Sunoco Eyes Exxon Mobil Assets in West
Sunoco Inc. officials, their company’s shares down 34% this year, are wishing they were in California.
Philadelphia-based Sunoco, the third-largest independent U.S. oil refiner, saw earnings sink in each of the last three quarters. Profit margins on fuel sales in Sunoco’s East Coast markets fell by as much as half from year-earlier levels.
By contrast, earnings rose for rivals such as Chevron Corp. and Tosco Corp., largely on the strength of fuel sales in California, where margins have been triple those of the rest of the U.S. Now Sunoco wants a piece of the Golden State. It’s among four or so companies vying to buy a Northern California refinery and 360 gas stations from Exxon Mobil Corp., people familiar with the talks say.
“Geographic diversity would certainly help Sunoco,” said Andrew Fairbanks, a refining analyst at Merrill Lynch & Co. “The West Coast doesn’t get the pressure from imports from Europe that the East Coast does.”
Sunoco wouldn’t comment on whether it’s bidding for the Exxon Mobil assets, which analysts expect will sell for $450 million to $650 million. However, Chief Executive Robert Campbell said last month, “It’s important to have diversity from a business standpoint as well as geography.”
Exxon Mobil--formed Nov. 30 when Exxon Corp. bought Mobil Corp. for $85.2 billion--agreed to sell the Benicia, Calif., refinery and sell or cut ties with stations in California, Texas and on the East Coast to win regulatory approval for the merger.
The Federal Trade Commission wants to ensure competition in California, and analysts say regulators would oppose a sale to Chevron, Tosco, Atlantic Richfield Co. or the Texaco Inc.-Shell Oil Co. alliance, the state’s largest fuel sellers.
Besides Sunoco, interested buyers that would likely pass FTC muster include Tesoro Petroleum Corp., which operates gas stations in Alaska, Hawaii and the Pacific Northwest; Ultramar Diamond Shamrock Corp., which operates in the South and Southwest; and Valero Energy Corp., which refines oil in Texas and Louisiana.
Tesoro and Ultramar are each seeking to expand through acquisitions, officials said, without commenting specifically on the Exxon Mobil properties. Valero didn’t return calls seeking comment.
Sunoco shares fell 63 cents to close at $23.56 on the New York Stock Exchange.
For the year, Sunoco’s stock is languishing in the bottom fifth of the Standard & Poor’s 500. Starting Sept. 10, the shares fell 11 straight days and 23 out of 28, a 5 1/2-week slide that lopped 31% off their value.
World refining margins--the difference between the cost of a barrel of oil and prices for the products made from it--have been razor-thin for years. To cope, refiners have fired workers, spent heavily on equipment to improve efficiency and consolidated operations through joint ventures.
Sunoco, which sells gasoline through 3,700 stations as far west as Indiana, has seen lean times before. The company lost money in six out of eight quarters in 1995 and 1996, its stock falling 15% in the two years.
The company sold off its poorly performing oil-exploration business, boosted the efficiency of its refineries and cut staff. Sunoco turned red ink into black in 1997, earning a record $284 million for the year.
Sunoco has cut $160 million in annual costs since 1995, while increasing its refining capacity 12%. It now has about 11,000 employees, down from 14,500 in 1994.
“Our company is stronger today than it was last year, or 1997, or what have you,” Campbell said.
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Sunoco Dreamin’
Sunoco is hoping to boost profit margins by expanding in the West and is believed to be vying for Exxon Mobil’s Northern California refinery and 360 gas stations in the state. Sunoco’s earnings have sunk in each of the last three quarters, and its stock is down 34% this year. Monthly closes and latest on the New York Stock Exchange:
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Monday: $23.56, down 63 cents
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Source: Bloomberg News
