Sunoco 2014 Annual Report Download - page 24

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Our risk management policies cannot eliminate all commodity risk, and our use of hedging arrangements could result in
financial losses or reduce our income. In addition, any non-compliance with our risk management policies could result in
significant financial losses.
We follow risk management practices designed to minimize commodity risk, and engage in hedging arrangements to
reduce our exposure to fluctuations in the prices of certain products we market. These hedging arrangements expose us to risk
of financial loss in some circumstances, including when the counterparty to the hedging contract defaults on its contract
obligations, or when there is a change in the expected differential between the underlying price in the hedging agreement and
the actual prices received. In addition, these hedging arrangements may limit the benefit we would otherwise receive from
increases in prices for such products.
The accounting standards regarding hedge accounting are very complex, and even when we engage in hedging
transactions that are effective economically (whether to mitigate our exposure to fluctuations in commodity prices, or to
balance our exposure to fixed and variable interest rates), these transactions may not be considered effective for accounting
purposes. In addition, it is not always possible for us to engage in a hedging transaction that completely mitigates our exposure
to commodity prices. While the primary measures used by management to evaluate past performance and future prospects
exclude any impacts attributable to unsettled hedges, our consolidated financial statements may reflect some volatility due to
the recognition of changes in fair value of these hedges in periods other than those in which the related physical transaction
occurs. See Part II., Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for
additional information on the measure described above.
We have adopted risk management policies designed to manage risks associated with our businesses. However, these
policies cannot eliminate all price-related risks, and there is also the risk of non-compliance with such policies. We cannot
make any assurances that we will detect and prevent all violations of our risk management practices and policies, particularly if
deception or other intentional misconduct is involved. Any violations of our risk management practices or policies by our
employees or agents could result in significant financial losses.
We do not own all of the land on which our pipelines and facilities are located, and we lease certain facilities and
equipment, which subjects us to the possibility of increased costs to retain necessary land use which could disrupt our
operations.
We do not own all of the land on which certain of our pipelines and facilities are located, and we are, therefore, subject to
the risk of increased costs to maintain necessary land use. We obtain the rights to construct and operate certain of our pipelines
and related facilities on land owned by third parties and governmental agencies for a specific period of time. Our loss of these
rights, through our inability to renew rights-of-way contracts on acceptable terms, or increased costs to renew such rights could
have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we are subject to the
possibility of increased costs under our rental agreements with landowners, primarily through rental increases and renewals of
expired agreements.
Whether we have the power of eminent domain for our pipelines varies from state to state, depending upon the type of
pipeline (e.g., common carrier), type of products shipped on the pipeline and the laws of the particular state. In either case, we
must compensate landowners for the use of their property and, in eminent domain actions, such compensation may be
determined by a court. Our inability to exercise the power of eminent domain could negatively affect our business if we were to
lose the right to use or occupy the property on which our pipelines are located.
Additionally, certain facilities and equipment (or parts thereof) used by us are leased from third parties for specific
periods. Our inability to renew equipment leases or otherwise maintain the right to utilize such facilities and equipment on
acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on our results of
operations and cash flows.
A portion of our general and administrative services have been outsourced to third-party service providers. Fraudulent
activity or misuse of proprietary data involving our outsourcing partners could expose us to additional liability.
We utilize both affiliated entities and third parties in the processing of our information and data. Breaches of our security
measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information, or sensitive or
confidential data about us or our customers, including the potential loss or disclosure of such information or data as a result of
fraud or other forms of deception, could expose us to a risk of loss, or misuse of this information, result in litigation and
potential liability for us, lead to reputational damage, increase our compliance costs, or otherwise harm our business.