Sunoco 2007 Annual Report Download - page 24

Sunoco also has obligations pertaining to unrecognized tax benefits and related interest
and penalties amounting to $86 million, which have been excluded from the table above
as the Company does not believe it is practicable to make reliable estimates of the periods
in which payments for these obligations will be made. In addition, Sunoco has obligations
with respect to its defined benefit pension plans and postretirement health care plans,
which have also been excluded from the table above (see “Pension Plan Funded Status”
below and Note 9 to the consolidated financial statements).
Capital Expenditures and Acquisitions
The Company expects capital expenditures to be approximately $3.7 billion over the
2007-2009 period. Approximately $700-$900 million annually is anticipated to be spent in
Refining and Supply, including a total of approximately $600 million for income
improvement projects over the three-year period. In addition, Refining and Supply’s capi-
tal expenditures during the 2007-2009 period include approximately $550 million to be
spent largely to complete projects at its Philadelphia and Toledo refineries under a 2005
Consent Decree, which settled certain alleged violations under the Clean Air Act. Sub-
sequently, additional capital outlays related to projects at the Marcus Hook and Tulsa
refineries are expected to be made under the 2005 Consent Decree through 2013. The cur-
rent status of the above capital projects ranges from the preliminary design and engineering
phase to the construction phase. During the 2006-2007 period, market conditions for en-
gineering, procurement and construction of refinery projects tightened, resulting in in-
creased costs and project delays.
In May 2007, Refining and Supply completed a $525 million project to expand the ca-
pacity of one of the fluid catalytic cracking units at the Philadelphia refinery by
15 thousand barrels per day, which enables an upgrade of an additional 15-20 thousand
barrels per day of residual fuel production into higher-value gasoline and distillate pro-
duction and expands crude oil flexibility (the “Philadelphia Project”). Capital outlays per-
taining to the Philadelphia Project amounted to $203, $279 and $43 million in 2007, 2006
and 2005, respectively. Refining and Supply’s capital program also included a $53 million
project completed in July 2007 which expands the Toledo refinery’s crude processing
capability by 10 thousand barrels per day. In 2008, additional work is planned at this fa-
cility to expand crude processing capability by an additional 5 thousand barrels per day.
The Refining and Supply capital plan for the 2007-2009 period includes a project at the
Philadelphia refinery to reconfigure a previously idled hydrocracking unit to enable de-
sulfurization of diesel fuel. This project, which is scheduled for completion in 2009 at an
estimated cost of $285 million, is designed to increase the facility’s ultra-low-sulfur diesel
fuel production capability by 45 thousand barrels per day by upgrading current production
of 35 thousand barrels per day of temporary compliance order diesel fuel (TCO) and
10 thousand barrels per day of heating oil. In addition, a project at the Tulsa refinery,
which includes a new 24 thousand barrels-per-day hydrotreating unit, sulfur recovery unit
and tail gas treater, is designed to enable the production of diesel fuel that meets new
product specifications and result in increased feedstock flexibility and an upgraded product
slate. This project is scheduled for completion in mid-2010 at an estimated cost of $400
million. Most of the capital for the project is expected to be spent in 2009.
While a significant change in the overall level of total capital spending in Refining and
Supply during the 2008-2009 period is not expected, the pressures on project scope, costs
and timing as well as labor productivity issues attributable to the current market environ-
ment could result in the extension of project completion dates and the deferral of some
lower-return projects. The Company may also elect to cancel or reduce the scope of proj-
ects which no longer meet required investment-return criteria.
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