior Plus. In 2008, Sunoco
delivered about 160 million gallons of heating oil, gasoline,
diesel fuel, kerosene, and propane to 97,000 residential and
commercial customers, municipalities and schools. Included in the
sale is a fleet of 356 delivery and service vehicles.
Selling heating oil will be a new business for Superior Plus.
The company sells propane in Canada, but its diversified operations
also include specialty chemicals and building products.
Heating oil is seen as a relatively stable, but small, market
centered in the northeast. The long-term demand for the fuel used
to heat homes in the winter has been declining as residents switch
to natural gas, said Ann Kohler, a managing director at Caris &
Co.
Divesting the heating oil and propane operations should help
reduce Sunoco's costs. Sunoco spokesman Thomas Golembeski said, "We
don't think there will be a material impact on our earnings from
this." The company didn't disclose what it plans to do with the
cash.
The company continues to evaluate opportunities for other
divestitures under a plan initiated by Lynn L. Elsenhans, who was
appointed as Sunoco's chairwoman and chief executive officer in
late 2008.
A few months ago, Sunoco announced that it "would be selling a
number of retail gas stations as part of an ongoing
portfolio-management program," Golembeski said.The company has a
network of 4,700 gas stations and convenience stores stretching
from Maine to Florida and as far as Indiana, of which about 500 to
550 are stations with gas and convenience-store service.
Sunoco continues to focus on its gas-station business at a time
when major oil companies such as Exxon Mobil Corp. (XOM), BP PLC
(BP) and Chevron Corp. (CVX) have been scaling back, according to
Argus's Weiss. That's because "as we move down the food chain,
that's the least profitable business for them" compared to their
other upstream and refining operations, Weiss said.
As part of the review process, Sunoco sold a refinery in Tulsa
and purchased an ethanol plant in New York. The big announcement
that the market and investors are watching out for, though, is
whether Sunoco will pursue pricey investments to process heavy,
sour crude oil. Sunoco refineries process the more expensive light
sweet crude so it hasn't been able to take advantage of the sharp
discount heavy crude normally trades at. That differential has
narrowed in this recession but could widen again in a recovery as
demand increases. Earlier this year, Sunoco said it would be
interested in partnerships to upgrade refineries in Toledo and the
northeast to process heavy crude from the Canadian oil sands.
Sunoco shares were recently up 3 cents, or 0.12%, at $25.57. The
stock is down 41% this year.
-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210;
naureen.malik@dowjones.com