Sunoco 2015 Annual Report Download - page 53

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51
Analysis of Operating Segments
We manage our operations through three operating segments: Crude Oil, Natural Gas Liquids, and Refined Products.
Crude Oil
Our Crude Oil segment utilizes an integrated set of pipeline, terminalling, and acquisition and marketing assets that
facilitate the movement of crude oil from producers to end-user markets. The segment includes crude oil trunk and gathering
pipelines in the southwest and midwest United States, including those owned by our joint venture interests, terminalling assets in
key crude oil markets, and a crude oil trucking fleet that supports the sale of gathered and bulk purchased crude oil. Revenues
are generated from tariffs and the associated fees paid by shippers utilizing our pipeline assets with rates for shipments on the
crude oil pipelines regulated by the Federal Energy Commission ("FERC") and other state regulatory agencies, as applicable.
The Crude Oil segment also generates revenues from fees for terminalling services provided and the marketing of crude oil.
The crude oil acquisition and marketing activities generate substantial revenue and cost of products sold as a result of the
significant volumes bought and sold. The absolute price levels of crude oil normally do not bear a relationship to gross profit,
although the price levels significantly impact revenue and costs of products sold. As a result, period-to-period variations in
revenue and cost of products sold are not generally meaningful in analyzing the variation in gross profit for the segment. The
operating results of the Crude Oil segment are affected by overall levels of supply and demand for crude oil and relative
fluctuations in market related indices. To the extent there are periods of sustained crude oil price declines, drilling activity could
decline impacting the volume of crude oil we transport, store, or buy and sell. Generally, we expect a base level of earnings from
our Crude Oil segment that may be optimized and enhanced when there is a high level of market volatility, favorable basis
differentials and/or a steep contango or backwardated structure. Our management believes gross profit, which is equal to sales
and other operating revenue less cost of products sold and operating expenses, is a key measure of financial performance.
Although we implement risk management activities to provide general stability in our margins, these margins are not fixed and
will vary from period to period.
The following table presents the operating results and key operating measures for our Crude Oil segment for the periods
presented:
Year Ended December 31,
2015 2014 2013
(in millions, except for barrel amounts)
Sales and other operating revenue
Unaffiliated customers $ 8,763 $ 16,033 $ 14,535
Affiliates 193 866 1,418
Total sales and other operating revenue $ 8,956 $ 16,899 $ 15,953
Depreciation and amortization expense $ 216 $ 191 $ 176
Impairment charge and other matters (1) $ 150 $ 231 $ —
Adjusted EBITDA $ 656 $ 669 $ 701
Pipeline throughput (thousands of barrels per day ("bpd")) (2) 2,218 2,125 1,866
Terminal throughput (thousands of bpd) 1,401 1,403 1,210
Gross profit (3) $ 706 $ 726 $ 750
(1) Represents non-cash inventory adjustments related to changes in commodity prices.
(2) Excludes amounts attributable to equity ownership interests which are not consolidated.
(3) Represents total segment sales and other operating revenue less costs of products sold and operating expenses.
Adjusted EBITDA for the Crude Oil segment decreased $13 million to $656 million for the year ended December 31, 2015
compared to the prior year period. The decrease in Adjusted EBITDA was due primarily to lower results from our crude oil
acquisition and marketing activities ($96 million) driven by reduced margins which were negatively impacted by contracted
crude oil differentials compared to the prior year period. This impact was partially offset by higher results from our crude oil
pipelines ($71 million) largely attributable to expansion projects placed into service in 2015 and 2014, and higher results from
our crude oil terminals ($14 million).