Sunoco 2004 Annual Report Download - page 66

Sunoco’s accruals for environmental remediation activ-
ities reflect its estimates of the most likely costs that will
be incurred over an extended period to remediate identi-
fied conditions for which the costs are both probable and
reasonably estimable. Engineering studies, historical
experience and other factors are used to identify and
evaluate remediation alternatives and their related costs
in determining the estimated accruals for environmental
remediation activities. Losses attributable to unasserted
claims are also reflected in the accruals to the extent they
are probable of occurrence and reasonably estimable.
Total future costs for the environmental remediation ac-
tivities identified above will depend upon, among other
things, the identification of any additional sites, the
determination of the extent of the contamination at each
site, the timing and nature of required remedial actions,
the technology available and needed to meet the various
existing legal requirements, the nature and terms of cost-
sharing arrangements with other potentially responsible
parties, the availability of insurance coverage, the nature
and extent of future environmental laws, inflation rates
and the determination of Sunoco’s liability at the sites, if
any, in light of the number, participation level and
financial viability of the other parties. Management be-
lieves it is reasonably possible (i.e., less than probable but
greater than remote) that additional environmental re-
mediation losses will be incurred. At December 31, 2004,
the aggregate of the estimated maximum additional rea-
sonably possible losses, which relate to numerous in-
dividual sites, totaled approximately $90 million.
However, the Company believes it is very unlikely that it
will realize the maximum loss at every site. Furthermore,
the recognition of additional losses, if and when they
were to occur, would likely extend over many years and,
therefore, likely would not have a material impact on the
Company’s financial position.
Under various environmental laws, including the Re-
source Conservation and Recovery Act (“RCRA”) (which
relates to solid and hazardous waste treatment, storage
and disposal), Sunoco has initiated corrective remedial
action at its facilities, formerly owned facilities and third-
party sites. At the Company’s major manufacturing facili-
ties, Sunoco has consistently assumed continued
industrial use and a containment/remediation strategy
focused on eliminating unacceptable risks to human
health or the environment. The remediation accruals for
these sites reflect that strategy. Accruals include amounts
to prevent off-site migration and to contain the impact
on the facility property, as well as to address known, dis-
crete areas requiring remediation within the plants.
Activities include closure of RCRA solid waste manage-
ment units, recovery of hydrocarbons, handling of im-
pacted soil, mitigation of surface water impacts and pre-
vention of off-site migration.
Many of Sunoco’s current terminals are being addressed
with the above containment/remediation strategy. At
some smaller or less impacted facilities and some pre-
viously divested terminals, the focus is on remediating
discrete interior areas to attain regulatory closure.
Sunoco owns or operates certain retail gasoline outlets
where releases of petroleum products have occurred. Fed-
eral and state laws and regulations require that con-
tamination caused by such releases at these sites and at
formerly owned sites be assessed and 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 reimbursement fund of the appli-
cable state, after any deductible has been met.
Future costs for environmental remediation activities at
the Company’s marketing sites also will be influenced by
the extent of MTBE contamination of groundwater, 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 in-
creases result directly from extended remedial operations
and maintenance on sites that, under prior standards,
could otherwise have been completed. Cost increases will
also result from installation of additional remedial or
monitoring wells and purchase of more expensive equip-
ment 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 attribut-
able 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 Compre-
hensive Environmental Response Compensation 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 re-
sponsible party” (“PRP”). As of December 31, 2004,
Sunoco had been named as a PRP at 46 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 re-
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