Good afternoon, my name is Casey and I will be your conference operator today. At this time I'll like to welcome everyone to the Sunoco Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]. I'll now like to turn the call over to Mr. Terry Delaney, Vice President of Investor Relations. Please go ahead.

Thank you Casey and thank you and good afternoon everyone and welcome to Sunoco's quarterly conference call, where we will be discussing the company's second quarter earnings that were reported last evening. With me today are Tom Hofmann, our Senior Vice President and Chief Financial Officer; and Tom Harr, our Manager of Investor Relations. As part of today's call I would direct you to our website www.sunocoinc.com where we have posted a number of presentation slides. I'll be making reference to a number of them today to help highlight and supplement some of the commentary and statistics are included in our release. So if you haven't already done so I would suggest that you go there now and be ready to refer to them as I progress to my remarks. To start for purposes of facilitating a good discussion, I would refer you to the Safe Harbor statement referenced in slide 25, and as included in last night's earnings release. In the course of our remarks and the subsequent Q&A, we may be making some forward-looking statements. While we feel that the assumptions underlying these statements are reasonable, our company and our businesses are subject to a variety of risks and uncertainties which are highlighted there in slide 25. Now turning to the second quarter, Sunoco reported last night net income of $82 million which included two favorable special items. An $11 million after tax insurance recovery related to MTBE litigation and a $10 million settlement of this year's related to a state tax audit. Excluding these special items, Sunoco's net income as noted in slide 2 was $61 million or $0.52 a share. Our refining and supply segment earns $32 million, profitable and significantly improved from the $123 million loss in the first quarter of this year, despite a…

[Operator Instructions]. Your first question comes from Neil McMahon of Stanford Bernstein.

Hi guys, a few questions. It looks like you've been pretty active in terms of managing your runs in the quarter, and any guidance on your active management going right into the third quarter level, what should we expect for utilization rates and growth system. And have you be changed anything in a active way you've been managing those runs specifically to reduce your residual fuel?

Neil, I think the best guidance I can gave you on that is rather than giving you a specific number for the third quarter is to say that conditions haven't changed a whole lot relative to the second quarter, and while we had some planned and unplanned maintenance during that quarter, I don't think given the market conditions then that we would have run significantly more than we did in the second quarter. So, I can't tell you that in July we ran our overall system at rates in the high 80's and I think that's kind of reflective of the kind of market we're involved in right now, but the market conditions will be permanent.

Just a few more. On chemicals again, any further strategic reviews about the chemical assets and the strategy going forward and potential that's fuels [ph] a different model for that?

Neil, I think not now really anything new to report at this time. I think all of our strategic options remain on the table and under review and I'm sure that'll be something that we'll be reviewing in short order with Lynn when she gets on board here tomorrow.

And just a final one, just looking at your corporate call, outside any changes to like compensation and things like that. So we're going on in the quarter. How much activity have you spent in terms of reducing that the corporate cost and how active have you been there and what would we take for guidance going forward at that level?

I think Neil with respect to corporate cost side, I guided to a number of similar what we've seen in the first half of this year the main variable element of those cost are incentive oriented compensation to the extent our share price moves up we'll have some extensions to recruit on stock price related compensation but generally speaking other than those type expenses things are relatively flat quarter-to-quarter.

Great, thanks a lot. That's all I have got.

Sure.

Your next question comes from Jeff Dietert of Simmons. Jeff Dietert - Simmons & Co.: Good afternoon.

Hi Jeff. Jeff Dietert - Simmons & Co.: Could you talk a little about your Northeast crude procurement, there is big shift in Nigerian crude's was there a contract that expired or what contributed to the change from the second quarter to the third quarter?

Sure Jeff, it's really not contract related it's economics or market related and its... if you think about a little bit we're constantly buying and committing to these crude's six or eight weeks ahead of actually receiving them and we've been walking down that path and reducing our rates with Nigerian crude's a little bit as the year going on in part because as the year's going on the quality premium that we've been paying for them has been increasing now. The distillate rich crude and that they've been helpful and they've been incentive and LPs to be the proper crude's to run earlier in the year, but as we looked out particularly post what we've seen in the gasoline season and the rates that were overall running the overall system, economically they at the premiums that they were trading at least six to eight weeks ago, they were not the preferred crude for our systems. So while we're still in that, if you will pretty light-sweet crude basket we have spreaded around a little bit and we'll have lower at least relative to our benchmark kind of crude cost in the third quarter than we did earlier this year. Jeff Dietert - Simmons & Co.: What types of crude's are you shifting towards? What specific types?

There is crude coming out of either the Caspian, or the West African crude's, some Eastern Canadian crude's Jeff, things like that may replaces like that. Jeff Dietert - Simmons & Co.: It looks like just within the last week or so, burning light in some of the Nigerian crude's come off materially relative to previous premiums. So, perhaps you are having some influence there as well?

When the economics are right, I am sure we will be back in that market as well. Jeff Dietert - Simmons & Co.: Good. On the Coke business, you've got some price exposure, most of the Coke has been setup on the fee basis, but there is some price exposure there that I think you mentioned was part of the increase in the '08 expectation how do we think about quantifying how much exposure you have there?

That's simply Jeff, and I would say it's more our exposure to that is more in '09 and beyond and most of it most of is really come from coal prices, most of the coal prices have been set already for '08, there are some coal contractor we are entered in to that or not being fully supplied that are leading us to go into the stock market and getting better prices for our coal but it not simply for '09 and beyond. I would tell you that I think the best things I could say is we put out some guidance in early June that had a coal income projection for the next five years, I would stick with that as I said later this year we'll be able to update you on '09 because in fact a lot of the contract pricing for '09 will settle in the next few months. But essentially our leverage comes from about a million tons of coal and of our dual facility that are made in... that is made in the 700,000 tons of coke and we'll get some market related price on then next year that will be certainly higher than what we received in '08. Jeff Dietert - Simmons & Co.: So the guidance that you provided in early June would have an upward bias associated with it?

Right now yes, right now the market price you're right and the contract price for coal is a bit higher than what we did then so yes. Jeff Dietert - Simmons & Co.: And then the propylene price as you showed a graph of what's how those prices have evolved over the last four months in now in July and August if those flattened and declined?

Not really in... not really in July Jeff they tend to lag by a month or so and actually in July they went up but the expectation would be here in August and September that we would see some relief in that.. and so I'd say the benefit of the moderating crude prices is certainly more impact full in retail marketing then it is in chemicals for us in the third quarter. Jeff Dietert - Simmons & Co.: Thank you, Terry.

Yes,Jeff.

Your next question comes from Mark Gillman with The Benchmark Company.

Hi guys good afternoon.

Hi Mark.

Hi Mark.

A couple of things there is a distillate shift in the Mid-continent was very, very large and can you talk just for a second about what you did to achieve that?

Mark I think the biggest thing that we can point to is it to remember we did that deep bottlenecking or what we called master simplification project mid-last year at Toledo where we looked to get about 15,000 barrels a day more jet fuels production and in fact that's what we've been able to achieve so in the Mid-continent its less crude slate related and is to the configuration changes that we made in the middle of last year.

Okay. In terms of the crude slate shift Terry that you talked about visibly in Northeast. Will the alternate crude's that you are moving towards still have the same five day lag in terms of rising features?

Yes. I expect so Mark.

Okay. And one more if I could, if my records are correct it looks to me you have just added 32 retail stations over the course of the core. Is that correct and if so why?

It may be, we certainly did not acquired 32 more stations during under quarter Mark. It may be that some sites that were not in full operation or we're not in operation and not in the first quarter came back in the second quarter but I'll have to get back to you on that.

Okay Terry, thanks very much.

Your next question comes from Chi Chow with Tristone Capital.

Good afternoon.

Hi Chow.

Back on the crude slate change, would you say that this is a structural shift in strategy or is it just limited to.

You're breaking up,

Was it a structural shift...

It was a structural shift ongoing in future course or its just kind of a third quarter event that you're changing that obviously.

In Nigeria, there?

Nigeria I would say is not a structural shift again I'd like to emphasize as really economically driven market driven, I mean we're constantly for various reasons trying to expand our sources and suppliers and potential crude slates and as the economics have driven us to test some of these other alternatives, I think it's just a good thing to have the added flexibility but I would not take that I mean we won't necessarily be back in that specifically that Nigerian market again to a similar extend in the future.

So you could just ramp by back up the 300,000 barrels a day plus and same in fourth quarter?

Sure, Yes. How do you hear it Chi?

Sorry, I mean I have not [indiscernible]. Is anyone there?

Yes.

Okay. Was there any impact of hedging or how much impact of hedging was there in the margins this quarter?

Chi we didn't there was really no impact of hedging, we do very little hedging, we're kind of naturally balanced as we look across our portfolio between the refine products that we have and crude that we have so, unless we're either operationally out or sink or seasonally have unusual inventory balances we're not doing any hedging.

Okay. Hey Tom, the debt levels increased during the quarter was that a drawn the revolver?

I am sorry, can you I think I didn't hear the last part of that.

Yes, the debt levels increased during the quarter; just wondering is that a draw on your revolver?

Yeah, there were about a hundred on the revolver.

Okay. And how's that going to trend going forward?

I am sorry, Chi we lost you again.

Sorry, how's that going to trend going forward, your debt level in the back half?

Obviously that will be dependant on earnings but we expect Chi that as we have said for years now we'll be in that roughly 40% debt to capital range so that would be the expectation.

Okay. And one final question, we found today that the Yorktown refineries potentially up for sale that's something you guys may take a look at?

Yes Chi, as usual we're not going to comment on any potential acquisitions or anything of that nature so I passed on that.

Okay, all right thanks a lot.

Your next question comes from Jack More [ph] with Hartsville Capital [ph].

Good afternoon thanks so much. With respect to the short term borrowings I request regarding that if you could just comment a little bit more on in this environment where you see them going and then just can you comment on the current environment and how that may impact CapEx explains and what you see going forward and then finally if you could comment on what do you see share count going for the rest of the year?

Let me try and tackle and some of them I mean clearly I don't have a projection exactly for what cash flow will be in the second half of the year, so much will be earnings driven and other factors. I think I would reiterate Jack is that we ended up and we ended June at $200 million cash and $1.1 billion of unused revolver capacity, which further say that from a capital standpoint we also end the second quarter with about 2 million more barrels of crude then we will normally have and about 3 million barrels less crude payables then we normally have. So the lead establishment of those two to more normal operating levels throughout would be a source of funds us from a working capital standpoint in the second half of the year. So our short term borrowings will be tapped if and as needed to complete the capital program that I laid out I think in my comments, that include continue spending on coke, some spending on environmental and to some degree spending for our refining and supply. New restarts of a hydro cracker for next we will be spending some amount, so but think that we have plenty of capacity to complete up our capital program this year we have lowered our overall capital spending in refining and supply by about $150 million from what we had planned earlier this year, and I know that they are looking hard and scrubbing hard to see if there is more that can be either eliminated of deferred in this challenging environment. I think with respect to the share count you saw that we do not buy any share repurchased in the second quarter and I guess at this point in time I think priority number one is strength of the balance sheet.

Great thanks, congratulation on a nice quarter.

Your next question comes from Paul Cheng with Lehman Brothers.

Hi guys.

Hi Paul.

Hi Paul.

Terry and Tom and one of your competitors since that they have decided to permanently reduce their inventory because they think demand is going to be lower, have you guys take a look on that to see that if there is any opportunity there.

Yes Paul, we had that incentive $70 crude and certainly we have that incentive in $120 crude, but I have to say we generally try to run it as closed to just in time as we can, but as again as we lower operating rate by definition we might be able to have lower crude and refine product inventory as well. But I would also caution you that the only get to keep what's permanent and particularly I'd also on the crude side if we lower our crude inventory but loose the corresponding crude payable, it doesn't really help us from a net cash stand point. From a refine product side we are always trying to run at minimal inventories but we have a lot of products in transit to be sold and we want to make sure that is the market structure incenses to hold some inventory we'll do that if the market structure not there, we're going to have a refine product inventory as well as we can, but a long answer to a short question what we're looking at and I wouldn't need to expecting up to have any ability to significantly reduce that.

Okay. On winter on do you think that July has been again that's a month, I was wondering Terry, if you can quantify some what's as that compelling to the second quarter average with $0.10 per gallon that in margin or $0.07, I mean any comp number you can share?

Perhaps that I can share, Paul, but I can directionally tell you that the retail margins are as good as any retail margins we've seen from the... since, probably the third quarter of 2006. It's a very, very strong.

Are theystronger then the third quarter?

Excuse me?

Stronger than the third quarter of 2006, I mean that quarter that you earned $77 million I think in the retail?

It's a very strong start Paul what I said that you have good benchmarks on these things and a good correlation to have results, I am sure you'll do a good job.

And you'll not refer to ask. On the new earning guidance what's the forth quarter 2008 implied coal price that you guys use?

PaulI don't have that number at my fingertips and I would also tell you that its mixed in with a lot of Coke that's... coal that's already been contracted its mixed in with some coal that is supplied by the customers themselves and its reflective of the current market price so, I think the best I would tell you is go with the guidance that for the year it will be in a 110 to 115 and we'll provide you an update for next year as you said that in the forth quarter.

Okay. And can you remind me that I think next year that in your earnings guidance of $195 that's based on a $125 per ton right?

Right, that's a general coal contract price, that's correct.

Okay. And Terry you were talking about, you guys are going to diversify your crude slate I presume that that is going to lead to a relatively lower crude purchase cost, so far in the quarter comparing to the second quarter are we the crude purchase cost versus the benchmark or we better by $1-$2, any comp number?

I would estimate Paul that for the third quarter and the standpoint of that quality differential, we would probably be close of $2 a barrel better in the second quarter.

Okay. And is it you just a little [indiscernible] so would been the Mid-continent that we should assumed because Mid-continent is also prepared on your crude purchase in the second quarter?

I would rather give you numbers for the Mid-continent Paul it should also be directionally lower its for no other reason and the market structure has moved a little bit more in the content end I think the relative sweet-crude premiums have come down a little bit. So I think we'll be a little bit better there as well but not quite as much as the Northeast system.

Okay. Finally I think you touch space on to capital spending. Any kind of update that you can share with us that for 2008 and 2009. Any changes and also that what will be the sustainable capital or minimum capital requirements for maintenance for the turn around for the and momentous spending or the whole.

Paul I think we have to respect the 2009. I don't have another update for you until like we normally do probably early December. Do at this point of time, I wouldn't change that a whole lot for 2008 as I said in the script, we're looking at a total for the year of about $1.4 billion and included in that $1.4 billion is about $300 million of absolute growth spending in Coke, about a $100 million of absolute new asset standing in Sunoco logistics and about a $150 million less than we had planned for the year in refining and supply so hopefully that answers your question.

How about in terms of if you looking out into the future or for the next few years what is the bare minimum if you lets say end of the worst case scenario you decide you going to cut order discretionary what is the bare minimum that you have to spent?

Paul we are not going to really give you a number there we constantly looking at what's the best thing to do but we are always going to run these refineries safely, reliably and whatever it takes us to do that we are continue to do that so rather than give you a number I think the guidance that Terry gave is about the best that we have for right now.

Okay, fair enough, thank you.

Your next question comes from Mark Caruso with Millennium.

Hi guys I want to circle back on the Coke business and make sure I heard you have 1 million tones that's fully open the market pricing next year?

1 million to 1.2 million a ton yes.

Just to be clear its not totally you cant just look at the stock price and say that's where we gone get for the call as Terry has explained, this is a kind of blended price of holds that on the spots they become long term contracts some is coming from elsewhere so don't just go with the expected stock price that's we're trying to say.

Okay. And as far as that goes is this a sort of high low product as far as yes I think about net pricing that you'll get forward or is get sort of I try to gauge when I look at coal pricing obviously how long it's a discount to the record pricing that people look at at I am just trying to gate where I should think about as far as your potential.

It's a mid-value coal, but again without giving me all the details the place that we get to coal is related to the price of coal to the price of cold achieved one of our Haverhill plan which uses a blend alas of various types of coal and also uses some what coal we provided by their customers toward that facility so its really is it's a complicated contract and it's not directly related to those prices so I said the best guidance and again wait for us to tell you what the earnings will be and then you will have the best idea.

And do you guys are on the domestic calendar I am assuming then, you got $2 going to domestic sources, lest think about in terms of you guys are sides to domestic customers which are usually as you said at the end of the year?

Yes, this is all go in the domestic customers.

Great thank you.

You have a follow-up question from Mark Gillman with The Benchmark Company.

Hey Terry if my math is correct and certainly at this point newly season its possible if not probable but its not. I'm coming up to that your unit refining cost in the quarter were actually down from the first quarter which strikes me I guess its being particularly ironic given that it appears as it's a third party fuel purchases were up and operating rates were actually down, can you comment on that at all?

Mark, and I wish I could say you were right but I don't think you are I think our operating expenses were up a little bit first quarter to second quarter in refining, mainly due to reasons that alluded to the price of purchase fuel and even the price utility. So I have as being up pretax about $15-$16 million quarter-on-quarter and since our overall production was pretty similar we're up slightly on a per barrel basis.

Okay. Terry I guess I'll throw up that calculator thanks.

For once Mark you were felt us better than people thought.

Strange things happen.

Alright.

At this time there are no further questions.

Alright, well I appreciate everybody's participation and certainly myself and Tom are around for further questions. Thank you.

Thank you this concludes today's conference. You may now disconnect.