Sunoco 2007 Annual Report Download - page 16

Logistics
The Logistics business operates refined product and crude oil pipelines and terminals and
conducts crude oil acquisition and marketing activities primarily in the Northeast, Mid-
west and South Central regions of the United States. In addition, the Logistics business
has an ownership interest in several refined product and crude oil pipeline joint ventures.
Substantially all logistics operations are conducted through Sunoco Logistics Partners L.P.
(the “Partnership”), a consolidated master limited partnership. Sunoco has a 43 percent
interest in Sunoco Logistics Partners L.P., which includes its 2 percent general partnership
interest (see “Capital Resources and Liquidity—Other Cash Flow Information” below).
2007 2006 2005
Income (millions of dollars) $45 $36 $22
Pipeline and terminal throughput (thousands of barrels daily)*:
Unaffiliated customers 1,137 1,033 838
Affiliated customers 1,665 1,644 1,663
2,802 2,677 2,501
*Excludes joint-venture operations.
Logistics segment income increased $9 million in 2007 largely due to higher earnings from
terminalling operations, crude oil acquisition and marketing activities and the Partner-
ship’s acquisitions completed in 2006, partially offset by a reduction in Sunoco’s ownership
in the Partnership subsequent to the public equity offering in 2006.
Logistics segment income increased $14 million in 2006 primarily due to the absence of: a
$5 million after-tax accrual attributable to a pipeline spill in January 2005; a $3 million
after-tax charge for environmental remediation activities and asset impairments; and a $2
million unfavorable tax adjustment. Also contributing to the increase were higher earnings
attributable to Eastern pipeline operations and crude oil acquisition and marketing activ-
ities as well as operating results from the Partnership’s acquisitions completed in 2006 and
2005. Partially offsetting these positive factors in 2006 was Sunoco’s reduced ownership in
the Partnership subsequent to the public equity offerings in 2006 and 2005. During the
2005-2006 period, the Partnership issued a total of 7.1 million limited partnership units in
a series of public offerings and redeemed 2.8 million limited partnership units owned by
Sunoco, thereby reducing Sunoco’s ownership in the Partnership from 63 percent to 43
percent.
In March 2006, the Partnership purchased two separate crude oil pipeline systems and re-
lated storage facilities located in Texas, one from affiliates of Black Hills Energy, Inc.
(“Black Hills”) for $41 million and the other from affiliates of Alon USA Energy, Inc. for
$68 million. The Black Hills acquisition also includes a lease acquisition marketing busi-
ness and related inventory. During 2007, the Partnership continued its construction of
seven new crude oil storage tanks, four of which were placed into service in 2007. In Au-
gust 2006, the Partnership purchased from Sunoco for $65 million a company that has a 55
percent interest in Mid-Valley Pipeline Company, which owns a crude oil pipeline system
in the Midwest. Sunoco did not recognize any gain or loss on this transaction. In August
2005, the Partnership completed the acquisition of a crude oil pipeline system and related
storage facilities located in Texas from ExxonMobil for $100 million and, in the fourth
quarter of 2005, completed the construction of a $16 million, 20-mile crude oil pipeline
connecting these assets to the West Texas Gulf Pipeline, which is 43.8 percent owned by
the Partnership. In December 2005, the Partnership completed the acquisition of an
ownership interest in the Mesa Pipeline from Chevron for $5 million, which, coupled with
the 7.2 percent interest it acquired from Sunoco, gave it a 37 percent ownership interest.
14