Sunoco will spin off its coke operations

Posted: June 17, 2010

Sunoco Inc. is spinning off its profitable subsidiary that produces coke used in blast furnaces, the latest effort by the Philadelphia refiner to reconfigure its operations.

Lynn L. Elsenhans, Sunoco's chief executive officer, told analysts Wednesday that separating SunCoke Energy Inc. into an independent company next year would unlock shareholder value.

The markets seemed to agree: Sunoco's shares rose $2.03, or 6.30 percent, to close at $34.27.

Elsenhans said the coke business, which is based in Knoxville, Tenn., had little overlap with Sunoco's core refining and marketing operation. Coke, which is produced from coal, is used as fuel for smelting iron ore in blast furnaces.

"The fuels and coke units are distinct businesses with different business models, different sets of customers, and no significant integration or synergies," she said.

The spin-off is the latest step by Elsenhans to remake Sunoco since taking over in 2008. As refinery profits have shrunk and disappeared, she has cut jobs and reduced benefits. In the last year, the company sold its Oklahoma refinery, its home heating-oil business, and its polypropylene business. It also closed the Eagle Point refinery in Westville, Gloucester County.

Elsenhans has signaled that other assets may be sold, such as the company's three remaining refineries in Philadelphia, Marcus Hook, and Toledo, Ohio.

She told analysts recently that she envisioned Sunoco's future more as a supplier and retailer of fuel, a strategy "that does not mandate that we own refineries."

"I don't believe in falling in love with assets," she said at a June 3 conference hosted by Sanford C. Bernstein & Co. L.L.C.

On Wednesday, Elsenhans said the refining segment would turn a profit this quarter for the first time in more than a year.

The metallurgical-coke business has been one of Sunoco's stellar performers.

Though Sunoco reported a net loss last year, it reported net income from coke production was $180 million on sales of $1.12 billion, according to company filings. Company officials project business may double in a decade as competing coke operations shut down.

In 1979, Sunoco acquired the coke unit, which included the rights to a proprietary technology that reduces emissions and reuses the heat from the coking operation to generate steam and electricity. Coke is produced by baking coal at high temperatures to burn off volatile compounds.

The company produces coal from mines in Virginia and West Virginia. SunCoke Energy produces coke in Virginia, Indiana, Ohio, and Illinois. It also is building a plant in Middletown, Ohio, scheduled to open next year. In addition, it operates a plant in Brazil.


Contact staff writer Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com.

comments powered by Disqus
|
|
|
|
|