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Sunoco Inks Penn. Growth Deal

Acquisition of 14 Shipley stations strengthens position in Keystone State

PHILADELPHIA -- With last week's acquisition of 14 Tom's gas stations in central Pennsylvania from Shipley Group, Sunoco Inc. has added approximately 215 new sites to its retail network since the beginning of 2010, Joe McGinn, a spokesperson for Sunoco, told CSP Daily News. These acquisitions follow growth by Sunoco through recent acquisitions in New York and New Jersey, the announcement of Sunoco's return to the Ohio Turnpike and assumption of operation along the Garden State Parkway, as well as Sunoco's expansion into Alabama.

Philadelphia-based Sunoco's chairman and CEO Lynn L. Elsenhans has repeatedly delineated the company's plan to shift its focus from refining to retail and logistics.

As reported in a Morgan Keegan/CSP Daily News Flash on Friday, Sunoco reached an agreement with York, Pa.-based Shipley to acquire leasehold interests in the 14 retail locations in Adams, Cumberland, Lancaster, Perry and York counties. The deal is expected to close by the end of third-quarter 2011.

Each location will be company operated and include an APlus convenience store. The locations are expected to be converted to the Sunoco and APlus brands by the end of 2011.

"These stores strengthen our brand position as both a fuels provider and convenience store operator (through APlus) in our home state of Pennsylvania. Our aspiration is to become the premier provider of transportation fuels in our markets," added McGinn.

"We continue to grow in areas where we enjoy great brand recognition and have strong logistics assets," said Bob Owens, Sunoco's senior vice president of marketing. "Our loyal customers in central Pennsylvania will now have even better access to their fuel provider and convenience store of choice."

Shipley said that it will narrow its focus to operate its Tom's travel centers and Arby's restaurants throughout Pennsylvania. "We continue to seek good sites from which to expand our Tom's brand and the Arby's foodservice operations throughout the state," said William Shipley III, CEO of Shipley Group.

"We're going to continue to run Tom's travel centers and continue to grow our diesel and truck business," Bret Hoffmaster, vice president of marketing for Shipley, told CSP Daily News. "It's a good fit for Sunoco because it wll enable them to strengthen their presence in the area."

For Shipley, initial growth plans with both the Arby's foodservice brand and Tom's travel centers is earmarked for Pennsylvania, but the idea is to grow their fleet and travel plaza businesses. "It's a strategic direction we decided to move in," Hoffmaster added. "We realized in order to be successful, we needed to narrow our focus. We have a good formula for the travel type of business."

When asked about operating in a state with several cutting-edge c-store chains, including Sheetz and Wawa, Hoffmaster said, "You're never going to escape competition. We're competitive as is Sunoco. This serves both organizations well."

Shipley Group is comprised of Shipley Energy, Yowza Spring Water and Tom's Convenience Stores and is celebrating more than 80 years of service throughout central Pennsylvania and Northern Maryland. Shipley Energy is the largest locally owned provider of home heating energy, including oil, natural gas and propane.

Meanwhile, Sunoco has reported a net loss of $125 million (a loss of $1.03 per share diluted) for second-quarter 2011 versus net income of $145 million ($1.20 per share diluted) for second-quarter 2010.

"The company's operations excluding special items were profitable on the strength of our logistics and retail segments. Sunoco Logistics Partners LP had its best quarter ever and our logistics segment contributed $54 million to Sunoco's earnings. Likewise, our retail segment also contributed strong earnings that approached a record for second quarter results. In Refining & Supply, our ability to take advantage of margin improvement was limited by low utilization that continued into April from the first quarter's operational events. With the reliability issues addressed, Refining & Supply was profitable in May and June," said Elsenhans, "We continue to adjust our portfolio of assets to deliver value to shareholders."

Retail Marketing earned $69 million pretax in the current quarter versus $73 million in second quarter 2010. The decrease in earnings was primarily due to higher expenses, largely the result of higher credit-card fees at company-operated locations as a result of increased retail prices and the absence of a favorable litigation settlement in 2010. The higher expenses were partially offset by higher average retail gasoline and distillate margins.

Sunoco is a leading transportation fuel provider with operations located primarily in the East Coast and Midwest. The company sells transportation fuels through more than 4,900 branded retail locations in 24 states. APlus c-stores are operated by the company or independent dealers in more than 600 retail locations. The retail network in the Northeast is principally supplied by Sunoco-owned refineries with a combined crude oil processing capacity of 505,000 barrels per day. Sunoco is also the General Partner and has a 34% interest in Sunoco Logistics Partners, a publicly traded master limited partnership which owns and operates 7,900 miles of refined product and crude oil pipelines and approximately 40 active product terminals.

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