Sunoco Inc. (SUN) said it is indefinitely idling all process units at its Eagle Point refinery located in Westville, New Jersey in an effort to reduce losses in its refining business at a time when a recessionary economy, weak demand for refined products, and increased global refining capacity have created margin pressure on the entire refining industry. Sunoco said it would shift current Eagle Point production to its two nearby refineries in Marcus Hook and Philadelphia, Pennsylvania, which would now operate at higher capacity utilization.
Sunoco also said its Board of Directors authorized a plan to reduce the quarterly dividend paid to shareholders to $0.15 from $0.30 per outstanding share of the company's common stock, effective beginning in the first quarter of 2010. Reducing the dividend preserves additional capital, gives the company greater flexibility to pursue its business strategy, and brings its yield more in line with its peers. The company plans to idle Eagle Point until market conditions improve and would evaluate this decision and other options on an ongoing basis, including the feasibility of using the facility to produce alternative fuels in the future. Idling Eagle Point, the most recent addition to Sunoco's refining system, minimizes disruption to the rest of the company's operations. Approximately 400 employees would be furloughed during the idling of the facility.
Although the production units at Eagle Point would be idled, refined product storage and handling operations would continue. The products rack at Eagle Point owned by Sunoco Logistics Partners L.P. would remain open, the company noted.
The company expects to reduce its pretax expense base by approximately $250 million per year from the idling of Eagle Point. These savings are in addition to its previously announced target of $300 million in annualized Business Improvement Initiative savings by the end of 2009. The company is expected to incur pretax charges, the majority of which are non-cash, of approximately $475-$550 million related primarily to asset impairment as well as idling costs. The majority of the charges would occur in the third quarter of 2009 with some impact in the fourth quarter of 2009 and first quarter of 2010. The company also expects to realize approximately $70 million in annualized cash savings as a result of reducing the dividend.
Sunoco also said that Anne-Marie Ainsworth would rejoin the company as Senior Vice President, Refining, effective November 2, 2009. Ainsworth most recently served at Motiva Enterprises LLC, as General Manager of the Motiva Norco Refinery in Norco, Louisiana.
The company also said that Vincent Kelley, currently Senior Vice President, Refining and Engineering Services, would assume the new role of Senior Vice President, Engineering and Technology. In the new role, Kelley would oversee technology strategy and the development of technical talent at the company. He would retain responsibility for executing capital projects across all of Sunoco's business units. Kelley would also lead the company's efforts to idle the Eagle Point refinery.
For comments and feedback: editorial@rttnews.com