Sunoco, Carlyle Group Forming Refinery Joint Venture

Will secure Philadelphia region's fuel supply

PHILADELPHIA & WASHINGTON -- Sunoco Inc. and global alternative asset manager The Carlyle Group LP have agreed to form Philadelphia Energy Solutions, a joint venture that will enable the Philadelphia refinery to continue operating.

The refinery, the oldest continuously operating one on the East Coast, processes 330,000 barrels of oil per day into various refined products and was scheduled for shut down in August of 2012. The joint venture is expected to save 850 jobs, secure the region's fuel supply by continuing the daily flow of 10 million gallons of various fuels, and create 100 to 200 new, permanent jobs, as well as thousands of construction jobs.

This transaction is subject to customary closing conditions. Capital for this investment will come from the Carlyle Equity Opportunity Fund and the Carlyle Energy Mezzanine Opportunities Fund. JPMorgan Chase has agreed to provide working capital financing for intermediate products owned by the refinery in the form of an asset-backed loan, subject to documentation.

The transaction is expected to close in the third quarter of 2012. Financial terms were not disclosed.

"This partnership is a great example of what can happen when motivated people think creatively to solve pressing problems," said Brian P. MacDonald, Sunoco's chairman and CEO. "The private sector, government and labor all played important roles in getting this done. This is the best possible outcome for everyone involved: existing jobs will be saved, new jobs will be created and new business opportunities will be given the chance to develop."

Under the terms of the agreement, Sunoco will contribute its Philadelphia refinery assets to the joint venture in exchange for a nonoperating minority interest. The Carlyle Group's investment will flow directly to the refinery's balance sheet to fund future capital projects, facility upgrades and enhance the refinery's working capital. Carlyle will hold the majority interest, and oversee day-to-day operations of the joint venture and the refinery.

Phil Rinaldi, who has successfully led other refining and chemical business turnarounds, will serve as the CEO of Philadelphia Energy Solutions.

Carlyle managing director Rodney Cohen said, "Together we've re-imagined the Philadelphia refinery and its role as a critical energy hub in the Northeast. This joint venture will keep one of the region's most important economic engines up and running. The refinery will be a reliable and critical supplier of fuels to the regional market through its new business structure and improved crude oil sourcing. In addition, the refinery's exceptional location and infrastructure will enable the joint venture to create new business opportunities related to Marcellus Shale natural gas fields."

The joint venture is also exploring other significant capital projects, including the creation of new businesses based on the availability and abundant levels of natural gas from the Marcellus Shale.

In May, Energy Transfer Partners LP (ETP) announced its acquisition of Sunoco, including its 4,900 retail locations in 23 states. Under the merger agreement, the company said that it would continue its plans for exiting its refining business as previously announced, as well as continue its plans for the proposed refinery joint venture it was discussing with The Carlyle Group (see Related Content below for previous CSP Daily News coverage).

The Carlyle Group is a global alternative asset manager with $159 billion of assets under management in 94 active funds and 63 fund of funds vehicles as of March 31, 2012. Carlyle invests across four segments--corporate private equity, real assets, global market strategies and fund of funds solutions. It has developed expertise in various industries, including aerospace, defense and government services, consumer and retail, energy, financial services, healthcare, industrial, technology and business services, telecommunications and media and transportation.

Philadelphia-based Sunoco is a leading logistics and retail company. It owns the general partner interest of Sunoco Logistics Partners LP, which consists of a 2% ownership interest and incentive distribution rights, and owns a 32% interest in the partnership's limited partner units. Sunoco Logistics Partners LP is an owner and operator of complementary pipeline, terminal and crude oil acquisition and marketing assets. Sunoco also has a network of approximately 4,900 retail locations in 23 states.