Yesterday, oil refiner and marketer Sunoco Inc. (SUN) announced certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner, as it struggles to cope with the bearish refining margin environment.

Sunoco said that it would indefinitely idle a New Jersey refinery, furlough 400 workers and cut its dividend in half. The company hopes that these measures will save $320 million annually, though this would also lead to $475–$550 million in largely non-cash financial charges over the next few quarters.

Sunoco has decided to shut down its 145,000 barrels-per-day Eagle Point refinery in Westville, NJ, until market conditions improve. In the meantime, the company will shift production from Eagle Point to its refineries in Philadelphia and Marcus Hook, PA, and may use the idled refinery to produce alternative fuels. The Philadelphia and Marcus Hook facilities will up their utilization rates to make up for the Eagle Point closure.

Sunoco, the second-largest U.S. independent oil refiner by volume after Valero Energy Corp. (VLO), will furlough all 400 workers at the facility but they will have the option to resume work in case production resumes. The company will continue with refined product storage and handling operations at Eagle Point.

Sunoco also declared that its Board of Directors has authorized a plan for a 50% reduction in its quarterly dividend to 15 cents per share (60 cents per share annualized), effective from the first quarter of 2010. This would not only preserve the company’s capital but will also bring its yield in line with peers.

Additionally, Sunoco announced certain changes in its senior leadership team.

We believe these steps will help the company to improve its financial health, while providing more flexibility to pursue its business strategy.

Sunoco also has a strong presence in petrochemicals, with roughly 5 billion pounds in annual sales, largely chemical intermediates used in the manufacture of fibers, plastics, films and resins. Additionally, the company manufactures roughly 3 million tons of blast furnace coke annually for use in the steel industry.

We currently rate Sunoco shares as Neutral.
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