Sunoco 2006 Annual Report Download - page 4

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2
With respect to the Refi ning and Supply capital
program, market pressures continued to
increase, leading to signifi cant cost escalations
on most projects in progress and in the
planning stages. As the year progressed, we
recognized these forces and reshaped our
program, focusing efforts on shorter-term,
higher-return “upgrading” projects as opposed
to longer-term, larger expansion projects.
But we remain committed to spending about
$700-$800 million per year in this business.
Two of the cornerstone projects – expansions
of residual fuel upgrading capacity at the
Philadelphia refi nery and crude processing
capacity at the Toledo refi nery – moved ahead
during 2006 and are scheduled to start up in
the fi rst half of 2007.
SXL continued to grow during 2006, investing
some $200 million in acquisitions and new
growth projects. SXL increased its annual
distribution by $.40 per unit (14 percent) during
the year and its unit price increased 30 percent
(about $12 per unit) in 2006, outperforming
its peer group. Sunoco owns over 12 million
limited partner units and 100 percent of
the General Partner interest. SXL’s growth
continues to add value to Sunoco.
We have also made progress in the
development of our Sun Coke business. In
late 2006, we acquired the limited partnership
interest of the third-party investor in our Jewell
(Virginia) cokemaking operation and now
own 100 percent of that facility. A 1.7 million
ton cokemaking plant in Vitória, Brazil will
start up in the fi rst quarter of 2007 with full
production planned by June. We will receive
operating and technology fees and have a
minority investment interest in this venture.
We recently announced plans for a second
coke manufacturing plant at our Haverhill site.
This facility will be 100 percent owned and
operated by Sun Coke and have the capacity to
produce approximately 550,000 tons of blast-
furnace coke and 46 megawatts of power per
year. Total cost is estimated at approximately
$230 million. Haverhill II is expected to start
up in the second half of 2008. These projects
and others we are working to develop can be
signifi cant additions to our non-refi ning asset
portfolio.
Looking ahead, market conditions are
generally favorable for continued strong
refi ning margins in 2007 but, as always,
remain unpredictable. Our focus and best
opportunities for continued improvement
are on initiatives more within our control,
including the upgrade projects at the
Philadelphia and Toledo refi neries; progress
towards new Coke plants; and productivity
programs in our Retail Marketing and
Chemicals businesses. We believe that
realizing the full value of our existing asset
portfolio offers signifi cant opportunity in the
coming year.
Our past success and optimism for the
future result mostly from the talents and
efforts of our dedicated employees. It is
with great appreciation and confi dence that
I acknowledge their contributions and look
forward to the continued success of our
Company.
JOHN G. DROSDICK
Chairman, Chief Executive
Offi cer and President