Sunoco 2011 Annual Report Download - page 25

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separate entity, which may not be as creditworthy as the current counterparty. The new legislation and any new
regulations could significantly increase the cost of derivative contracts (including requirements to post collateral,
which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the
availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our
existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use
of derivatives as a result of the legislation and regulations, our results of operations may become more volatile
and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital
expenditures. Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas prices,
which some legislators attributed to speculative trading in derivatives and commodity instruments related to oil
and natural gas. Our revenues could therefore be adversely affected if a consequence of the legislation and
regulations is to lower commodity prices. Any of these consequences could have a material adverse effect on us,
our financial condition, and our results of operations.
We depend upon Sunoco Logistics Partners L.P., or the Partnership, for a substantial portion of the logistics
network that serves our refineries and we own a significant equity interest in the Partnership.
We are the general partner of the Partnership, which consists of a 2-percent ownership interest and incentive
distribution rights, and we currently own a 32-percent interest in the Partnership’s limited partner units. The
Partnership owns and operates refined product and crude oil pipelines and terminals and conducts crude oil and
refined product acquisition and marketing activities. The Partnership generates revenues by charging tariffs for
transporting petroleum products and crude oil through its pipelines, by charging fees for terminalling and storing
refined products and crude oil and by purchasing and selling crude oil and refined products. The Partnership
serves our refineries under long-term pipelines and terminals, storage and throughput agreements. Furthermore,
our financial statements include the consolidated results of the Partnership. The Partnership is subject to its own
operating and regulatory risks, including, but not limited to:
• its reliance on its significant customers, including us;
• competition from other pipelines;
• environmental regulations affecting pipeline operations;
• operational hazards and risks;
• pipeline tariff regulations affecting the rates it can charge;
• limitations on additional borrowings and other restrictions due to its debt covenants; and
• other financial, operational and legal risks.
The occurrence of any of these risks could directly or indirectly affect the Partnership’s, as well as our,
financial condition, results of operations and cash flows as the Partnership is a consolidated subsidiary.
Additionally, these risks could affect the Partnership’s ability to continue operations, which could affect its
ability to serve our logistics network needs. For additional information about the Partnership, see “Logistics” in
Business and Properties (Items 1 and 2).
A material decrease in demand or distribution of crude oil or refined products available for transport through
the Partnership’s pipelines or terminal facilities could materially and adversely affect our financial position,
results of operations or cash flows.
The volume of crude oil transported through the Partnership’s crude oil pipelines and terminal facilities
depends on the availability of attractively priced crude oil produced or received in the areas serviced by its assets.
A period of sustained crude oil price declines could lead to a decline in drilling activity, production and import
levels in these areas. Similarly, a period of sustained increases in the price of crude oil supplied from any of these
areas, as compared to alternative sources of crude oil available to our customers, could materially reduce demand
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