Sunoco Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Sunoco is the leading manufacturer and marketer of petroleum and petrochemical products. With headquarters in Philadelphia, Pennsylvania, Sunoco is one of the largest independent refiner-marketers in the United States. As of December 2007, Sunoco operated five domestic refineries with a total 910,000 barrels per day of crude oil processing capacity. Sunoco owns and operates approximately 5,500 miles of crude oil and refined gasoline products and has 4,700 retail sites selling its gasoline.

Sunoco is a major producer of petrochemicals.

The company sells approximately 5 billion pounds of chemicals synthesized from petroleum, mostly intermediates that are used to make fibers, plastics, films, and resins. Through its subsidiary, Sunoco Chemicals, the company produces and sells such petrochemical intermediates as phenol, acetone, nonene, tetramer, alphamethylstyrene, toluene, xylene, and benzene. Sunoco also manufactures over 2.5 million tons of metallurgical-grade coke for consumption by the steel industry. The company is the “operator of, and has equity interest in, a 1.7 million tons-per-year coke making facility in Vitoria, Brazil.”

Sunoco is a global company in terms of its markets: it has over 80 export markets in Europe, the Middle East, Africa, and Australia. Its subsidiaries in Belgium and Japan continue to produce and sell industrial oils and lubricants throughout Europe and Asia, respectively. Sunoco has seen impressive growth over the last few years. Between 2003 and 2007, sales more than doubled from nearly $18 billion to close to $45 billion; during this same period, net income for the company also increased about 2.5 times, from $312 million to $891 million.

Sunoco’s first successes depended on developing and exploiting major technological change. By the end of World War II, technological leadership went to other, larger refiners and petrochemical producers. Unlike other oil and chemical companies, Sunoco did not rely ultimately on riding the growing wave of globalization. Foreign operations were, and still are today, of subsidiary importance to the company. Indeed, by the 1990s, Sunoco actually reduced its international presence. For example, Sunoco concentrated the vast bulk of its refining capacity to the United States. The strategy that set the company onto its growth trajectory after the 1970s was in general undertaken in its U.S. operations. However, at the same time, by maintaining a wide-ranging marketing and distribution system for its gasolines, oils, lubricants, and specialty products, Sunoco today has been able to transfer the benefits it receives at home to its commercial network worldwide.

History

Sunoco began its business as the Peoples Natural Gas Company of Pittsburgh, Pennsylvania, providing natural gas for business, commercial, and residential demand. The founders, Joseph. N. Pew and Edward O. Emerson, looking to expand and diversify, entered the oil business in 1886 by purchasing oil leases in the then-promising oil fields of Pennsylvania and Ohio. In 1890 the company officially became the Sun Oil Company of Ohio. By the 1890s, Sun Oil was “producing, transporting and storing oil as well as refining, shipping, and marketing petroleum products.” By 1895 the company was operating a large refinery in Toledo, Ohio, a consequence of the purchase of the Diamond Oil Company. In 1899 Pew bought out Emerson’s interest in the company and became sole head of Sun Oil. Two years later, Pew further extended the company’s hold on the country’s oil industry by obtaining leases and crude oil in the newly discovered Spindletop oil field of Texas. With a growing supply of oil now coming from the Southwest, additional refinery capacity had to be secured. Pew purchased 82 acres of land in Marcus Hook, Pennsylvania, as the site for the company’s second refinery. The death of Joseph Pew in 1912 ushered in a new era for the company. His two sons took over the reins of power in the company: J. Howard Pew succeeded as president of the company and Joseph N. Pew, Jr., as vice president.

Over the next two decades, Sun Oil continued to expand and diversify. It entered the shipbuilding industry through the establishment of the subsidiary Sun Shipbuilding and Dry Dock Company. This was an important aspect of the business because it assured Sun in-house capability of available transportation of oil from field to refinery. In addition to shipbuilding, Sun produced oil field equipment through a joint venture with Sperry Gyroscope, and marketed its own gasoline through the owning and operating of its first retail service stations in Pennsylvania and Ohio. In 1925 the company went public under its new name, Sun Oil Company.

The most important developments during the decades between the world wars were technological in nature. Prior to 1937, the most advanced technology for cracking oil was thermal in nature: the refining process was conducted with the application of high heat and under increasingly elevated pressures. The major problems in these processes were poor efficiencies and quality of the gasoline. Developing the pilot project of the Frenchman Eugene Houdry, Sun Oil constructed the first workable catalytic process for cracking oil to produce gasoline at the Marcus Hook refinery. The entrance of catalytic cracking produced a revolution in the industry. It meant that the results were the highest-quality gasoline products then available. At this time as well, Sun Oil began to internationalize by opening a subsidiary in Belgium to produce and market branded motor oil, grease, and industrial petroleum products throughout Europe.

During World War II, Sun Oil participated in the production of high-quality gasoline and synthetic rubber for the U.S. government. However, problems with Sun’s catalytic process (a.k.a. the Houdry fixedbed process), limited its role in the government’s fuel and synthetic rubber programs. Other companies had begun research and development activities on newer and improved catalytic technologies. In particular, Standard Oil of New Jersey successfully developed the famous fluid catalytic cracking technology, which became the gold standard for the cracking of oil during and following the war, both in the mass production of high-grade fuel and commercial synthetic rubber (which consumed the petrochemical intermediates produced by the process). Sun Oil, remaining dedicated to improving the older Houdry process that Sun patented, was deposed by Jersey Standard as the industry’s technological leader.

Postwar Developments

The decades following the war became the era of change for the company that can be characterized as a growth through focusing strategy. The first nonfamily member to head the company came in 1947 when Robert G. Dunlop replaced J. Howard Pew as president (however, the first president to come from outside the company would not appear until the mid-1990s). During the 1940s and 1950s, Sun Oil expanded the reach of its oil and natural gas production operations internationally, notably in Venezuela’s Lake Maracaibo and off the coast of England through offshore North Sea drilling.

In the late 1950s, the company heightened its marketing abilities. By 1956, Sun Oil became known for “custom blending,” which allowed customers to choose from different octane-rated gasolines. The Sunoco stations would offer customers up to eight different grades of octane, all available through the same pump. In 1966 Sun Oil established a subsidiary in Japan to produce and sell industrial oils and lubricants throughout Asia. Besides this, Sunoco grew with the acquisition of other companies, including Sunray DX Oil Company (Tulsa, Oklahoma) in 1968. This acquisition gave Sunoco the advantage of refining and marketing gasoline under the DX name and expanded Sunoco’s markets into the midwestern states.

By the 1970s and 1980s, the company saw that it had to compete in the future against larger oil producers and gasoline retailing chains. It made itself more competitive through a strategy that focused on cost consciousness, restructuring and streamlining of functions, and updated company image. Restructuring occurred on a regular basis, such as selling off its slower-growing operations. Thus, it disposed of its shipbuilding and “of all domestic oil and gas exploration and production,” including its international exploration businesses. It also sharply curtailed its domestic retail business. By the early 1990s, Sun Oil closed down virtually all of its service stations in the southwestern United States and west of the Mississippi River.

At this time, the company’s strategic direction was to focus on its two core competencies: refining and marketing. This meant increasing refining capacity and honing and expanding its gasoline marketing capabilities through strategic acquisition. With respect to its refining capabilities, between 1990 and 2005, Sun Oil, which had changed its name to

Sunoco, acquired a number of refining companies in the Northeast that significantly increased its refining capacity. It also upgraded and modernized its facilities. Its most ambitious project involved the acquisition in 1994 (from Chevron Oil) of a 177,000-barrelsper-day refinery located in Philadelphia and located next to its Sun Refinery (purchased from Atlantic Petroleum in 1988). This acquisition meant that Sun could link the two refineries into one large and cost-efficient operation and then connect this refinery complex to its Marcus Hook plant by means of a 19-mile pipeline. Overall, by 2000, Sunoco’s strategy allowed the company to significantly cut its costs in refining a barrel of crude oil.

Beyond optimizing refinery operations, Sunoco has also acquired new retail marketing outlets, including the Coastal and Speedway service stations located in Delaware, Maryland, Virginia, Florida, and Washington, D.C., and so reintroduced its Sunoco brand to areas in the United States that it had pulled out of only a few years before. As part of its marketing campaign to brand its new image to the public, Sunoco (in a manner similar to British Petroleum) has presented itself as environmentally responsible.

Bibliography:

Aftalion, A History of the International Chemical Industry, 2nd ed. (Chemical Heritage Press, 2001);
Arora et al., eds., Chemicals and Long-Term Economic Growth (Wiley, 1998);
W. Carlton, “A New Concept in Gasoline Marketing,” Journal of Marketing (1958);
Enos, Petroleum, Progress and Profits: A History of Process Innovation (MIT Press, 1962);
com, “Sunoco, Inc.,” www.fundinguniverse.com (cited March 2009);
Giebelhaus, Business and Government in the Oil Industry: A Case Study of Sun Oil, 1876–1945 (JAI Press, 1980);
Moskowitz, “History of Petroleum Refining,” in Macmillan Encyclopedia of Energy (Macmillan Reference USA, 2001);
Spitz, Petrochemicals: The Rise of an Industry (Wiley, 1989);
Sunoco, Annual Report (Sunoco, 2007);
Williamson et al., The American Petroleum Industry: The Age of Energy, 1899–1959 (Northwestern University Press, 1962).

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