Sunoco 2006 Annual Report Download - page 39

Environmental Remediation Activities
Sunoco is subject to extensive and frequently changing federal, state and local laws and
regulations, including, but not limited to, those relating to the discharge of materials into
the environment or that otherwise relate to the protection of the environment, waste
management and the characteristics and composition of fuels. These laws and regulations
require environmental assessment and/or remediation efforts at many of Sunoco’s facilities
and at formerly owned or third-party sites.
Sunoco’s accrual for environmental remediation activities amounted to $121 million at
December 31, 2006. This accrual is for work at identified sites where an assessment has
indicated that cleanup costs are probable and reasonably estimable. The accrual is undis-
counted and is based on currently available information, estimated timing of remedial ac-
tions and related inflation assumptions, existing technology and presently enacted laws
and regulations. It is often extremely difficult to develop reasonable estimates of future site
remediation costs due to changing regulations, changing technologies and their associated
costs, and changes in the economic environment. In the above instances, if a range of
probable environmental cleanup costs exists for an identified site, FASB Interpretation
No. 14, “Reasonable Estimation of the Amount of a Loss,” requires that the minimum of
the range be accrued unless some other point in the range is more likely, in which case the
most likely amount in the range is accrued. 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.
Management believes it is reasonably possible (i.e., less than probable but greater than
remote) that additional environmental remediation losses will be incurred. At De-
cember 31, 2006, the aggregate of the estimated maximum additional reasonably possible
losses, which relate to numerous individual sites, totaled approximately $85 million.
However, the Company believes it is very unlikely that it will realize the maximum
reasonably possible 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.
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 $5 million at De-
cember 31, 2006. 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 several of Sunoco’s 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.
Under various environmental laws, including RCRA, Sunoco has initiated corrective re-
medial action at its facilities, formerly owned facilities and third-party sites. At the
Company’s major manufacturing facilities, 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, discrete areas requiring re-
mediation within the plants. Activities include closure of RCRA solid waste management
units, recovery of hydrocarbons, handling of impacted soil, mitigation of surface water
impacts and prevention 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 previously divested
terminals, the focus is on remediating discrete interior areas to attain regulatory closure.
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