Welcome to Sunoco Inc.'s and Sunoco Logistics Q2 2012 Joint Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Brian MacDonald, President and CEO. You may begin.

Thank you, and good evening. Welcome to the quarterly conference call for Sunoco and Sunoco Logistics Partners, where we will discuss our second quarter results that were reported earlier today. With me are Mike Hennigan, CEO and President of Sunoco Logistics Partners; Mike Colavita, our Chief Financial Officer; Pete Gvazdauskas, Sunoco Logistics Partners VP of Finance; and Clare McGrory, Manager of Investor Relations for Sunoco. As part of today's call, I would direct you to our websites, www.sunocoinc.com and www.sunocologistics.com, where we have posted a number of presentation slides, which may provide a useful reference as we progress through our remarks. I would also refer you to the Safe Harbor statement referenced in Slide 2 of the slide package and as included in this afternoon's earnings release. Now I'll begin by providing an update on the strategic actions of the company, and then we'll move into the earnings and business update for both Sunoco Logistics Partners and Sunoco. As most of you are aware, on April 30, 2012, Sunoco announced that it had entered into a merger agreement to be acquired by Energy Transfer Partners LP. We continue to move forward with this merger process, as seen by ETP's filing of the first amendment of Form F-4 registration statement last week. We are on track and working towards closing this transaction in the early part of the fourth quarter. In July, we also announced an agreement to form Philadelphia Energy Solutions, a joint venture with The Carlyle Group at the Philadelphia refinery. Sunoco will be contributing this Philadelphia refinery assets in exchange for a nonoperating minority interest of approximately 33%. Sunoco will receive cash proceeds for the liquidation of working capital related to the refinery. These cash proceeds are in line with expectations when we announced the exit from refining.…

Thank you, Brian. Sunoco Logistics continues its momentum with another strong performance in the second quarter of 2012. We had record distributable cash flow of $166 million compared to $106 million in 2011. All of the areas that are part of our strategic focus are delivering results. The main driver of results continues to be our crude oil business. Demand for West Texas crude continues to be at a very high level, translating into tremendous demand for our transportation services, including our proprietary pipelines, our West Texas Gulf and Mid-Valley Pipeline joint ventures and our trucking services. The expansion of our West Texas system continues on track to meet the market needs and is expected to start up in the first quarter of 2013. We've completed 3 successful open seasons, which will deliver 110,000 barrels to the market. We also announced our fourth West Texas open season called Permian Express, a new project to transport West Texas crude oil to Gulf Coast markets. Phase 1 of the project will have a capacity of approximately 150,000 barrels per day. Permian Express could be expanded to at least 350,000 barrels per day. For Permian Express Phase 1, we are offering approximately 150,000 barrels a day of crude oil service from Wichita Falls, Texas to the Nederland and Beaumont, Texas markets. We will reverse our Wortham-to-Wichita Falls pipeline to create continuous pipeline service from Wichita Falls to Nederland, including utilizing excess capacity on the Southern leg of the West Texas Gulf pipeline system. Permian Express Phase 1 offers customers speed to market, as it will be operational within 6 to 9 months with an initial capacity of 90,000 barrels per day. Full capacity of 150,000 barrels per day is expected within 12 to 18 months. In addition, commitment terms of 3, 5 or…

Thanks, Mike. As Brian noted earlier, for the second quarter, Sunoco reported net income of $129 million attributable to Sunoco shareholders, excluding special items. Pre-tax income from special items totaled $207 million, including a $213 million LIFO inventory gain. Regarding 2Q pre-tax business units results attributable to Sunoco Inc. shareholders, I direct you to Slide 10. SXL reported earnings of $152 million during the quarter, and our retail marketing business reported pretax income of $73 million. Sunoco's share of SXL earnings, driven by our GP ownership and LP holdings, are reported to our Logistics segment, which earned $82 million during the quarter. As Mike Hennigan outlined, SXL continues to deliver strong results, execute on its growth strategy and also maintains financial flexibility and a strong balance sheet. Retail Marketing reported second quarter income of $73 million, as wholesale gasoline prices were declining through the quarter, providing a lift to gasoline margins, which averaged $0.125 per gallon for the quarter. However, across the industry, gasoline demand was weak in the second quarter, reflecting the continued challenges in the economy. Refining and Supply reported income of $87 million pretax in the second quarter of 2012. Realized margins expanded from the first quarter, averaging over $7 per barrel, as benchmark margins were supported by sharply declining crude oil prices. The refinery performed well, capitalizing on the market opportunities. As shown on Slide 11, at June 30, we had approximately $1.9 billion of cash on Sunoco's balance sheet. In the second quarter, we saw a net reduction in cash of $76 million at the Sunoco parent level. Cash used during the quarter, which driven by refining exit costs, including a contract penalty payment of approximately $130 million related to the Marcus Hook refinery closure, as well as $50 million in share repurchases made in April. I'll now turn the call back to Brian for final comments.

Thanks, Mike. In closing, we are pleased with the strategic actions that are underway at Sunoco and the value that has been returned to shareholders through a number of actions over recent years. We now have 2 strong high-return businesses in logistics and retail. We continue to focus on ensuring these businesses are positioned to deliver strong results and to execute on their respective growth opportunities. In regards to the Philadelphia Energy Solutions joint venture, as we have said before, we believe this is the best possible outcome for the Philadelphia refinery and all of the stakeholders. We are working towards the closing of this transaction in September. For the company, we are very excited to join forces with ETP. As we move towards closing and thereafter, we will be working hard to ensure a smooth integration and to capture synergies through this combination. With that, I'll ask the moderator to open the line for questions -- for any questions you have.

[Operator Instructions] And our first question comes from Brian Zarahn with Barclays Capital.

On the distribution, obviously, like you said, there's a big step change. Can you give a little more color on your thought process around the distribution? And any thoughts on talking about updating your sustainable growth rate on the distribution?

Yes. Brian, I would tell you that several factors came into our thinking. The main ones of which were, we were just recently successful with 3 open seasons in West Texas. As you know, we've also been successful on Mariner West, and we're looking to implement it. And our organic program, we've updated the guidance there, up to $350 million to $400 million. And at the end of the quarter, we have a balance sheet that's got a 2.3x debt to EBITDA. So we're very confident in what we've achieved so far, the major points I've mentioned. And we thought it was a good opportunity to return cash to the unitholders.

In terms of the -- your assumptions on sort of future sustainable EBITDA. Any assumptions embedded on sort of crude oil price differentials within that? You think that will continue to remain wide? Or is that not -- it doesn't impact your assumptions regarding DCF?

I don't think that comes into our play -- our thinking at all, Brian. I mean, at the end of the day, we're very confident. Our growth prospects and our balance sheet is very strong. So we'll be in a position to increase our distribution at a very competitive level, and we've made a step in that direction today. So I think that's the thing that's driving us more, the projects that we have in the Q that we believe will be successful and the strength of our balance sheet.

Appreciate the update to 2012 expansion CapEx, given there's backlog of projects. Any preliminary thoughts on 2013 expansion CapEx?

No, we usually talk about that a little later in the year. We've had the same theme that we've been working on, Brian. We have obviously a large focus in West Texas. Our Mariner projects are active. We continue to expand our butane business. Our Nederland terminal continues to expand. We've mentioned previously that we put some effort in at Eagle Point in the Philadelphia harbor. So all of those factors come together, as we've been trying to deploy the strategy that we've been talking about over the last couple of quarters.

Okay, last one for me. We're seeing a pickup in propane export activity at the Gulf Coast. Could you talk about anything -- opportunities for you on the East Coast?

Yes, we're still very encouraged that we're going to get Mariner East to the finish line. We don't have anything to report at this point. But as we mentioned to you previously, we have morphed the project from an ethane only to an ethane and propane solution. We're kind of working through some more details along those lines. There's definitely interest in the market for both ethane and propane, and that's kind of morphed the project a little bit for us. And again, we're hoping to give you some more color on that very shortly. But we are confident in the project. We think the market needs it. And we're just -- we're looking forward to coming out a little more firm.

Your next question comes from Brad Olsen with Tudor, Pickering. Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Just a couple of questions on, I guess, starting out with your terminals business. It looks like you kind of experienced a step change in EBITDA in that business. Is that associated with getting the Eagle Point asset more thoroughly contracted? Or are there other kind of -- are there other moving pieces there?

Yes. Brad, that was one piece of the puzzle. In that segment, we report out our butane business, which has had a very healthy run here in 2012. Eagle Point, as you mentioned, East Boston, we also made that acquisition. Nederland continues to expand. And then the one anomaly is that we reversed a $10 million write-down that we had taken previously related to some tank cleaning if the Philadelphia refinery did not run. And as Brian mentioned, we're now looking forward to Philadelphia being serviced by Sunoco Logistics. And so we reversed that $10 million issue. So that was a onetime event. But the others, we believe are just showing the strength of our terminal segment. Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay, great. And on the acquisition and marketing business. Have you seen kind of improving performance from Texon? That's another business that no matter how high it goes, it seems like each quarter, you set a new record in that business. And so I guess I'm trying to understand, is the demand for the West Texas crude coming more from the Midwestern end of Mid-Valley? Or is it coming from the Gulf Coast refiners? Or is there more of the Texon marketing volumes driving that business?

I think it's a little bit all of the above. First off, we are very happy with the Texon acquisition. We're very happy to have those employees on our team, and it's going very, very well. That gave us some more geographic diversity compared to what we had previously. But even our existing system, I think we're just in a good position, as each of these shale plays continues to grow. Our exposure in West Texas has been helpful. Eagle Ford, Bakken, each of these areas, I think, has been good for us. And as you've seen in the results, we've been increasing our margin and our volume in that segment of our business. Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Great. And just one last one, if I may. The Inland Allegheny Access project that you announced, obviously, you guys, having kind of -- with your refining heritage, are very familiar with what kind of game-changing development it would be if a crude pipeline were built from the Midwest out to the East Coast to service PUD 1 refineries. As you kind of evaluate the prospects for Allegheny, is it -- have you given any consideration to using some of your legacy pipeline assets that extend from the Midwest all the way out to the East Coast and converting any of those to move crude?

Yes, we've looked at it, Brad, a little bit. But at least our first priority has been on NGLs. And that's why you saw Mariner West and East develop as projects on our existing assets. On our Inland acquisition, when we made that acquisition, we were hopeful, but we weren't sure. That they had a section of pipe in Ohio that it was out of service, that we were hopeful that we could bring that back to service and put it in another source. And at least in the short term, we still think the best opportunity is in refined products for that, and that's what developed Allegheny Access. We're very bullish that Midwest margins will continue to be good. Crude pricing, it will be such that those Midwest refiners will continue to run hard. And we thought it was a good opportunity to expand our system into Pennsylvania from the Ohio spot. Now with that said, we still continue to look at crude growth in those areas. We're very aware. As you know, we still have some existing assets and a lot of right-away capability in the areas. So we're continuing to look at it. But our first focus was on NGLs, and then Allegheny Access became our second focus. So at this point, we don't have anything to report on crude, although we continue to look at that possibility.

Your next question comes from Elvira Scotto with RBC Capital Markets.

Just on the -- going back to the terminal segment. So if we back up the $10 million that you mentioned as the reversal of the tank cleaning and we kind of get to that 50 kind of million dollar run rate. I mean, how much of the terminals operating income is ratable versus maybe some of the shifting market dynamics or market opportunities?

Elvira, yes, what I would say is there's a couple of things at the terminal segment. Like you said, once you remove the onetime thing, probably the most important thing to keep in your mind as you're thinking about it is the seasonality of the butane business. We've talked in the past about that being more of a fall and winter and spring type of business. So in the summer, you're not going to see the ratability from that segment. But all the other segments, I would tell you, I would think are pretty ratable. Our Nederland Terminal is very consistent with its flows, although the market has been changing down in that area. Same type of thing we've seen on all of our old product terminals, pretty ratable business overall. When you step back -- now there might be a little variability quarter-to-quarter with the normal seasonality that you see with gasoline and diesel. But as a general rule, I'd say, very ratable overall, when you step back and then you kind of have to put the seasonality of butane on top of that.

Okay. And then I guess just to follow up on the Mariner East project. What needs to get done to get this to the finish line? I mean, it seems like a project that makes a lot of sense. What's -- kind of what's been the holdup, I guess?

Yes. Elvira, I've mentioned previously, I mean, we're really still very excited about it. And we're very, very close, in our mind. But what makes it always difficult is there's multiple parties that are involved expressing interest. And in our mind, we just want to make sure that we're providing exactly what the market needs. Early on, as you know, we started off with an ethane project and it’s now morphed into an ethane and propane. And we're just trying to put some, what I would call, the final touches on how that project will show itself from an ethane versus propane standpoint. But we're hoping to be very, very close to getting the closure on being able to move forward with that.

And at this time, I'm showing no further question.

Thank you for joining us this evening. Pete and Clare will be inquire available for follow-up questions tonight and tomorrow. Thank you. Bye.

Thank you. That concludes today's conference. You may disconnect at this time.