Sun Not Setting on Sunoco Stations Yet

Published in CSP Daily News

Defying expectations, ETP committed to keeping, even expanding "well run" retail network

By  Greg Lindenberg, Online Editor

DALLAS -- Praising Sunoco Inc. executives for their retail expertise, Energy Transfer Partners LLC (ETP) CEO Kelcy Warren and CFO Martin Salinas said during the company's third-quarter earnings conference call on Thursday that they are committed to retaining and even possibly growing the Sunoco network of approximately 4,900 gas stations and convenience stores.

Energy infrastructure company ETP and Philadelphia-based Sunoco entered into a $5.3 billion merger agreement in late April (see Related Content below for previous CSP Daily News coverage).

Industry analysts have been predicting that ETP would sell Philadelphia-based Sunoco's retail outlets, which operate in 23 states.

Warren described the Sunoco retail business as being "extremely well run" and said that the company "probably will be a long-term holder of that business."

He said, "The retail sales of natural gas ... are businesses we are considering exiting ... and I do believe that we will exit those businesses. ... On the retail sales of gasoline, that's a business that we've stated that we think it makes sense for our unitholders. ...We are very confident that the cash flow generated from those businesses is predictable, somewhat absent of seasonality, and we're OK with that business."

In response to an analyst's question regarding a Sunoco station sale, Warren said, "[On] retail ... one of the key things we acquired with Sunoco was expertise. ... The majority of us are blue-collar pipeline people, natural gas people. ... We do not profess to be knowledgeable people on the retail sales of gasoline; however, we acquired that, and we're very pleased with that, so we're very confident that peoples' ability to run the business the way they have run it in the past."

He added, "We would be open minded to strategic growth in the retail sector, and the gentleman who runs that--[Sunoco president and CEO] Bob Owens--is, in fact, probably thinking that way for us now."

Salinas said, "We have already started the exercise of integrating Sunoco into our system through an integration team comprised of members from both [ETP] and Sunoco. And while we are in the early stages of this process, we are confident we will realize meaningful synergies once the integration is complete."

As reported in a Raymond James/CSP Daily News Flash, the company is also looking at a master limited partnership (MLP) as a possibility for Sunoco.

"As we look at our current organizational structure, we believe there will be opportunities for simplification, such as transferring assets from wholesale into an MLP structure," said Salinas.

Concerning Sunoco and MLPs, Ken Shriber, managing director of Chappaqua, N.Y.-based Petroleum Equity Group, recently told CSP Daily News, "MLPs by their very nature can't derive any profits from the retail operations. … To achieve that tax structure, they can't have profit coming from the sale of c-store products or gas to the [end] consumer. That being said, a company-operated chain could easily be transitioned to a dealer or commission agent operated model. It takes some time though, it's not overnight. If they wanted to keep the tax benefits, it's doable. Typically, a private-equity firm getting heavily invested in any sector, they like the toll-booth mentality, meaning it's a very ratable, stable cash flow. A retail operation requires much more hands-on management than say on a pipeline or terminal requires."

For the three months ended Sept. 30, 2012, ETP's adjusted EBITDA totaled $481.7 million, an increase of $77.5 million over the three months ended Sept. 30, 2011. Income from continuing operations was $193.4 million, an increase of $115.8 million over the three months ended Sept. 30, 2011. Net income for totaled $46.2 million, a decrease of $29.8 million from the three months ended Sept. 30, 2011.

Adjusted EBITDA for ETP for the nine months ended Sept. 30, 2012, totaled $1.48 billion, an increase of $220.5 million over the nine months ended Sept. 30, 2011. Income from continuing operations was $1.45 billion, an increase of $961.8 million over the nine months ended Sept. 30, 2011. Net income totaled $1.30 billion, an increase of $816.2 million over the nine months ended Sept. 30, 2011.

Dallas-based ETP is a publicly traded partnership owning and operating a diversified portfolio of energy assets. ETP has pipeline operations and storage facilities in Alabama, Arizona, Arkansas, Colorado, Florida, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas.

ETP also owns the general partner interests, 100% of the incentive distribution rights and a 32.4% limited partnership interest in Sunoco Logistics Partners LP, which operates a geographically diverse portfolio of crude oil and refined products pipelines, terminalling and crude oil acquisition and marketing assets.