Elsenhans Leaves Sunoco Shedding Refineries for Pipelines

Sunoco Inc. (SUN) Chief Executive Officer Lynn Elsenhans is stepping down after spending almost four years selling or shuttering two-thirds of the 121-year-old refiner’s assets to focus its business on oil pipelines and fuel retailing.

The 55-year-old former executive of Royal Dutch Shell Plc (RDSA) took the helm at Sunoco in 2008, when fuel demand had slumped the most in 27 years. She fired workers, sold or idled all five of the company’s refineries and spun off business units that incurred more than $1.2 billion in losses on her watch.

“Lynn set out to leave behind refining, and that’s apparently what the Sunoco board blessed,” said Mike Leger, president of Turner, Mason & Co., a Dallas-based energy consultant. “What I’m less sure of is what Sunoco has become.”

Chief Financial Officer Brian P. MacDonald, who will succeed Elsenhans on March 1, said he plans to continue Sunoco’s transition into fuel storage, pipeline transportation and retail sales. Sunoco swung to a pretax loss of $660 million in the fourth quarter of 2011 from a profit of $119 million a year earlier, the Philadelphia-based company said yesterday.

MacDonald, 46, will also become chairman effective May 1. Elsenhans and MacDonald declined to be interviewed, according to Sunoco spokesman Thomas Golembeski.

The stock rose 5.9 percent to $40.50 at 8:41 a.m. today in New York before the start of regular trading. Sunoco rose 12 percent this year before today.

Stock Buyback

Sunoco’s shares declined 43 percent before today since Elsenhans became CEO in August 2008. Valero Energy Corp., the largest independent U.S. refiner, slumped 48 percent and Tesoro Corp. fell 34 percent during the same period.

Sunoco said it will buy back as much as 19.9 percent of the company’s stock in the next 18 months, increase its quarterly dividend to 20 cents a share from 15 cents and repurchase as much as $400 million of debt in the next year.

Losses piled up at Sunoco since 2008 as the difference between the cost of oil and the selling price of fuel narrowed by 70 percent. During the same time, Elsenhans boosted value for investors 52 percent through a combination of asset sales, spinoffs and share buybacks.

When she joined Sunoco after having run global refining operations for Shell, Elsenhans said she planned to bolster the refinery business through joint ventures that would help fund upgrades to the plants so they could process heavier, and cheaper, grades of crude.

Selloff Begins

She failed to find a partner, and instead sold refineries in Toledo, Ohio and Tulsa, Oklahoma. The Tulsa plant was sold for $65 million to HollyFrontier Corp (HFC). in June 2009, a year before surging onshore crude production in North Dakota depressed U.S. oil prices, expanding profit margins for some mid-continent refineries.

In September, Elsenhans announced plans to sell or close Sunoco’s two remaining refineries in Philadelphia and Marcus Hook, Pennsylvania. She has since idled the plants and said in a statement yesterday that the company doesn’t anticipate being able to sell the Marcus Hook plant.

Unable to turn around the refining operations, Elsenhans focused instead on rewarding shareholders, selling part of Sunoco’s chemicals business and offering investors shares from a spinoff of Sunoco’s metallurgical coke business. The coke is used to make steel. She used some cash to fund acquisitions for Sunoco Logistics Partners LP (SXL), the company’s master limited partnership through which it manages its pipeline assets.

Sunoco’s Value

Including shares from SunCoke Energy Inc. and growth in Sunoco Logistics Partners, Elsenhans presided over a 52 percent increase in the company’s value. Sunoco and its subsidiaries are worth $8.75 billion, according to data compiled by Bloomberg.

The so-called logistics business of storage and transportation has become the fastest-growing segment in the energy industry as companies race to connect pipelines to onshore oil and natural-gas production that has soared with the use of improved drilling technology.

The reconstituted Sunoco is poised to join a peer group that includes Kinder Morgan Inc. and Oneok Inc. (OKE), which focus on pipelines and trade at a premium to refiners, Paul Sankey, an analyst with Deutsche Bank AG, said in a note to clients Jan. 9.

“It looks like Elsenhans has done the heavy lifting,” Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago, said in a telephone interview yesterday. “It appears as though the future course of the company is in the higher margin logistics and retail segment.”

$11.7 Million Salary

Elsenhans received salary and other incentives worth $11.7 million in 2010, the most recent year for which compensation data is available, according to a March 18 filing with the Securities and Exchange Commission. As of last spring, Elsenhans was slated to receive severance and pension benefits totaling $6.29 million if her job was terminated without cause, and $37.8 million if she sold or merged the company.

Golembeski, the Sunoco spokesman, declined in an e-mail to discuss Elsenhans’s severance compensation and said details will be filed with the SEC.

“She’s being treated better going out the door than the people who have given 20, 30 or 40 years to this company,” said Jim Savage, president of the union that represents 600 workers at Sunoco’s Philadelphia refinery. The Pennsylvania plants and an already closed New Jersey refinery represent job losses and potential losses of more than 3,000 workers, Savage said.

Elsenhans’s successor, MacDonald, spent more than 13 years at General Motors Corp. before joining Dell Inc. (DELL) in 2002, where he served as CFO of a unit overseeing financial management. He joined Sunoco as a senior vice president and CFO in 2009.

To contact the reporters on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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