Sunoco 2005 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2005 Sunoco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 78

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78

necessary, develop and implement revised State Implementation Plans to respond to the
new regulations.
In August 2005, new federal energy policy legislation was enacted. The act set a new
renewable fuels mandate for ethanol use and repealed the minimum oxygenate require-
ments in gasoline (immediately in California and 270 days from the enactment date for the
rest of the nation). Sunoco has used MTBE and ethanol as oxygenates in different geo-
graphic areas of its refining and marketing system. While no federal ban on MTBE is in-
cluded in the act, several states (including some in Sunoco’s marketing area) have banned
its use in gasoline and a number of other states have passed legislation banning it effective
beginning on various dates through 2009. It is expected that additional states will enact
similar ban legislation. Following the disruption to energy supply that occurred in the Gulf
Coast region in connection with Hurricanes Katrina and Rita, additional federal energy
policy legislation is being considered in the U.S. Congress. Federal and state legislation
could have a significant impact on market conditions and the profitability of Sunoco and
the industry in general.
MTBE Litigation
Sunoco, along with other refiners, manufacturers and sellers of gasoline, owners and oper-
ators of retail gasoline sites, and manufacturers of MTBE, are defendants in approximately
60 cases in 16 states involving the manufacture and use of MTBE in gasoline and MTBE
contamination in groundwater. Plaintiffs, which include private well owners, water pro-
viders and certain governmental authorities, allege that refiners and suppliers of gasoline
containing MTBE are responsible for manufacturing and distributing a defective product
that contaminates groundwater. Plaintiffs are asserting primarily product liability claims
but additional claims are also being asserted including, nuisance, trespass, negligence,
violation of environmental laws and deceptive business practices. Plaintiffs are seeking
compensatory damages, and in some cases injunctive relief, exemplary and punitive dam-
ages and attorneys’ fees. All of the public water provider cases have been removed to
federal court and consolidated for pretrial purposes in the U.S. District Court for the
Southern District of New York (MDL 1358). Motions to remand these cases to state courts
have been denied. Motions to dismiss were denied. Discovery is proceeding in four focus
cases. Sunoco is a defendant in three of those cases. In addition, several of the private well
owner cases are moving forward. Sunoco is a focus defendant in two of those cases. Up to
this point, for the group of MTBE cases currently pending, there has been insufficient in-
formation developed about the plaintiffs’ legal theories or the facts that would be relevant
to an analysis of potential exposure. Based on the current law and facts available at this
time, Sunoco believes that these cases will not have a material adverse effect on its con-
solidated financial position.
Conclusion
Management believes that the environmental matters discussed above are potentially sig-
nificant with respect to results of operations or cash flows for any one year. However, man-
agement does not believe that such matters will have a material impact on Sunoco’s
consolidated financial position or, over an extended period of time, on Sunoco’s cash flows
or liquidity.
31