Sunoco-Carlyle Form JV

Oil refiner and marketer Sunoco Inc. ( ) and Washington-based The Carlyle Group L.P. ( CG - Snapshot Report ) have completed the formation of their joint venture (JV), Philadelphia Energy Solutions. The newly-formed unit will operate the Philadelphia Refinery.

Per the terms of the deal, Carlyle will put in an undisclosed amount of money in the refinery that has a processing capacity of 330,000 barrels of oil per day. Carlyle will control the majority stake of the partnership and will take care of the daily operations of the refinery. On the other hand, Sunoco will hold a non-operating minority interest of 33% by contributing its Philadelphia refinery assets to the partnership.

This partnership comes as a positive move for Sunoco, which was suffering heavy losses at the Philadelphia refinery.

The Philadelphia refinery plays an important role for the energy center in the Northeast and is expected to serve the adjoining regional markets via its new developed business infrastructure and renovated crude oil sourcing network.

We remain positive on the outlook for the new Sunoco – without refining – as it holds the promise of unlocking significant value from its non-refining businesses. We are also bullish on Sunoco’s retail marketing segment, which gives superior return and has attractive growth prospects.

Of late, Sunoco has undertaken a number of strategic initiatives to improve its profitability, including its decision to exit its refining business and the impending merger with Energy Transfer Partners L.P. ( ETP - Analyst Report ) .

We also believe that apart from providing a hefty premium to Sunoco’s shareholders, the merger will also broaden the scale and geographic reach of the company’s logistics and retail businesses.

Sunoco currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.