Sunoco's announcement that it is planning on selling its remaining refineries in the Philadelphia area completes a more than 20-year transition in the company that is unprecedented in the recent history of the oil industry.
Consider the scope of the change: Sunoco went from a fully integrated oil company to a very big retailer over the course of less than 20 years, and it did so completely by decisions it took on its own. It didn't have to sell any assets because it was under a takeover threat (at least none that were known publicly); it wasn't cash-desperate; it didn't have some scandal that required it to take steps to get out of a certain business.
Instead, it winnowed itself down over these many years because it just decided that at each step, that was the way to go.
There are other companies that were fully integrated and no longer are. In the past few months, both ConocoPhillips and Marathon announced they're spinning off their refining and marketing assets into separate companies. In the case of ConocoPhillips, it became a big player in refining because Phillips, pre-merger with Conoco, bought Tosco, which had become a major independent refiner through a series of acquisitions. Murphy Oil got out of the US refining business last week with the sale of its Meraux, La. refinery to Valero; it still owns a UK refinery it intends to sell.
But it's difficult to think of any company that has a similar course as Sunoco's, where an integrated company got out of the E&P side of the business, then got out of refining, and became a retailer/marketer only.
There are several once-vaunted integrated oil companies whose corporate name can still be found adorning the corner gasoline station: Unocal, Gulf and Getty all come to mind, though even the latter has been mostly pushed out by Lukoil in the US Northeast. But the companies that now use those venerated names are not direct descendants of the firms that once owned them. Unocal's old "76" name is now owned by ConocoPhillips after a series of transactions;the old Unocal was bought by Chevron, long after Unocal got out of refining. Gulf is an independent fuels marketer, sort of like what Sunoco will now be, but the company is not descended from the "Seven Sisters" giant that was gobbled up by Chevron back in the 1980's.
But Sunoco is different. If you owned a share of Sun Co. stock in the early 1980's, you owned shares in a fully integrated oil company. It was a pioneer in the Canadian oil sands; it had interests in the North Sea; it made a multi-billion dollar acquisition of upstream US onshore properties in the early 1980's.
If you held on to that stock since then, you eventually got shares in Oryx Energy, which consisted of most of its E&P division and which was spun off in the late 1980's (and was eventually bought by Kerr McGee). Your Sun shares eventually became Sunoco shares, featuring a lineup of refineries in diverse places, including Toledo, Puerto Rico and of course, Philadelphia. And now, you've got shares in a very large fuels marketer, and the same company that now operates the Sunoco brand is the same one that 30 years ago was making multi-billion dollar acquisitions in the oil patch.
The decisions to transform itself were made strategically. For example, I recall being at the public meeting with equity analysts when the company got out of international E&P, and CEO Robert Campbell conceded that international exploration was something that the company didn't do very well. That sort of honesty is rare.
(My favorite story about Campbell is when he was the guest speaker at a meeting of the International Associaton of Energy Economists in 1999, and one of the forward-looking academics in the room asked him if Sunoco had done anything with carbon sequestration. "We might have," Campbell replied, "if I knew what the hell it was." Safe to say, most oil industry officials now know what CS is, but it was a new concept back then.)
So CEO Lynn Elsenhans has been talking about becoming a retail-only company for awhile, and now she's implemented the change. The performance of the Sunoco stock presumably made her task easier. Since its all-time high near $80 in early June 2007, it's down about 54%, not including the jump Tuesday from the announcement. The S&P 500 during that time is down about 23%, but fellow independent refiner Valero is down roughly 75% during that period.
(It's tough to get stock performance data on pure play fuels marketers; many of the biggest, such as RaceTrac or Sheetz, are privately-held. But one that isn't is Casey's General Stores, and since June 2007, when Sunoco was at an all-time high, this Midwest gasoline retailer and convenience store operator is up about 54%, the same amount that Sunoco is down during that period.)
So if there's an old-line investor out there who sometime in the mid-1980's plunked down some savings on an oil company, thinking they bought a mini-Exxon, and they've held on to that stock all this time...guess what? Your stock is going to be driven in part by how well they're doing selling corn chips in the convenience store.
(Addendum: after this was published initially, a long-time industry member who knows Sunoco well noted a difference between Sunoco and a store like Casey's. Casey's owns the outlet; the Sunoco stations and stores are branded outlets where Sunoco will act as a fuels marketer to the owners. They will not own the convenience stores. But in the Sunoco conference call today, Elsenhans hinted that more changes may be on the way regarding the structure of the new Sunoco. So another chapter may still be written.)
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