- The Q1 earnings for the segment were $15 million versus $9 million in the same period last year. The increase was due to record results from Sunoco Logistics Partners L.P., which benefited from strong performance in its western pipeline system and terminalling operations.
- The company currently has a 43% interest in Sunoco Logistics Partners L.P. which includes its 2% general partnership interest.

Coke

- The coke business earned $25 million during the quarter. This is in comparison with $11 million in the first year of 2007. The increase in earnings was mainly due to higher price realizations from coal and coke production at Jewell, partially offset by lower tax benefits from coke making operations.
- The construction of the second Coke plant in Haverhill, Ohio is reportedly proceeding on budget and schedule with operations expected to commence in the second half of the year.
- The management reported that the anticipated after tax earnings from this facility in 2009 is approximately $25 million.

- The company has also made two recent announcements regarding additional agreements to build, own and operate new Coke facilities. Construction will begin next year on a new plant that will provide U.S. Steel’s Granite City steel making operations with an estimated 650,000 tons of coke annually under a 15-year agreement.
- The management expects operations to begin by the end of 2009 with a full year after tax earnings contribution from the facility of about $25 million to $30 million in 2010.
- The company also announced an agreement with AK Steel to construct a plant and power generation facility in Middleton, Ohio. The plant will provide steel making operations in that region with approximately 550,000 tons of coke and 46-megawatts of electricity per year. Upon completion, the after tax earnings contribution from this pant is expected to be in the range $35 million to $40 million.

Corporate and Other

- The corporate administrative expenses were $17 million after tax for the quarter versus $15 million after tax in Q1 of 2007. The increase was a result of a $9 million unfavorable income tax consolidation adjustment, partially offset by lower accruals for performance-related incentive compensation.

- The quarterly net financing expenses were $3 million after tax in the first quarter compared with $12 million after tax in the first quarter of 2007. The decrease was a result of lower interest expense, higher interest income and the absence of expense attributable to the preferential return of third-party investors in Sunoco’s Indiana Harbor coke making operations.

Special Item

- The management reported that during the first quarter of 2007, the company recognized a $90 million after-tax gain related to the prior issuance of limited partnership units of Sunoco Logistics Partners L.P. to the public.

Second Quarter Outlook

- The recent declines in the U.S. gasoline inventories and continued low refinery utilization rates have led to some improvement in refining market fundamentals as the company enters the spring and summer driving seasons.
- The higher crude oil costs and lower gasoline demand continued to challenge refiners in April, margins for distillate products remain very strong and gasoline margins are beginning to improve as the company progresses through the quarter.
- The refinery production volumes in the second quarter are forecast to be higher than the first quarter levels.

Key questions and answers from the first quarter fiscal 2008 earnings call conducted by Sunoco on May 1, 2008.

Doug Terreson (Morgan Stanley): What trend do you expect from operating costs in the coming quarters?

Terence P. Delaney: My expectation for the second quarter would be very much like the first quarter, may be modestly higher as we pick up some additional production barrels. The big variable elements are fuel cost, the absolute cost of natural gas and how much of that we purchase. Those expenses will continue to be high and I would expect them to continue at levels like the first quarter. Relative to last year, it’s really depreciation, fuel cost, catalyst cost, utilities and things of that nature.

Neil McMahon (Stanford Bernstein): What margins are we looking at to run at full rates?

Terence P. Delaney: A lot of things will be factored into that including how much would be produced from the last barrels that we put through the crude unit. One of the elements that will be important to that is the absolute cost of bringing crude into our refineries, including what we''re paying for quality differentials and transportation.

Neil McMahon (Stanford Bernstein): In terms of the portfolio changing discussion, have you got anywhere in the last few months in terms of looking at the portfolio of refining assets in the overall chemical assets.

Thomas W. Hofmann: As far as refining assets, we''re trying to do some of the things we spoke about. As far as chemicals, we continue to look at that, they had a good quarter this quarter; they''ve been generating positive cash flows. If there are opportunities to put those assets together somebody else will do that, we haven''t found those opportunities yet, we continue to look at that and that''s where we are. When you look at our portfolio, it’ll get out certainly by the end of the second quarter; third quarter is not going to look demonstrably different than it looks today.

Jeff Dietert (Simmons & Company International): It''s a big loss for a single quarter and is there things you can do to prevent such a large loss in the event the industry conditions happened again?

Terence P. Delaney: We can always collect volumes further, but we ran the units. Our overall utilization was around 85% for the quarter. We did accelerate some maintenance into the quarter. We are always trying to optimize around the crude slate that we can run. However in this kind of margin environment, maybe with high insight the next biggest most drastic step would be to more drastically shut down whole units or parts of refineries. Generally though, you don''t do that easily or all that quickly. We did slowdown runs and accelerate maintenance, but I don''t know if there was much more that we could do.