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PHILADELPHIA -- Sunoco Inc. is indefinitely idling all process units at its Eagle Point refinery in Westville, N.J., in an effort to reduce losses as a recessionary economy, weak demand for refined products and increased global refining capacity have created margin pressure.
Sunoco will shift current Eagle Point production to two nearby refineries in Marcus Hook, Pa., and Philadelphia, which will now operate at a higher capacity. The company will be able to produce essentially the same amount of refined products in two facilities that it currently produces in three while continuing to meet customer demand, Sunoco said in a statement.
Also, Sunoco's board of directors authorized a plan to reduce the quarterly dividend paid to shareholders to $0.15 from $0.30 per outstanding share of the company's common stock, effective beginning in the first quarter of 2010. Reducing the dividend preserves additional capital, gives the company greater flexibility to pursue its business strategy and brings its yield more in line with its peers, the company said.
"We anticipated a downturn in the refining industry and took steps earlier this year to lower costs and enhance our competitive position. However, the operating environment continues to be very poor, requiring us to take further decisive action to effectively manage through the current downturn, while positioning Sunoco for profitable growth in future market conditions," said Lynn Elsenhans, Sunoco's chairman and CEO. "Idling Eagle Point, the asset least interconnected with our other operations, will enable us to significantly improve utilization rates at our two other local refineries and reduce our break-even costs to more competitive levels."
The company intends to idle Eagle Point until market conditions improve and will evaluate this decision and other options on an ongoing basis, including the feasibility of using the facility to produce alternative fuels in the future. Idling Eagle Point, the most recent addition to Sunoco's refining system, minimizes disruption to the rest of the company's operations, the company said. The Marcus Hook and Philadelphia refineries serve as distribution hubs that feed refined products into Sunoco's branded retail network. Although the production units at Eagle Point will be idled, refined product storage and handling operations will continue. The products rack at Eagle Point owned by Sunoco Logistics Partners LP will remain open.
Approximately 400 employees will be furloughed during the idling of the facility. These employees will have the option to return to work in the event production resumes, Sunoco said. During the furlough, the company will continue to pay its contribution to medical benefits for employees and dependents covered at the time of the idling for the duration of the furlough. In addition, the company will offer a voluntary severance program to affected employees, which includes job placement assistance and retraining.
"The decision to idle Eagle Point did not come easily," Elsenhans said. "Actions that impact the lives of employees, their families and the communities they live in are always very difficult. Sunoco appreciates the hard work and dedication of our employees and is committed to treating them with respect."
The company expects to reduce its pretax expense base by approximately $250 million per year from the idling of Eagle Point. These savings are in addition to its previously announced target of $300 million in annualized business improvement initiative savings by the end of 2009. The company is expected to incur pretax charges, the majority of which are non-cash, of approximately $475-$550 million related primarily to asset impairment, as well as idling costs. The majority of the charges will occur in the third quarter 2009 with some impact in the fourth quarter 2009 and first quarter 2010. The company also expects to realize approximately $70 million in annualized cash savings as a result of reducing the dividend.
"We are making the tough decisions needed to deal with current market realities and position Sunoco for the future," Elsenhans said. "Given weak industry dynamics, we are confident we are taking the right actions to improve our overall competitiveness, set the stage for investing in our strong regional brand, explore opportunities in biofuels, and provide customers with a broader choice of transportation fuel options."
Sunoco also made some senior management changes. Anne-Marie Ainsworth will rejoin the company as senior vice president, refining, effective Nov. 2, 2009. Ainsworth previously spent 19 years at Sunoco and was most recently at Motiva Enterprises LLC, where she was general manager of the Motiva Norco Refinery in Norco, La. Vincent J. Kelley, currently senior vice president, refining and engineering services, will assume the new role of senior vice president, engineering and technology. In his new role, Kelley will oversee technology strategy and the development of technical talent at the company. He will retain responsibility for executing capital projects across all of Sunoco's business units. Kelley will lead the company's efforts to idle the Eagle Point refinery.
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