John G. Drosdick

The Annual HES Report’s theme – “Managing Our Performance; Ensuring Our Future,” reflects Sunoco’s philosophy not only toward health, environment and safety matters, but also how we manage all aspects of our business. In fact, we view HES performance as a leading indicator of long–term financial success. Neither we nor our competitors can influence the economy or consumer demand, the two most important influences on our financial performance. The only things within our control are how well we plan for and respond to those outside influences - how well we perform our work day after day, year after year.

Sunoco achieved increased earnings per share for the fourth consecutive year. Our conversion from MTBE to ethanol and transition to the new ultra-low-sulfur diesel fuel specifications went smoothly, thanks to thorough planning and solid execution by the entire organization. Our Marketing business achieved higher year over year income. However, refining production was lower than 2005, due partly to crude unit shutdowns at our Philadelphia Refinery. Major capital projects during 2007 should significantly improve reliability and product yield and, at the same time, lower air pollutant emissions.

A state–of–the–art coke plant in Haverhill, OH came on–line in early 2005, producing high-quality coke for use in making steel. A coke plant in Brazil in which we are a joint-venture partner began producing coke and cogenerated power in the first half of 2007.

I am pleased to report that, for the third consecutive year, overall HES performance during 2006 was the best ever for Sunoco. We achieved historic and/or top quartile performance in most areas, especially employee and contractor safety. Chemicals had its best-ever performance in every area except air, and our Marketing organization made solid progress in reducing employee injuries and preventable vehicle accidents.

I’m convinced that our Operations Excellence Management System (OEMS) has contributed significantly to our performance. However, we had an increase in air permit violations from our historic low in 2005. And although we had fewer spills than in 2005 and recovered more spilled product, our performance can improve further still. In addition to capital projects, our business units constantly review and update their procedures and work practices to ensure safe reliable, environmentally sound operations throughout the organization.

We also are taking steps to understand the likely impacts of major regulatory initiatives, in particular the European REACH legislation and global climate change. It is still too early to forecast what the regulatory landscape will be, but Sunoco intends to remain a safe, reliable and environmentally sound provider of transportation fuels. I look forward to sharing our progress with you.

John G. Drosdick
Chairman, CEO and President

VP HES Regulatory Affairs Letter
In the spirit of continuous improvement, this year’s report includes a number of changes ...
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