Good afternoon. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Sunoco's Third 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]. Thank you. Mr. Delaney, you may begin your conference.

Thank you, Kelly, and good afternoon. I apologize to everybody to be… being a few minutes late. We had some technical difficulties on our end, but welcome again to Sunoco's quarterly conference call where we will be discussing the company's third 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. Lynn Elsenhans, our CEO and President had a previous commitment that had been scheduled prior to joining Sunoco that prevented her from being here this afternoon, but she does intend to participate in these calls in the future. 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 will be making reference to a number of them today to help highlight and supplement some of the commentary and statistics that were 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 through my remarks. To start for purposes of facilitating a good discussion, I would refer you to the Safe Harbor statement referenced in slide 26 and as included in last nights earnings release. In the course of our remarks and in 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 26. Now, turning to the third quarter, last night, we reported quarterly income of $549 million, which included one unfavorable special item, $10 million after-tax provision to write-off capital expenditures incurred to date related to…

[Operator Instructions]. Your first question comes from Jeffrey Dietert with Simmons & Company. Jeffrey Dietert - Simmons & Company: Good afternoon.

Good afternoon, Jeff.

Hi, Jeff. Jeffrey Dietert - Simmons & Company: I guess Tom with your retirement December 1st, this will be your last call. So I want to tell you we appreciate you and appreciate your disciplined approach to being CFO of the Company

Well, Jeff, thank you. I appreciate those kind words and I would just say to everybody out there I very much enjoyed my role here and I think the Company is in good shape as we go forward. Jeffrey Dietert - Simmons & Company: Very good. On your Northeast feedstock, could you talk to us Terry about what markers we should try to track in replacement of some of the Nigerian crudes that would help us with the discounts certain to expect there?

Without getting too specific, Jeff, we replaced them for the most part with other West African crudes, with some Caspian crudes and with some Eastern Canadian crudes. I think as I've said in the prepared remarks this quarter… that's been kind of a differential of about $2 a barrel versus the Kayibo [ph] kind of crude that we would normally buy and then I would track it from there. Jeffrey Dietert - Simmons & Company: Okay, very good. And one of the things… you mentioned in the strong Coke performance was a benefit from coal price increases. Do you have a metric that we can use to try to track changes in coal prices and the impact it would have on your Coke business? Terence P. Delaney - Vice President of Investor Relations and Planning *: No I don't, Jeff, because really the spot kind of prices that you might see are not necessarily reflective of the contract market that's going to drive us. For the most part what's going on in 2008 are when certain coal suppliers back out of contracts and we can replace that with our own joule coal and get a spot price, but they're minimal volume. The big area will be… and we'll be settling this we hope before the end of the year, the coal price that we will get for 2009. Generally most coal is sold on a year-to-year basis. So the big shift up in coal prices this year should be more beneficial to us next year, but we have not yet settled that price. We hope to have it done if not in time for our December 15th meeting, certainly by the end of the year. Jeffrey Dietert - Simmons & Company: Very good. And one more question if I could. And give us an update on what you have seen retail volumes, same-store sales since the end of the third quarter. It seems like a number your peers are seeing some moderation and declines.

Yes, I can't tell you that I'm seeing the same thing, but I haven't checked the numbers that closely, Jeff. So, that maybe real, it may be optimistic. I'm just not close enough to our numbers at this point. Jeffrey Dietert - Simmons & Company: Okay. Thanks for your comments and Tom best of luck.

Thank you.

Your next question comes from Mark Flannery with Credit Suisse.

Great. Thanks. Could you maybe walk us through the five-day crude oil pricing effect? It's been a while since it was such a large potential contributor to the results and I just want to make sure that we are all understanding it properly.

I think that I talked a little bit about this last quarter, Mark, because in the second quarter it was just the opposite because crude prices were running up so much on the end of March till the end of… into early July. Essentially what happens is when we buy crude, it prices five days after we take tidal and without getting into all the machinations, in effect what that means is that for us our crude purchasing and our crude pricing in the third quarter was more or like from July 5 to October 5 and in the prior quarter it was April 5 to July 5. And when you compare that versus the calendar they benchmark, obviously that everybody is looking at and the calendar day is how we are selling our products. There's a little bit of a disconnect. So if you think of it in terms of it effects around 600,000 barrels a day is what we run in the Northeast. It's generally going to be 2 million to 3 million barrels that are priced out of period if you will versus a strict calendar day average and this quarter the difference between early July prices and early October prices is more or like $45 to $50 difference, just the opposite of where we were in the second quarter. Does that help you?

Yes, it does. Is there any particularly good reason why you do it that way or is it just an historic relic?

The good reason to do it I think, Mark, is that we want to remain consistent. It's the way we have bought it historically and the moment you change that is the moment you make a speculative bet. So, in this way we are in effect pricing crude and buying crude as close to calendar day, every day as we can and it just so happens that it's a little bit of a mismatch in any given quarter or any given year by those five days. But as soon as we would consider pulling off of that, like I said we would be off of that ratable model and it would be a speculative bet and that's not where we are headed at this point.

Great. Thanks a lot.

All right, Mark.

Your next question comes from Neil McMahon with Sanford Bernstein.

Hi. I've got a few questions, and good luck, Tom.

Thank you. First of all looking at your margins you've made from the different parts of the barrels [ph] during the quarter, where did you see some of the biggest growth in margins and the lubes or petrochem, asphalt maybe you could just walk through in case there were some really big jumps that added to the overall Northeast margin.

Yeah, Neil, it's Tom Harr. Not so much in the Northeast, a lot of the benefit in the mid-continent from the bottom of the barrel or the non-crude price related did come from some of the lubes in petrochemicals lubricant margins and we produce about 1 million barrels a quarter or so of lubricants out of our Tulsa refinery were significantly higher in the third quarter than they were in the first and the second that's to be expected with a falling crude price environment and, not quite the same magnitude, but you also saw that with some of the refinery petrochemicals and the other more resin [ph] like products that we sell out of that region as well.

Tom what sort of order of magnitude are we talking about between the second quarter and third quarter?

Lubricant margins were probably two to three times what they were earlier in the year.

Okay, great. Was there… or what impact was there on the inventory drawdown on the refining earnings in the quarter?

Not much really Neil. We drew down some barrels during the quarter but nothing in a material way that affected our results here. As I said really when I think of this quarter it's the positive impact of rapidly falling crude prices on everybody's margins, but then the two things unique to us were really the shifting to slightly cheaper light-sweet crude in our Northeast system and the timing effect that I talked through for mark.

Okay, and just a final one which may be way too early to say. Just wondering about the outlook for the steel industry and what potential impact that might have on the Coke business if at all.

Probably too early to tell Neil. Again for us our contracts are take or pay, so that provides us some security. Obviously depends on how long and how deep the downturn is in the steel industry, we will try to work constructively with our customers, but as I said our contracts are really take or pay. I think on the two projects that are in progress, they still are in good plants, they have good economics and they are still cheaper than other alternatives for Coke, so we think we should be okay.

Great. Thanks a lot.

Your next question comes from Erik Mielke with Merrill Lynch.

Good afternoon. I have two questions. Firstly on the crude sourcing and just to make sure that I understand this correctly. The $2 savings that you highlighted, that was for the roughly 200,000 barrels per day that it's applied to?

Yes. From a pure quality standpoint versus our dated benchmark.

And are you seeing a similar level of saving in the fourth quarter?

Yes.

And to what extent, do you think this is repeatable going forward?

I don't know Erik. That would be effective. There is always some differential in these products but I think the weaker the demand gets and the weaker the flat price gets, the more that… perhaps that differential comes in. And again we'll re-jigger our economics and always look at what's most optimal but unless we're in a max crude kind of environment or unless these differentials come in significantly, we're probably going to be [inaudible] to run these kind of crudes for the foreseeable future.

Thank you. Secondly on the variability of yield during the quarter and thanks for giving that monthly slide, that's very helpful in trying to understand the capture. Can you help us understand the amount of flexibility that you have and what are the relative economics that dictate whether you switch from one mode to the other? Obviously it's a function of relative products cranks, but could you mention one distillate yield constantly at 38.5% if you so chose to?

We've been able to achieve that for certain quarters. Again, I think with optimal operations and the right crude mix yes. One of the things we did this quarter was we started up an idle reformer in September to maximize our gasoline production during that period. That was very beneficial to us, so if we have the right foresight and the right crudes and the equipments running well, specifically to your question on distillate, we can probably do percentages like we did in the second quarter, which was our best ever, but there are limitations.

Okay, thanks and good luck with your retirement, Tom.

Thank you.

Your next question comes from with Paul Sankey with Deutsche Bank.

It's Paul Sunoco for a second.

Yes, all right.

Tom congratulations and it was a pleasure working with you. Thank you.

Thank you.

First question on the crude… the dramatic crude shift that you guys had. I was wondering… I mean at your last analyst meeting you outlined the fact that there was a growing supply of sweet crude from the places that you've highlighted that are the alternative sources, but I was wondering quite how you managed to achieve such a step down in the quarter. I guess why you didn't do that sooner.

Well, the economics largely driven… drove when we did it and recognizing of course that we're buying these crudes, six weeks ahead of time with perfect hindsight maybe we would have done it a quarter or so earlier, but it is a function as you alluded to Paul of availability and the differential and our projection of what product is going to be at the highest margin and the highest yield for us. So I think what this is meant to do is demonstrate what we can do now, given what's available on the crude side and what we can do with our hardware, but environment we're in, it has been very helpful.

So, theoretically you could have done it sooner, but [inaudible] hindsight is the best trader in the market. It wasn't a sudden flip of the switch that we saw?

I think theoretically, Paul… for most of prior to this year… anyway for most of '05 '06 and '07 we were doing the right thing by running maximum levels of crude and running these kind of… and running even the premium priced Nigerian. That was the best slate for us, so when we back off, some of that stuff we are now, it does give us some more bottom of the barrel some more resid [ph] and that depends on the margin environment for everything, but I do think for most of 5, 6 and 7 I wouldn't say that we should have been running lots of this but we might have looked earlier in 2008 if we had… like you said that kind of perfect hindsight we might have done some.

Yes, okay, and then there's every reason to believe, given the trends that you've outlined at the last analyst meeting that you can keep running like this. So it's arguably a sustainable rather than Erik was saying, it's a sustainable change in the price of your crude essentially that you've got here unless you go back to very high utilization rates? Is that okay?

It's an option. It's now a demonstrated option.

Right, great. On ethanol penetration, I was wondering given what you said about your same-store sales, if I wanted to back out the ethanol rate of change within that 5% decline, how much of that would you say is in there? How much ethanol held for sales would there be last year versus this year's volumes?

Year-on-year, Paul, I think we probably were….Tom will have to get back on this, but maybe 75% of our retail gasoline last year had ethanol in it and maybe 90% this year. That's the relative percentages I would say. So we've increased ethanol in our retail gasoline by maybe about that percent.

Yeah, then there's no trick for me to calculate the volume, I just take your sales obviously and then look at the rate of change here?

Right.

That's great. And then finally for me the steel industry has had a bit of a turn for the worst. What are the implications for your Coke business, if indeed there are any? Thanks.

Okay, I think Erik had just asked that same question and again what I would say is the implications are as a reminder we do have take or pay contracts and they provide us with some security. Our technology and our offering should be advantaged and not be the first choice for cuts and but we will have to work constructively with our customers where we can if there are slowdowns that are necessary, but for us it's the take or pay contracts that are most important.

Yes, I apologize. I must have missed that. So that basically means there's no impact for 2009, but that might be for the longer term?

We'll see. It might slowdown the pace. It depends on how long and how deep you think this slowdown will be, but I think the overall appeal of what we're offering is still very strong.

Yes, thank you very much and thanks again, Tom.

Okay. Thank you, Paul.

Your next question comes from Mark Gilman with Benchmark Company.

Guys, good afternoon and Tom Hofmann, congratulations to you. We'll miss you.

Thank you, Mark.

Back to this Nigerian crude thing, again if we could, since our discussion on the last conference call on the subject I guess I've tracked cracking yields on [inaudible] versus the alternatives you mentioned a little bit more closely and I noticed, Terry, that you were very careful to say that there was a crude cost reduction, but it has appeared to me over the period as if from a cracking yield standpoint, factoring in the crude cost, there was really not much of any difference and as a practical matter it's my understanding the [inaudible] is very attractive crude because of its high distillate yield. Could you comment on that for a minute?

I don't know what I could add to that, Mark. You've probably done more LP kind of work than I have this quarter. What I can comment on is I do know that directly as a result of buying these kinds of crudes we save $2 a barrel on relative quality differentials versus dated brand.

Yes, but what I'm saying is that the net back might have been off by $2 a barrel also in which case it was a non-event.

Right. Well our folks would say that's not the case but I don't know… I'm not sure that your LP would be exactly aligned with what our Northeast refining configuration is, but you've done more work than I have on that Mark.

Okay let me try another one if I could. Guys, it was my understanding that there was linkage between the distillate hydrotreater at Tulsa and the environmentally mandated spending program at that refinery and by canceling the hydrotreater at least to some degree you were probably impairing what was otherwise the mitigated economics associated with the mandatory spend. Am I wide at the mark with that?

Yes. The distillate hydrotreater was in line with mandatory spending. We continue to operate the refinery under a hardship waiver and we continue to keep the EPA in our discussion as to what the future options are for the refinery.

Well, I think, you've indicated that your intent is to go ahead with the mandatory spend.

No, I did no, did I? I don't recall indicating that. we are not doing the distillate hydrotreater project. We are continuing to just pursue the sale of the facility and in the meantime we are continuing to operate Tulsa under the hardship waiver.

Doesn't that ability expire after a period of time?

We continue to have discussions with the EPA on that and we continue to operate it under that waiver.

Okay. Let me try one on the ethanol gasoline situation that I know Tom Harr is expecting from me. Given what my understanding is of how you've managed this issue in a period where ethanol and gasoline prices do what they did in the third quarter with particular reference to the outright collapse in gasoline it seems to me there would have to be a huge derivative gain on your short position in gasoline. Is that accurate and if so can you give me a rough idea what it was?

One, no that is not accurate because we do not take flat price risks on ethanol when we buy it. We hedge it and what we lock in, Mark, is a differential to gasoline. And the hedging is matched with the physical as we draw that down because we are buying the ethanol on let's say six month contracts. So, we are not benefiting or getting hurt by changes in ethanol flat price, even relative to gasoline because we have locked in a certain differential.

Yes, but when that differential changes as it did so dramatically, just as there were detriments when it was going the other way in prior periods. There's a benefit when it goes your way as it did in the third quarter. Isn't that not correct?

At the end of the day, Mark, I think where we go to market is whatever we buy ethanol at and again it's going to be at a certain differential versus gasoline, that's what most other retailers are doing the same thing. The spot market is actually very thin. So, at the end of the day we go to the retail market and maybe we bought ethanol better, maybe we bought ethanol worse, but the majority of that market is done on term contracts, not on spot contracts. I think it's a little bit of… looking at the spot is a little bit overstating what's really happening in that market.

Okay, we will take that one offline. Well just one more for me. I noticed in addition to the changes, Terry, you describe in terms of product yield between distillate and gasoline that there was also an uptick in the RFG portion of your gasoline production and a similar uptick in the ULSD or on road diesel portion of the distillate. How did you achieve it and can you sustain that?

I'd have to ask Vince a little bit on that one, Mark, as to the particular details on that. I don't have… how much… I don't know that it was… it were like a percent more in RFG from the second into the third quarter?

Yes a couple of percent in each case.

Yes. I'll have to ask Jim about that. As I said… I know we brought on a reformer… and I don't know what else they did there, Mark, but I would think it's redo-able. I don't know about whether it's sustainable if we get the same market, but we have demonstrated we can do it.

Okay, guys, thanks very much and Tom Hofmann, again my best.

Great. Thank you, Mark. Appreciate it.

Your next question comes from Paul Cheng with Barclays Capital.

Hi guys.

Hi, Paul.

Well, first, Tom, we appreciate over the years, the help. Best of luck.

Thank you, Paul. I've enjoyed working with all of you guys.

Yes, we'll miss you. Terry, a number of quick questions. Can you tell me what is the inventory over the book value, the market value of your inventory over the book?

Geez, I knew you were going to ask that one, Paul. I have that. It's 4.1 billion.

Next time, you can have that. So maybe you can put that into the press release then.

I thought… I know you've been on four or five calls already, but it's very deep in our 10-Q. I thought you would have had it by now.

No, I don't have the 10-Q yet.

All right

Okay and let me see.. for 2009, you indicated it's going to be substantially less than the $1.5 billion. What is the minimum or what is already committed you have to spend in 2009?

Paul, why don't we table that one till we do the… a more fulsome discussion of capital in the December meeting?

All right. And even rough idea that do you need the minimum, say 800 million or a $1 billion, some rough number?

Really I'd rather not do that now. Like I said, we are not that far away from that. As I indicated, I think in my remarks it's material. It's not insignificant, but let us talk about the whole program when it is really finalized because it's just not finalized at this point.

Let me ask you in another way. I think in the past that we were talking about the sustainable capital for the corporation is somewhere in the $600 million or so… wondering is that still a good number?

You are persistent, but I'll have to say let's, let that go until December 15th?

Okay fair enough. On Tulsa. Do you, guys, know of any refinery already have… get a waiver from the EPA, so that they don't have to comply or they can remain under the hardship beyond 2010?

Not that I'm aware of, Paul. I bet… we wouldn't necessarily be privy to all of those discussions either, but…

Okay and that [inaudible] and I know that it's early day. You're in negotiations, I am not saying that I want to know what they are going to give you a waiver or not, but let's assume that you cannot get a waiver. If that means that the whole facility cannot run or that you only need to shut down a portion of the facility and the portion can still be run?

Well, I'd rather not speculate on where we go from there. As I said I'd like to leave it for here as we continue to operate under the hardship waiver. We continue to keep the EPA in our discussions and we continue to pursue the sale option for the facility and that's really all I want to say.

Okay then let me make the two final ones simple. Quarter to date, when you are looking at the crude defense oil [ph] versus the third quarter and also the part of defense oil versus the third quarter. Are we seeing material differences?

No, not particularly. The one… again the one flywheel I will tell people to at least keep in mind here is that timing lag. And keep in mind that there will probably be two to three million barrels that rise in the first five days of January as opposed to the first five days of October. But absent that the kind of quality differentials we are seeing, the kind of transportation we are seeing is… costs we are seeing are relatively similar, maybe a little bit favorable actually compared to the third quarter.

Okay so that's on the crude side. How about on the product side?

No, at this point, Paul, I wouldn't say very much different. There's so many moving parts on the product side, but the overall market I wouldn't tell you to think of it any differently than the third quarter.

I mean in general the falling crude prices, probably help some of the bottom of the barrel, but it will continue to be most driven by obviously gasoline and distillate margins quarter-on-quarter.

Sure, and final one on the refinery run for the fourth quarter, any kind of comment you can make versus the third quarter level?

Nothing more than conditions feel pretty much like the third quarter from an overall operating standpoint.

And you shouldn't have any major turnaround in the fourth quarter; right?

Correct.

Okay, very good. Thank you.

Thanks, Paul.

Your next question comes from Chi Chow with Tristone Capital.

Thanks. Tom, it's been a pleasure working with you and best wishes to you.

Thanks, again Chi.

Got a question on the… back on the crude issue. Did you take advantage of any distressed cargos from the hurricane disruptions during the quarter or were the crude savings strictly based on your crude slate changes, you described?

They were on the crude slate change Chi.

Okay. Great and then second question on your CapEx for '08, you're showing a $200 million plus decline in refining CapEx, relative to the analyst meeting presentation. Could you go through some details on what was either cancelled or deferred on that end on refining?

I don't have all that detail right with me, Chi. I think it is a mixture of perhaps some early SEL [ph] income improvement projects, but it's also long-tailed maintenance programs that have been pushed out a bit. It's a combination of the different categories for the most part. Some of it is also though not spending on the distillate hydrotreater a little bit anyway although the majority of that was in our '09-'10 program to begin with.

Okay. Of the $680 million, or so you're projecting for '08, how much is environmental regulatory related?

I'm not sure off hand Chi.

Okay. Well, maybe I'll follow-up.

Sure.

[Operator Instructions]. Your next question comes from Mark Gilman with Benchmark Company.

Guys, if my math is correct, there was something like a $380 million working capital increase in the third quarter, which in the falling price environment strikes me, as being somewhat counterintuitive. Is that accurate, and if so can you explain what happened?

Yes, it probably is accurate and in a falling price environment, Mark we loose crude payables and as it turned out, we had a lower crude payable balance at the end of September than we did at the end of June, both from power standpoint, but also from a price standpoint. So that's the majority… the biggest moving parts usually in our working capital is what goes on with crude payable barrels and prices, so falling price environment drains us a bit.

And I guess it more than offset what would be reductions in accounts receivable and things on the other side of the balance sheet?

Yes, we're much more leveraged to the crude payable than receivable.

Okay, thanks

All right.

Your next question comes from Doug Leggate with Quadrum Capital.

Hi, I wanted to jump on also to wish Tom all the very best in your retirement, but Terry I also wanted to ask, did the comments you made about utilization rates in the third quarter, can you give us some idea, as to what we should expect, as you put it in this challenging environment and more importantly on the operating cost side given that natural gas prices have come down quite a bit?

On the utilization rates, Doug I'll repeat. I think at least for the fourth quarter outlook what I would suggest is that you look for the rates that are similar to what we just completed in the third quarter. That that's pretty much the operating mode that we have been in at least this far into the quarter and given the… where margins are now, I would expect that that's… we wouldn't be ramping up from here. On the cost side maybe, Tom can give you some more detail on that particular model. Certainly our fuel costs will go down and our bottom-of-the-barrel product margins go up as the commodities come down. But they're interesting for modeling purposes, but at the end of the day obviously as I said before it will be gasoline and distillate margins that drive, but Tom can give you perhaps… did you ask specifically on natural gas?

No, just really thinking about operating costs because obviously one of the things I guess that… on the way up on crude prices and gas prices for that model was the cash operating costs. So I'm just trying to get an idea as to what the magnitude of any improvement or reduction in that might be as we look forward do I see over the next couple of quarters?

Yes, I think… yes let us talk to Tom, but you're right. Directionally, those kind of expenses go down. But on the other hand, a lot of the other utilities and other costs that still remain relatively high, so, but you're right. That one component and it's… for us it's really only natural gas purchase fuel that makes its way into our expenses that you'll see trending down a bit quarter-to-quarter.

I guess a related question, Terry, if you don't mind we are hearing from a number of your competitors and some of your peers that they're starting to cut back the reformers and basically minimize gasoline production to really just to satisfy hydrogen requirements. Could you give any kind of color as to what kind of operating mode you're in, not so much on the crude unit, but within the conversion units as to how you might be reacting right now to this environment?

I think we are all reacting to the same environment to the extent that we can with the hardware we have. So we are… we would also be operating in that mode, I would think, Doug, as well.

Okay, great stuff. Thanks again.

Thanks.

At this time, there's no further questions.

Okay, I want to thank everyone for listening in and participating after a long day of a number of refining conference calls. I appreciate your interest and Tom and I will both be around to take any further questions. Thank you.

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