Sunoco 2003 Annual Report Download - page 32

remediated to meet the applicable standards. The obligation for Sunoco to remediate this
type of contamination varies, depending on the extent of the release and the applicable
laws and regulations. A portion of the remediation costs may be recoverable from the re-
imbursement fund of the applicable state, after any deductible has been met.
Future costs for environmental remediation activities at the Company’s marketing sites
will also be influenced by the extent of MTBE contamination of groundwater aquifers, the
cleanup of which will be driven by thresholds based on drinking water protection. Though
not all groundwater is used for drinking, several states have initiated or proposed more
stringent MTBE cleanup requirements. Cost increases result directly from extended re-
medial operations and maintenance on sites that, under prior standards, could otherwise
have been completed, installation of additional remedial or monitoring wells and purchase
of more expensive equipment because of the presence of MTBE. While actual cleanup costs
for specific sites are variable and depend on many of the factors discussed above, expansion
of similar MTBE remediation thresholds to additional states or adoption of even more
stringent requirements for MTBE remediation would result in further cost increases.
The accrued liability for hazardous waste sites is attributable to potential obligations to
remove or mitigate the environmental effects of the disposal or release of certain pollutants
at third-party sites pursuant to the Comprehensive Environmental Response Compensa-
tion and Liability Act (“CERCLA”) (which relates to releases and remediation of hazardous
substances) and similar state laws. Under CERCLA, Sunoco is potentially subject to joint
and several liability for the costs of remediation at sites at which it has been identified as a
“potentially responsible party” (“PRP”). As of December 31, 2003, Sunoco had been named
as a PRP at 49 sites identified or potentially identifiable as “Superfund” sites under federal
and state law. The Company is usually one of a number of companies identified as a PRP at
a site. Sunoco has reviewed the nature and extent of its involvement at each site and other
relevant circumstances and, based upon the other parties involved or Sunoco’s negligible
participation therein, believes that its potential liability associated with such sites will not
be significant.
Management believes that none of the current remediation locations, which are in various
stages of ongoing remediation, is individually material to Sunoco as its largest accrual for
any one Superfund site, operable unit or remediation area was less than $6 million at De-
cember 31, 2003. As a result, Sunoco’s exposure to adverse developments with respect to
any individual site is not expected to be material. However, if changes in environmental
regulations occur, such changes could impact multiple Sunoco facilities and formerly
owned and third-party sites at the same time. As a result, from time to time, significant
charges against income for environmental remediation may occur.
The Company maintains insurance programs that cover certain of its existing or potential
environmental liabilities, which programs vary by year, type and extent of coverage. For
underground storage tank remediations, the Company can also seek reimbursement
through various state funds of certain remediation costs above a deductible amount. For
certain acquired properties, the Company has entered into arrangements with the sellers or
others that allocate environmental liabilities and provide indemnities to the Company for
remediating contamination that occurred prior to the acquisition dates. Some of these
environmental indemnifications are subject to caps and limits. No accruals have been re-
corded for any potential contingent liabilities that will be funded by the prior owners as
management does not believe, based on current information, that it is likely that any of
the former owners will not perform under any of these agreements. Other than the preced-
ing arrangements, the Company has not entered into any arrangements with third parties
to mitigate its exposure to loss from environmental contamination. Claims for recovery of
environmental liabilities that are probable of realization totaled $22 million at
December 31, 2003 and are included in deferred charges and other assets in the con-
solidated balance sheets.
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