Sunoco Finds Room to Grow, MLP Style

Hawaii, Texas served a successful proving grounds for strategy

Samantha Oller, Senior Editor/Fuels, CSP

Sunoco Susser Hawaii Texas (CSP Daily News / Convenience Stores / Gas Stations)

HOUSTON -- While some retailers search for growth opportunities within their existing market, Sunoco LP (SUN) has no such restrictions. Instead, it examines each potential retail acquisition through its ability to growing cash flow for the master limited partnership (MLP).

"Clearly our focus right now is primarily around executing dropdown activity announced by our parent ETP and SUN LP," said Bob Owens, president and CEO, in the first earnings call for the newly renamed Sunoco LP, formerly Susser Petroleum Partners LP and a subsidiary of Energy Transfer Partners LP (ETP). "But we will always be open to growing distributable cash flow and look at interesting activities."

Consider, for example, Aloha Petroleum, Honolulu, which then-Susser Petroleum Partners sealed a deal to acquire this past September. While some industry watchers were surprised that ETP and Susser, with a base in the Southwest, Southeast and Northeast, would make such a huge geographic leap, this particular opportunity had three big selling points.

First, Aloha Petroleum was a market leader with high-quality assets on the four primary islands.

Then there's the location.

"Hawaii itself is attractive--the economy is strong and it's growing at a faster rate than the mainland U.S., and clearly has an attractive tourism industry," said Owens.

And perhaps most importantly, it provided an opportunity for Sunoco LP to enter that attractive market through an integrated platform that includes 100 c-stores, storage terminals and a broad distribution network.

"It was a chance to buy a complete system," he said. "And that system is attractive in that the bulk of the activities are MLP-qualified.

"Looking at Aloha through a lens of what was attractive there—it was an attractive market, a very attractive set of assets and an opportunity, we feel, to add value and increase income," Owens said in summary.

Meanwhile, Houston-based Sunoco LP is also finding opportunity in the Lone Star State.

"Jamie Welsh said that our acquisition of Susser was a bet on Texas, and that's a bet we like and we continue to feel if anything just better and better about it," said Owens, referring to the CFO of Energy Transfer Equity, ETP's parent company.

He noted that Texas is among the fastest-growing states in the country by population, job creation and economic activity. Throughout the southwest, Sunoco LP will be raising the 125-year old Sunoco flag, beginning with a new Stripes location that opened a few weeks ago near Houston. "Our Texas customers will be seeing more of these before the year is over," Owens promised.

And the Sunoco LP team believes the Stripes convenience store brand and Laredo Taco Co. foodservice offer have legs beyond their Southwestern birthplace.

It's a beyond-borders mindset that Sunoco LP is embracing

"As we look at 2015, we believe that the Sunoco LP is well on its way with a clear path in front of us to transform into one of the leading wholesale and retail marketing platforms in the country, with tremendous scale and diversity of both geography and types of businesses," Owens said.

Separately, the exec commented on the growth being triggered by recent low crude and fuel prices.

"It will be interesting to see what that does to demand," Owens said, noting that the early indicators, including a recent, noticeable bump in sales of new vehicles, are positive. In addition, lower gas prices put more money in customers' pockets. "And we have good opportunities for them to go ahead and spend some of that money," he said.

Houston-based Sunoco LP is a growth-oriented MLP that primarily distributes motor fuel to convenience stores, independent dealers, commercial customers and distributors. It also operates more than 100 convenience stores and retail fuel sites.

Sunoco LP is majority owned and managed by ETP, which also owns Sunoco Inc. and Stripes LLC. ETP has indicated it plans to bring Sunoco Inc. and Stripes LLC together under Sunoco LP through a series of asset dropdowns from ETP to Sunoco LP.

Sunoco Inc. markets motor fuels through more than 4,900 Sunoco-branded locations in 26 states mainly east of the Mississippi, from Maine to Florida and west to Wisconsin and Louisiana. This includes more than 430 company-operated locations, along with more than 4,000 independently owned and operated dealers and distributors. Sunoco Inc. also has more than 650 APlus branded convenience stores which are company-operated and operated by third-party dealers. Sunoco Inc. markets more than 4.7 billion gallons of fuel a year.

Stripes LLC currently operates more than 645 stores in Texas, New Mexico and Oklahoma under the Stripes and Sac-N-Pac brands. Restaurant service is available in more than 415 of its stores, primarily under the proprietary Laredo Taco Co. brand.

The partnership plans to leverage the strength of Sunoco Inc.'s 125-year-old fuel brand and its expertise in motor fuel supply, trading and marketing with Stripes' popular retail brand, merchandising expertise and attractive geographic position in the high-growth Texas market. Sunoco LP expects to grow not only though asset dropdowns from parent ETP, but also through organic expansion of the partnership and of the legacy Sunoco and Stripes businesses, as well as opportunistic acquisitions.

Part of CSP's 2014 Convenience Top 101 retailers