Item 1A. Risk Factors
Below we have provided a summary of our key risk factors, followed by detail of these and other risks that should be reviewed when considering an investment in our securities. The risk factors set forth below are not all the risks we face and other factors that we face in the ordinary course of our business, that are currently considered immaterial or that are currently unknown to us may impact our future operations.
Risk Factor Summary
Risks Related to Our Relationship with Sunoco
Our liabilities and distributions to our unitholders are dependent on Sunoco’s results of operations and financial condition given our relationship with Sunoco and its implications on our common unitholders.
Risks Related to Sunoco’s Business
Results of Operations and Financial Condition. Sunoco’s results of operations and financial condition could be impacted by many risks that are beyond its control, including the following:
• cash distributions are not guaranteed and may fluctuate with its performance and other external factors;
• general economic, financial, and political conditions, including the impact of tariffs;
• the imposition or increase of tariffs on steel or other raw materials, or changes in trade agreements or trade relations;
• changes in the prices of motor fuel;
• demand for motor fuel, including consumer preference for alternative motor fuels or improvements in fuel efficiency;
• demand for and supply of crude oil, refined products, renewable fuels, and anhydrous ammonia;
• seasonal trends;
• dangers inherent in the storage and transportation of motor fuel, crude oil, renewable fuels and anhydrous ammonia;
• operational and business risks associated with its refinery, pipelines and fuel storage terminals;
• tariff and/or contractually determined rates and fees it charges and the revenue it realizes for its services;
• domestic and foreign governmental laws, regulations, sanctions, embargoes, and taxes;
• events or developments associated with Sunoco’s branded suppliers;
• extreme weather events that may be more severe or frequent than historically experienced and that may be attributable to changes in climate due to adverse effects of an industrialized economy;
• competition and fragmentation within the wholesale motor fuel distribution industry;
• competition within the convenience store industry, including the impact of new entrants;
• possible increased costs related to land use and facilities and equipment leases;
• possible future litigation;
• potential loss of key members of its senior management team;
• failure to attract and retain qualified employees;
• failure to insure against risks incident to its business;
• terrorist attacks and threatened or actual war;
• cybersecurity attacks, data breaches and other disruptions affecting it, or its service providers;
• disruption of its information systems;
• failure to protect sensitive customer, employee or vendor data, or to comply with applicable regulations relating to data security and privacy;
• failure to obtain trade credit terms to adequately fund its ongoing operations;
• its dependence on cash flow generated by its subsidiaries; and
• potential impairment of goodwill and intangible assets.
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Acquisitions and Future Growth. Sunoco’s business, results of operations, cash flows, financial condition and future growth could be impacted by the following:
• failure to make acquisitions on economically acceptable terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies and changes in financial institutions’ policies or practices concerning businesses linked to fossil fuels, or to successfully integrate acquired assets;
• any acceleration of the domestic and/or international transition to a low carbon economy as a result of policy changes or otherwise; and
• failure to manage risks associated with acquisitions.
Regulatory Matters. Sunoco’s business, results of operations, cash flows, financial condition and future growth could be impacted by the following:
• significant expenditures or liabilities resulting from federal, state and local laws and regulations pertaining to environmental protection, operational safety, pipeline safety or the Renewable Fuel Standard (“RFS”);
• changes in demand for motor fuel, crude oil, renewable fuels or other petroleum products resulting from federal and/or state regulations that may discourage the use or storage of petroleum products;
• significant expenditures or penalties associated with federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products it purchases and sells;
• changes in federal, state or local laws and regulations pertaining to the facilities and operations of third parties that supply fuel to or transport for its storage terminals;
• laws, regulations and policies governing the rates, terms and conditions of its services;
• failure to recover the full amount of increases in the costs of its pipeline or refinery operations;
• costs and liabilities resulting from performance of pipeline integrity programs and related repairs;
• new or more stringent pipeline safety controls or enforcement of legal requirements;
• impacts to its business as a result of the energy transition and legislative, regulatory and financial risks relating to climate change; and
• regulatory provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the rules adopted thereunder.
Indebtedness. Sunoco’s business, results of operations, cash flows and financial condition, as well as its ability to make distributions and the market value of Sunoco’s publicly-traded common units (the “Sunoco Common Units”), could be impacted by the following:
• its debt levels;
• increases in interest rates, including the impact to the relative value of its distributions to yield-oriented investors; and
• restrictions and financial covenants associated with its debt agreements.
Tax. As our only cash-generating assets are our limited partnership interests in Sunoco, our tax risks are primarily derivative of the tax risks associated with an investment in Sunoco. As a result, the value of our investment in Sunoco, as well as the anticipated after-tax economic benefit of an investment in our common units, depends largely on Sunoco being treated as a partnership for U.S. federal income tax purposes and Sunoco not being subject to a material amount of entity-level taxation. The cash available for distribution to us from Sunoco may be substantially reduced if Sunoco were to become subject to entity-level taxation as a result of the IRS treating Sunoco as a corporation or legislative, judicial or administrative changes, and may also be reduced by any audit adjustments if imposed directly on Sunoco.
Risks Related to Our Structure
SunocoCorp Manager. Our stakeholders could be impacted by risks related to SunocoCorp Manager including:
• SunocoCorp Manager’s and its affiliates’ conflicts of interest with us and contractually-limited duties;
• SunocoCorp Manager’s limited liability regarding our obligations;
• SunocoCorp Manager’s ability to approve the issuanc e of company securities and specify the terms of such securities; and
• cost reimbursements due to SunocoCorp Manager and its affiliates for services provided to us or on our behalf.
Ou r Company A greement. Our stakeholders could be impacted by risks related to the Company Agreement including:
• the policy that we distribute all of our available cash;
• the limited liability and duties of SunocoCorp Manager and restrictions on the remedies available for actions taken;
• our common unitholders’ limited voting rights and lack of rights to elect SunocoCorp Manager or its directors;
• limitations on our common unitholders’ ability to remove SunocoCorp Manager without its consent;
• potential transfer of SunocoCorp Manager’s managing member interest or the control of SunocoCorp Manager to a third party;
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• the potential requirement for unitholders to sell their common units at an undesirable time or price;
• our ability to issue additional units without unitholder approval;
• potential sales of substantial amounts of our common units in the public or private markets;
• restrictions on the voting rights of unitholders owning 20% or more of our outstanding common units;
• the dependence of our distributions primarily on Sunoco’s cash flow and not solely on its profitability, and the dependence on Sunoco to ensure we have sufficient cash necessary to pay equivalent distributions to our unitholders;
• our unitholders’ potential liability to repay distributions; and
• the lack of certain corporate governance requirements by the NYSE for a “controlled comp any” like us.
Tax Risks to Unitholders
Our unitholders could be impacted by tax risks, including the following:
• taxable gain or loss on the sale of our common units being more or less than expected;
• redemptions of our common units being subject to a 1% U.S. federal excise tax; and
• the IRS Forms 1099-DIV that our unitholders receive from their brokers over-reporting dividend income with respect to our common units for U.S. federal income tax purposes, which may result in a unitholder’s overpayment of tax.
Detail of Risk Factors Related to Our Relationship with Sunoco
Our sole material asset is limited partnership interests in, and control of, Sunoco and, accordingly, we are dependent upon distributions or other payments from Sunoco in order to pay taxes and other expenses, satisfy our liabilities and make distributions to our unitholders.
We have no material assets other than (i) our ownership of Class D units representing limited partnership interests in Sunoco (the “Sunoco Class D Units”) that are economically equivalent to Sunoco Common Units, and (ii) the right to elect, appoint and remove the directors of the Sunoco GP Board, pursuant to a Delegation Agreement, dated as of October 27, 2025 (the “Delegation Agreement”), entered into with Energy Transfer and Sunoco GP.
As a result, although we have entered into an Omnibus Agreement with Sunoco, dated as of October 31, 2025 (the “Omnibus Agreement”), pursuant to which Sunoco is obligated, in accordance with the terms and conditions thereof, to reimburse us for, or pay on our behalf, certain direct and indirect costs and expenses (other than income taxes) incurred by us, we do not have independent means of generating revenue beyond the distributions we receive from Sunoco on the Sunoco Class D Units. Consequently, our ability to make payments in respect of our contractual obligations, to cover our expenses, to pay any taxes (including U.S. federal and state income taxes on our allocable share of Sunoco’s taxable income or gain) and to satisfy any other liabilities, among other things, will be dependent on the amount and timing of any distributions received from Sunoco as well as certain of our reimbursement and indemnification rights under the Omnibus Agreement.
Sunoco and its subsidiaries may not generate sufficient cash flow to make distributions to us or to satisfy Sunoco’s obligation to reimburse certain of our expenses, or applicable state law and contractual restrictions, including negative covenants in any applicable debt instruments, may not permit such distributions and payments. Subsidiaries of Sunoco are currently subject to debt instruments or other agreements that may restrict distributions from Sunoco’s subsidiaries and consequently Sunoco’s ability to make distributions to us. To the extent that Sunoco is restricted from making distributions or from making any required expense reimbursement or indemnification payments to us under applicable law or regulation or under the terms of any financing or other contractual arrangements, or is otherwise unable to satisfy its obligations to us or to make distributions, it could materially adversely affect our liquidity and financial condition. If, as a result, we are unable to pay our taxes or satisfy our other liabilities, we may default on contractual obligations or have to borrow funds. In the event that we are required to borrow funds, it could affect our liquidity and subject us to certain restrictions imposed by lenders.
The amount of any dividends or distributions to be paid by us are not guaranteed.
For a period of two years following October 31, 2025 (the “Effective Date”), upon which the court-approved plan of arrangement under Section 193 of the Business Corporations Act (Alberta) for the Parkland Acquisition (the “Arrangement”) became effective, we will declare and pay on each of our common units a dividend or distribution in an amount equal to 100% of the distributions paid by Sunoco on each Sunoco Common Unit each time that Sunoco declares and pays a distribution on Sunoco Common Units. Pursuant to the Omnibus Agreement, Sunoco has agreed to ensure that, during such two-year period, we have sufficient cash available as is necessary for us to pay such distributions, as well as ensure that we at all applicable times have sufficient cash or financial capacity necessary to pay when due, all expenses, obligations and liabilities of ours (other than income taxes) arising in the ordinary course and incurred in or attributable to the period starting on the Effective Date and ending on the earlier of the end date of such two-year period and certain triggering events, including, among other things, Energy Transfer ceasing to own, directly or indirectly, all of the managing member interests of SunocoCorp Manager, us ceasing to have the ability, directly or indirectly, to designate a majority of the directors of the Sunoco GP Board or us or our subsidiaries (other than Sunoco and its subsidiaries) engaging in any business or
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operations other than the direct and indirect investment in and management of Sunoco and its subsidiaries. Following termination of this obligation, we may not have sufficient cash to pay dividends or distributions in the same amount as Sunoco pays on the Sunoco Common Units due to unreimbursed expenses, including income taxes we owe, because we have no material assets other than (i) our ownership of Sunoco Class D Units that are economically equivalent to Sunoco Common Units, and (ii) the right to elect, appoint and remove the directors of the Sunoco GP Board, pursuant to the Delegation Agreement.
We will be taxed as a corporation for U.S. federal and state income tax purposes and will potentially be subject to U.S. federal and state income tax on the distributions we receive from Sunoco on the Sunoco Class D Units, and the amount of any such tax liability (which is not subject to reimbursement by Sunoco), will, subject to any available tax attributes of ours that may reduce our tax liability, reduce the cash available to us to pay dividends or distributions on our common units. For these reasons, as well as others, (i) there can be no assurance that SunocoCorp Manager will not decide to suspend or discontinue the payment of dividends in the future, (ii) the amount of any dividends or distributions paid by us on our common units may vary over time and (iii) following the expiration of the two-year dividend equivalency period, the amount of any distribution paid on our common units may not be equal to the amount of distributions received by holders of Sunoco Common Units.
Our common units have different rights from the Sunoco Common Units.
Although we have no material assets other than our ownership of Sunoco Class D Units (which are economically equivalent to the Sunoco Common Units), the rights of our common unitholders are different than the rights of holders of Sunoco Common Units.
We are a Delaware limited liability company, and the rights of our common unitholders are governed by the Company Agreement and the Delaware Limited Liability Company Act (the “DLLCA”), whereas Sunoco is a Delaware limited partnership and the rights of holders of Sunoco Common Units are governed by Sunoco’s limited partnership agreement (the “Sunoco Partnership Agreement”), and the Delaware Revised Uniform Limited Partnership Act. We and Sunoco are separate and distinct publicly traded entities, and our common unitholders have no rights under Sunoco’s organizational documents and are not unitholders of Sunoco.
Accordingly, the rights of our common unitholders differ from the rights of holders of Sunoco Common Units in certain material respects, including that:
• the Sunoco Common Units represent interests in a limited partnership that is treated as a partnership and is not subject to entity-level tax for U.S. federal income tax purposes, while our common units represent interests in a limited liability company that is treated as a corporation and is taxed at our entity-level for U.S. federal income tax purposes;
• Sunoco is required under the Sunoco Partnership Agreement to distribute all of its available cash to its unitholders , including SunocoCorp, each fiscal quarter, while we will only have a policy of paying quarterly cash distributions of substantially all of our cash that is available for distribution and SunocoCorp Manager will generally have discretion to change such dividend policy and to determine the amount and timing of any distributions to our common unitholders (subject to the requirement, for two years following the Effective Date, we declare and pay cash distributions on our common units each time, and in the same amount, as the cash distribution paid to holders of Sunoco Common Units); and
• Sunoco GP may be removed as the general partner of Sunoco if approved by (i) holders of at least 66 2⁄3% of the outstanding Sunoco Common Units (excluding the Sunoco Class D Units) and (ii) 66 2⁄3% of the outstanding Sunoco Class D Units, while our common unitholders do not have the ability to remove SunocoCorp Manager as the manager.
Our Common Unitholders are not beneficiaries of and will have no right to enforce the terms of the Omnibus Agreement or Delegation Agreement.
Our common unitholders are not parties to and will have no rights under or ability to enforce the Omnibus Agreement or Delegation Agreement. As a result, we must rely on SunocoCorp Manager to enforce any rights of ours under such agreements, including the obligation of Sunoco to ensure, during the two-year dividend equivalency period, that we have sufficient cash available for distribution for us to pay distributions on each of our common units in an amount equal to 100% of the distributions paid by Sunoco on each Sunoco Common Unit for each fiscal quarter.
The amount of cash Sunoco has available for distribution to holders of its units depends primarily on its cash flow and not solely on profitability, which may prevent it from making cash distributions during periods when it records net income.
The amount of cash Sunoco has available for distribution depends primarily upon its cash flow, including cash flow from working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, Sunoco may pay cash distributions during periods when it records net losses for financial accounting purposes and may not pay cash distributions during periods when it records net income.
If we cease to control Sunoco, we may become an investment company under the Investment Company Act of 1940.
If we cease to indirectly manage and control Sunoco and are determined to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), we would either have to register as an investment company under the 1940 Act, obtain
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exemptive relief from the SEC or modify our organizational structure or our contractual rights to fall outside the definition of an investment company. Our control of Sunoco GP and Sunoco is pursuant to the Delegation Agreement, pursuant to which we have the power and authority to elect, appoint and remove the directors of the Sunoco GP Board pursuant to the Delegation Agreement. The rights delegated to us will terminate upon certain bankruptcy or insolvency events of us, or upon written notice at the election of Energy Transfer, if Energy Transfer has a good faith belief that any such events is substantially likely to occur in the near future or we have become unable to or generally failed to pay our debts as they become due or have become insolvent (or have admitted in writing or publicly declared our intention with respect to the foregoing). If, at any time, we were to be required to register as an “investment company” under the 1 940 Act, it could result in significant registration and compliance costs, could require changes to or impose limitations on our capital structure and our ability to transact with affiliates, could make it for us to continue our business as contemplated and could have a material effect on our business.
Detail of Risk Factors Related to Sunoco’s Business
Results of Operations and Financial Condition
Sunoco’s Cash distributions are not guaranteed and may fluctuate with Sunoco’s performance and other external factors.
Cash distributions to Sunoco’s unitholders, including SunocoCorp, is principally dependent upon cash generated from its operations. The amount of cash genera ted from Sunoco’s operations will fluctuate from quarter to quarter based on a number of factors, some of which are beyond its control, which include, among others:
• demand for motor fuel in the markets Sunoco serves, including the result of secular trends towards increased usage of electric vehicles and/or seasonal fluctuations in demand for motor fuel;
• competition from other companies that sell motor fuel products or have convenience stores in the market areas in which Sunoco or its commission agents or dealers operate;
• the amount of crude oil and refined petroleum products transported through Sunoco’s subsidiaries’ pipelines;
• the level of competition from other midstream, transportation and storage and retail marketing companies, refinery operators and other energy providers;
• regulatory action affecting the supply of or demand for motor fuel, crude oil, refined petroleum products, Sunoco’s operations, Sunoco’s existing contracts or Sunoco’s operating costs;
• prevailing economic conditions;
• the price of crude oil, feedstock at Sunoco’s refining operations and refined petroleum products;
• rising interest rates and slowing economic growth;
• the accelerated transition to a low carbon economy;
• geopolitical events such as the conflicts in Ukraine and Venezuela and political instability in the Middle East;
• supply, extreme weather and logistics disruptions; and
• volatility of margins for motor fuel.
In addition, the actual amount of cash Sunoco will have available for distribution will depend on other factors such as:
• the level and timing of capital expenditures it makes;
• the cost of acquisitions, if any;
• its debt service requirements, distributions on Sunoco’s Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units (the “Sunoco Series A Preferred Units”) and other liabilities;
• fluctuations in its general working capital needs;
• reimbursements made to Sunoco GP and its affiliates for all direct and indirect expenses it incurs on behalf of Sunoco pursuant to the Sunoco Partnership Agreement;
• its ability to borrow funds at favorable interest rates and access capital markets;
• restrictions contained in debt agreements to which it is a party;
• the level of costs related to litigation and regulatory compliance matters; and
• the amount of cash reserves established by Sunoco GP in its discretion for the proper conduct of Sunoco’s business.
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If Sunoco’s cash flow from operations is insufficient to satisfy its needs, it cannot be certain that it will be able to obtain bank financing or access the capital markets. Further, incurring additional debt may significantly increase Sunoco’s interest expense and financial leverage and issuing additional limited partner interests may result in Sunoco having significant unitholder dilution and would increase the aggregate amount of cash required to maintain the cash distribution rate which could materially decrease its ability to pay distributions. If additional capital resources are unavailable to Sunoco, its business, financial condition, results of operations and ability to make distributions could be materially adversely affected.
Changes in U.S. administrative policy, including the imposition of or increases in tariffs on steel and/or other raw materials, changes to existing trade agreements and any resulting changes in international trade relations, may have an adverse effect on Sunoco.
Sunoco owns and operates pipelines and terminals and, like others in its industry, it uses significant amounts of steel in its projects and relies on its ability to obtain that steel in an affordable way to maintain its operating margins. Any imposition of or increase in tariffs on steel and/or other raw materials could increase its growth project costs, which may impact the profitability of new projects, and its maintenance capital expenditures, potentially in excess of budgeted amounts.
On March 12, 2025, the U.S. government imposed a 25% tariff on steel imports, and on April 2, 2025, the U.S. government announced a 10% tariff on product imports from almost all countries and individualized higher tariffs on certain other countries. Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses. These actions have caused uncertainty and volatility in financial markets and may result in retaliatory measures on U.S. goods. The ultimate impact of these tariffs is unknown at this time. Additionally, ongoing changes in U.S. and foreign government trade policies, including potential modifications to existing trade agreements and further restrictions on free trade, could introduce additional uncertainty. Any escalation of trade tensions, additional tariffs, retaliatory measures by foreign governments or shifts in U.S. or international trade policies could adversely impact Sunoco’s supply chain and increase costs, particularly on its expansion projects. A trade war or other significant changes in trade regulations could have an adverse effect on its business and results of operations.
Sunoco’s business could be negatively impacted by the inflationary pressures which may decrease its operating margins and increase working capital investments required to operate its business.
The U.S. inflation rate remained relatively stable through 2024 and 2025, after an extended period of rising rates, which began in 2022. A sustained increase in inflation may continue to increase Sunoco’s costs for labor, services and materials, which, in turn, could cause its operating costs and capital expenditures to increase. Further, Sunoco’s customers face inflationary pressures and resulting impacts, such as the tight labor market and supply chain disruptions. The rate and scope of these various inflationary factors may increase Sunoco’s operating costs and capital expenditures materially, which may not be readily recoverable in the prices of its services and may have an adverse effect on its costs, operating margins, results of operations and financial condition. Additionally, the Federal Reserve and other central banks have implemented policies in an effort to curb inflationary pressure on the costs of goods and services across the U.S., including the significant increases in prevailing interest rates that occurred during 2022 and 2023 as a result of the 525 aggregate basis point increase in the federal funds rate, and the associated macroeconomic impact on slowdown in economic growth could negatively impact Sunoco’s business. While the Federal Reserve reduced benchmark interest rates by 100 basis points in late 2024 and 75 basis points in 2025, the prospect of additional interest rate cuts remains uncertain and the continuation of rates at the current level could have the effects of raising the cost of capital and economic growth, either of which—or the combination thereof—could the financial and operating results of Sunoco’s business.
General economic, financial, and political conditions, including the impact of tariffs, may materially adversely affect Sunoco’s results of operations and financial condition.
General economic, financial, and political conditions may have a material adverse effect on Sunoco’s results of operations and financial condition. For example, on March 12, 2025, the U.S. government imposed a 25% tariff on steel imports, which was increased to 50% on June 4, 2025, and on April 2, 2025, the U.S. government announced a 10% tariff on product imports from almost all foreign countries and individualized higher tariffs on certain other countries. Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses. These actions have caused uncertainty and volatility in financial markets and may result in retaliatory measures on U.S. goods. It is possible that Sunoco’s operations may be affected by the resulting volatility in pricing and demand. Similarly, declines in consumer confidence and/or consumer spending, changes in unemployment, significant inflationary or deflationary changes or disruptive regulatory or geopolitical events could contribute to increased volatility and diminished expectations for the economy and Sunoco’s markets, including the market for its goods and services, and lead to demand or cost pressures that could and impact its business. These conditions could affect each of Sunoco’s business segments.
Examples of such conditions could include:
• a general or prolonged decline in, or shocks to, regional or broader macro-economies;
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• regulatory changes that could impact the markets in which Sunoco operates, such as immigration, tariffs or trade reform laws or regulations prohibiting or limiting hydraulic fracturing, which could reduce demand for or supply of its goods and services or lead to pricing, currency, or other pressures; and
• deflationary economic pressures, which could hinder Sunoco’s ability to operate profitably in view of the challenges inherent in making corresponding deflationary adjustments to its cost structure.
In addition, volatility in the capital markets resulting from tariff announcements could also limit Sunoco’s ability to access capital on favorable terms, which could have an adverse impact on its ability to finance new projects and/or acquisitions.
The nature of these types of risks, which are often unpredictable, makes them difficult to plan for, or otherwise mitigate, and they are generally uninsurable—which compounds their potential impact on Sunoco’s business.
Sunoco’s financial condition and results of operations are influenced by changes in the prices of motor fuel, crude oil, refinery feedstock or refined petroleum products, which may adversely impact its margins, its customers’ financial condition and the availability of trade credit.
Sunoco’s operating results are influenced by prices for motor fuel, crude oil, refinery feedstock and refined petroleum products. General economic and political conditions, acts of war or terrorism and instability in oil producing regions, particularly in the Middle East, South America, Russia and Africa could significantly impact crude oil supplies, refinery feedstock and refined product petroleum costs. Significant increases or high volatility in petroleum costs could impact consumer demand for motor fuel and convenience merchandise. Such volatility makes it difficult to predict the impact that future petroleum costs fluctuations may have on Sunoco’s operating results and financial condition. Sunoco is subject to dealer tank wagon pricing structures at certain locations further contributing to margin volatility. A significant change in any of these factors could materially impact both wholesale and retail fuel margins, the volume of motor fuel Sunoco distributes or sells, and overall customer traffic, each of which in turn could have a material adverse effect on its business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Significant increases in wholesale motor fuel prices could impact Sunoco as some of its customers may have insufficient credit to purchase motor fuel from it at their historical volumes. Higher prices for motor fuel may also reduce Sunoco’s access to trade credit support or cause it to become more expensive.
A significant decrease in demand for motor fuel, crude oil, refinery feedstock or refined petroleum products, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency or a material shift toward electric or other alternative-power vehicles, in the areas Sunoco serves would reduce its ability to make distributions to its unitholders, including SunocoCorp.
Sales of refined motor fuels accounted for approximately 92% of Sunoco’s total revenues and 42% of Sunoco’s profit for the year ended December 31, 2025. A significant decrease in demand for motor fuel in the areas Sunoco serves could significantly reduce its revenues and its ability to make distributions to its unitholders, including SunocoCorp. Sunoco’s revenues are dependent on various trends, such as trends in commercial truck traffic, travel and tourism in its areas of operation, and these trends can change. Regulatory action, including government imposed fuel efficiency standards, may also affect demand for motor fuel. Because certain of Sunoco’s operating costs and expenses are fixed and do not vary with the volumes of motor fuel it distributes, its costs and expenses might not decrease ratably or at all should it experience such a reduction. As a result, Sunoco may experience declines in its profit margin if its fuel distribution volumes decrease.
Any technological advancements, regulatory changes or changes in consumer preferences causing a significant shift toward alternative motor fuels could reduce demand for the conventional petroleum based motor fuels Sunoco currently sells. Additionally, a shift toward electric, hydrogen, natural gas or other alternative-power vehicles could fundamentally change Sunoco’s customers’ shopping habits or lead to new forms of fueling destinations or new competitive pressures.
New technologies have been developed and from time to time governmental mandates have been implemented to improve fuel efficiency, which may ultimately result in decreased demand for petroleum-based fuel. For example, the EPA previously finalized new criteria pollutant and GHG emissions standards for light and medium-duty vehicles, including passenger cars, vans, pickups, sedans and sport utility vehicles for model years 2027 through 2032 and beyond. However, following the change in U.S. presidential administrations, the EPA in February 2026 finalized rules rescinding these standards and the GHG “Endangerment Finding,” which underpins the majority of EPA’s GHG regulations and GHG emissions standards for new motor vehicles and engines. Additionally, the Trump Administration has taken steps to reduce or eliminate incentives for zero-emission vehicles and OBBBA, passed by Congress in July 2025, eliminates electric vehicle credits previously available for new and used electric vehicles and commercial fleets. However, we cannot predict whether or not these regulatory repeals will ultimately be successful or if future administrations may seek to restore incentives and further promote or mandate the adoption of electric vehicles. Any of these or similar actions could result in fewer visits to Sunoco’s convenience stores or independently operated commission agents and dealer locations, a reduction in demand from its wholesale customers, decreases in both fuel and merchandise sales revenue, or reduced profit margins, any of which
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could have a material adverse effect on its business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Similarly, any sustained decrease in demand for crude oil, refined products, refinery feedstock, renewable fuels or anhydrous ammonia in the markets Sunoco’s pipelines and terminals serve that extends beyond the expiration of its existing throughput and deficiency agreements could result in a significant reduction in throughputs in its pipelines and storage in its terminals, which would reduce its cash flows and impair its ability to make distributions to its unitholders , including SunocoCorp . Factors that tend to decrease market demand include:
• a recession, high interest rates, inflation or other adverse economic conditions that result in lower spending by consumers on gasoline, diesel and travel;
• events that negatively impact global economic activity, travel and demand generally;
• higher fuel taxes or other governmental or regulatory actions that increase, directly or indirectly, the cost of gasoline;
• an increase in aggregate automotive engine fuel economy;
• new government and regulatory actions or court decisions requiring the phase out or reduced use of gasoline-fueled vehicles;
• the increased use of and public demand for use of alternative fuel sources or electric vehicles;
• an increase in the market price of crude oil that increases refined product prices, which may reduce demand for refined products and increase demand for alternative products; and
• adverse weather events resulting in decreased corn acres planted, which may reduce demand for anhydrous ammonia.
The industries in which Sunoco operates are subject to seasonal trends, which may cause its operating costs to fluctuate, affecting its cash flow.
Sunoco relies in part on consumer travel and spending patterns, and may experience more demand for gasoline in the late spring and summer months than during the fall and winter. Travel, recreation and construction are typically higher in these months in the geographic areas in which Sunoco or its commission agents and dealers operate, increasing the demand for motor fuel that it sells and distributes. Therefore, its revenues and cash flows are typically higher in the second and third quarters of its fiscal year. As a result, its results from operations may vary widely from period to period, affecting its cash flow.
The dangers inherent in the storage and transportation of motor fuel, crude oil, refinery feedstock, refined petroleum products and anhydrous ammonia could cause disruptions in Sunoco’s operations and could expose it to potentially significant losses, costs or liabilities.
Sunoco’s operations are subject to significant hazards and risks inherent in transporting and storing motor fuel, crude oil, refinery feedstock, refined petroleum products, and anhydrous ammonia. These hazards and risks include, but are not limited to, traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and other damage to Sunoco’s properties and the properties of others. Any such event not covered by Sunoco’s insurance could have a material adverse effect on its business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp . Additionally, Sunoco’s pipelines, terminals, storage assets and refinery operations are generally long-lived assets, and some have been in service for many years. The age and condition of Sunoco’s assets could result in increased maintenance or repair expenditures in the future. If any of Sunoco’s facilities, or those of its customers or suppliers, significant or are to down for a significant period of time, it may have a material effect on its results of operations and its financial condition as a whole.
Sunoco’s pipeline, fuel storage terminals and refinery are subject to operational and business risks which may adversely affect its financial condition, results of operations, cash flows and ability to make distributions to its unitholders, including SunocoCorp.
Sunoco’s pipeline and fuel storage terminals are subject to operational and business risks, the most significant of which include the following:
• its inability to renew a ground lease for certain of its pipelines or fuel storage terminals or at the Burnaby Refinery on similar terms or at all;
• its dependence on third parties to supply its fuel storage terminals and refinery feedstock;
• outages on its pipelines or at its fuel storage terminals or the Burnaby Refinery or interrupted operations due to weather-related or other natural causes;
• the threat that the nation’s terminal infrastructure and the Burnaby Refinery may be a future target of terrorist organizations;
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• the volatility in the prices of the products transported on its pipelines or stored at its fuel storage terminals or Sunoco’s refinery feedstock and the resulting fluctuations in demand for its storage services;
• the effects of a sustained recession or other adverse economic conditions;
• the possibility of federal and/or state regulations that may discourage its customers from transporting or storing gasoline, diesel fuel, ethanol and jet fuel at its fuel storage terminals or reduce the demand by consumers for petroleum products, and possibility of federal, state or provincial regulation in Canada, particularly with respect to the Burnaby Refinery;
• competition from other pipelines and fuel storage terminals that are able to provide its customers with comparable transportation service or storage capacity at lower prices or from other refineries servicing the Lower Mainland in Canada; and
• climate change legislation or regulations that restrict emissions of GHGs could result in increased operating and capital costs and reduced demand for its transportation and storage services.
The occurrence of any of the above situations, among others, may affect operations at Sunoco’s fuel storage terminals or the Burnaby Refinery and may adversely affect its business, financial condition, results of operations, cash flows and ability to make distributions to its unitholders , including SunocoCorp .
Negative events or developments associated with Sunoco’s branded suppliers could have an adverse impact on its revenues.
Sunoco believes that the success of its operations is dependent, in part, on the continuing favorable reputation, market value, and name recognition associated with the motor fuel brands sold at its convenience stores and at stores operated by its independent, branded dealers and commission agents. Erosion of the value of those brands could have an adverse impact on the volumes of motor fuel Sunoco distributes, which in turn could have a material adverse effect on its business, financial condition, results of operations and ability to make distributions to its unitholders , including SunocoCorp .
Severe weather, which may increase in frequency and intensity due to climate change, could adversely affect Sunoco’s business by damaging its suppliers’ or its customers’ facilities or communications networks.
A substantial portion of Sunoco’s wholesale distribution, refinery operations and retail networks are located in regions susceptible to severe storms, including hurricanes. A severe storm could damage Sunoco’s facilities or communications networks, or those of its suppliers or its customers, as well as interfere with its ability to distribute motor fuel to its customers or its customers’ ability to operate their locations. If warmer temperatures, or other climate changes, lead to changes in extreme weather events, including increased frequency, duration or severity, these weather-related risks could become more pronounced. Any weather-related catastrophe or disruption could have a material adverse effect on Sunoco’s business, financial condition and results of operations, potentially causing losses beyond the limits of the insurance it currently carries.
The wholesale motor fuel distribution industry is characterized by intense competition and fragmentation. Failure to effectively compete could result in lower margins.
The market for distribution of wholesale motor fuel is highly competitive and fragmented, which results in narrow margins. Sunoco has numerous competitors, some of which may have significantly greater resources and name recognition than it. Sunoco relies on its ability to provide value-added, reliable services and to control its operating costs in order to maintain its margins and competitive position. If Sunoco fails to maintain the quality of its services, certain of its customers could choose alternative distribution sources and its margins could decrease. While major integrated oil companies have generally continued a strategy of limited direct retail operation and the corresponding wholesale distribution to such sites, such major oil companies could shift from this strategy and decide to distribute their own products in direct competition with Sunoco, or large customers could attempt to buy directly from the major oil companies. The occurrence of any of these events could have a material adverse effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Sunoco competes with other midstream service providers, including certain major energy and chemical companies, that possess, or have greater financial resources to acquire, assets better suited to meet customer demand, which could undermine its ability to obtain and retain customers or reduce utilization of its assets, which could adversely affect its revenues and cash flows, thereby reducing its ability to make its quarterly distributions to unitholders.
Sunoco faces competition in all aspects of its business and can give no assurances that it will be able to compete effectively against its competitors. Sunoco’s competitors include major energy and chemical companies, some of which have greater financial resources, more pipelines or storage terminals, greater capacity pipelines or storage terminals and greater access to supply than it does. Certain of Sunoco’s competitors also have advantages in competing for acquisitions or other new business opportunities because of their financial resources and synergies in operations. As a consequence of increased competition in the industry or market conditions, some customers are and others may be in the future reluctant to renew or enter into long-term contracts or contracts that provide for minimum throughput amounts. Sunoco’s inability to renew or replace a significant portion of its current contracts as they expire, to enter into contracts for newly acquired, constructed or expanded assets and to respond appropriately to changing market conditions
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would have a negative effect on its revenue, cash flows and ability to make quarterly distributions to its unitholders , including SunocoCorp .
The convenience store industry is highly competitive and impacted by new entrants. Failure to effectively compete could result in lower sales and lower margins.
The geographic areas in which Sunoco operates and supplies independently operated commission agent and dealer locations are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type Sunoco and its independently operated commission agents and dealers sell in their stores. Sunoco’s convenience stores and the commission agents and dealer locations it supplies compete with other convenience store chains, independently owned convenience stores, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores, mass merchants and local restaurants. Over the past two decades, several non-traditional retailers, such as supermarkets, hypermarkets, club stores and mass merchants, have impacted the convenience store industry, particularly in the geographic areas in which Sunoco operates and supplies, by entering the motor fuel retail business. These non-traditional motor fuel retailers have captured a significant share of the motor fuels market, and Sunoco expects their market share will continue to grow.
In some of Sunoco’s markets, its competitors have been in existence longer and have greater financial, marketing, and other resources than it or its independently operated commission agents and dealers do. As a result, Sunoco’s competitors may be able to respond better to changes in the economy and new opportunities within the industry. To remain competitive, Sunoco must constantly analyze consumer preferences and competitors’ offerings and prices to ensure that it offers a selection of convenience products and services at competitive prices to meet consumer demand. Sunoco must also maintain and upgrade its customer service levels, facilities and locations to remain competitive and attract customer traffic to its stores. Sunoco may not be able to compete successfully against current and future competitors, and competitive pressures faced by it could have a material adverse effect on its business, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Sunoco does not own all of the land on which its retail service stations are located, and it leases certain facilities and equipment, and it is subject to the possibility of increased costs to retain necessary land use which could disrupt its operations.
S unoco does not own all of the land on which its retail service stations are located. Sunoco has rental agreements for approximately 61% of the Sunoco, commission agent or dealer operated retail service stations where it currently controls the real estate. Sunoco also has rental agreements for certain logistics facilities. As such, Sunoco is subject to the possibility of increased costs under rental agreements with landowners, primarily through rental increases and renewals of expired agreements. Sunoco is also subject to the risk that such agreements may not be renewed. Additionally, certain facilities and equipment (or parts thereof) used by Sunoco are leased from third parties for specific periods. Sunoco’s inability to renew leases or otherwise maintain the right to utilize such facilities and equipment on acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on its financial condition, results of operations and cash flows.
Like other pipeline and storage logistics services providers, certain of Sunoco’s pipelines, storage terminals and other facilities are located on land owned by third parties and governmental agencies that it has obtained the right to utilize for these purposes through contract (rather than through outright purchase). Many of Sunoco’s rights-of-way or other property rights are perpetual in duration, but others are for a specific period of time. In addition, some of Sunoco’s facilities are located on leased premises. A potential loss of property rights through Sunoco’s inability to renew right-of-way contracts or leases or otherwise retain property rights on acceptable terms or the increased costs to renew such rights could adversely affect its financial condition, results of operations and cash flows available for distribution to its unitholders , including SunocoCorp .
Sunoco’s investment in the Burnaby Refinery is subject to operational risks, including commodity price and pricing pressure and environment, health and safety hazards. If any of the operational risks materialize, Sunoco’s financial condition or results of operations could be materially and adversely affected.
Following the Parkland Acquisition, Sunoco owns and operates the Burnaby Refinery, which produces and supplies fuel within the Lower Mainland in Canada.
Key operational risks at the Burnaby Refinery include: supply disruptions of crude oil and bio-feedstocks, product offtake contract issues or interruptions, operational availability, labor and material shortages, compliance with regulatory requirements and local community opposition. Major accidents could cause significant damage and may result in operational interruptions, loss of licenses, fines, reputational damage, injuries or fatalities. Large amounts of power, heat by way of natural gas and large volumes of water are used to refine crude oil, the supply of which is not in Sunoco’s control, and even a temporary interruption of power, natural gas or water could adversely affect continuous operations. Unanticipated costs and during maintenance may impact Sunoco’s operational results. Scheduled and maintenance and repairs at the Burnaby Refinery may reduce revenue and increase Sunoco’s operating costs, impacting its financial and operational results.
Additionally, Sunoco contracts with third parties for the supply of crude oil and other feedstock to the Burnaby Refinery. Crude oil sourced by the Burnaby Refinery is delivered from Alberta by the TMPL. Interruptions or apportionment on the TMPL’s pipeline
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system can result in Sunoco temporarily ceasing or decreasing processing operations at the Burnaby Refinery and may materially affect its business, financial condition and results of operations. The Burnaby Refinery could see variability in its crude deliveries as the capacity on the pipeline fluctuates from time to time, which can impact committed as well as uncommitted linespace, based on operating conditions and planned and/or unplanned maintenance. In addition to the TMPL line capacity, extreme or unexpected weather events may affect the operation of the TMPL. Significant operational delays, changes in tariffs and unanticipated costs could adversely impact the refinery.
Refining gross margins are primarily driven by commodity prices and are a function of the difference between the costs of feedstock (primarily crude oil) and the market prices for the marketing of finished products (such as gasoline, diesel, jet fuel, lubricants, fuel oil and fuel and lubricant additives). Prices for commodities are determined by global and regional marketplaces and are influenced by many factors, including supply and demand balances, inventory levels, industry refinery operations, import and export balances, currency fluctuations, seasonal demand, political climate, disruptions at the refinery resulting from unplanned outages due to severe weather, fires or other operational events and plant capacity utilization. Sustained low refining margins may have an adverse effect on Sunoco’s revenue, profitability and ability to service debt and pay distributions.
The Burnaby Refinery faces hazards related to hydrocarbon supply and processing, including, but not limited to, fires, explosions, railcar or marine vessel incidents, oil spills, migration of harmful substances, corrosion, vandalism, terrorism and other accidents that may occur at or during transport to or from sites. The consequences of an accidental spill or release at or near any marine terminal used in connection with Sunoco’s operations could be significant, given the complexities of addressing releases occurring in marine environments or along populated coastlines. Such incidents could result in significant disruptions to offshore shipping activities and impede Sunoco’s ability to operate in any affected areas.
These hazards may interrupt operations, cause injuries or fatalities, cause loss of or damage to equipment, property, information technology or control systems and data, or result in environmental damage that may include pollution of water, land or air. The consequences could expose Sunoco to business interruptions, potential liabilities, modifications to or revocation of existing regulatory approvals, administrative, civil and criminal fines and other environmental damages, or reputational impacts.
Sunoco faces a variety of risks related to its entry into the refinery business following the completion of the Parkland Acquisition.
Entry into a new line of business in a new jurisdiction may also subject Sunoco to new laws and regulations with which it is not familiar and may lead to increased litigation and regulatory risk. In addition, there is some risk as it relates to Indigenous groups asserting Aboriginal or treaty rights in various regions of western Canada, particularly in BC. Such claims may affect many businesses operating in western Canada as the claims are litigated or settled with the federal and provincial governments. The federal and provincial governments have a duty to consult with Indigenous people on actions and decisions that may affect their Aboriginal or treaty rights and, in certain cases, accommodate their concerns. The government’s duty to consult may be triggered if Sunoco applies to obtain or renew significant permits, leases, licenses or other approvals for its operations in the traditional territories of Indigenous groups. Sunoco’s management team has not engaged in refinery operations business in recent years and continues to familiarize itself with the Canadian regulatory landscape, which imposes more stringent requirements than those in the other jurisdictions in which Sunoco operates. If Sunoco is unable to integrate the acquired business of Parkland, in particular, the Burnaby Refinery, its revenue and may not grow as it expects, its competitiveness may be materially and affected and its reputation and business may be .
Future litigation could adversely affect Sunoco’s financial condition and results of operations.
Sunoco is exposed to various litigation claims in the ordinary course of its wholesale business operations, including, but not limited to, dealer litigation and industry-wide or class-action claims arising from the products it carries, the equipment or processes Sunoco uses or employs or industry-specific business practices. If Sunoco were to become subject to an y such claims, its defense costs and any resulting awards or settlement amounts may not be fully covered by its insurance policies. Additionally, its retail operations are characterized by a high volume of customer traffic and by transactions involving a wide array of product selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, Sunoco is frequently party to individual personal injury, bad fuel, products liability and other legal actions in the ordinary course of its business. While Sunoco believes these actions are generally routine in nature, incidental to the operation of its business and immaterial in scope, if its assessment of any action or actions should prove , its financial condition and results of operations could be affected. Additionally, several fossil fuel companies have been the targets of , among other things, that such companies created public by producing and marketing fuels that contributed to climate change or that the companies have been aware of the effects of climate change but to those impacts. While Sunoco cannot predict the likelihood of of such suits, to the extent the prevail, it could face significant costs or decreased demand for its services, which could affect its financial condition and results of operations.
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Because Sunoco depends on its senior management’s experience and knowledge of the industry in which it operates, Sunoco could be adversely affected were Sunoco to lose key members of its senior management team.
Sunoco is dependent on the expertise and continued efforts of Sunoco GP’s senior management team. If, for any reason, Sunoco’s senior executives do not continue to be active, Sunoco’s business, financial condition, or results of operations could be adversely affected. Sunoco does not maintain key man life insurance for its senior executives or other key employees.
Sunoco competes with other businesses in its market with respect to attracting and retaining qualified employees.
Sunoco’s continued success depends on its ability to attract and retain qualified personnel in all areas of its business. Sunoco competes with other businesses in its market with respect to attracting and retaining qualified employees. A tight labor market, increased overtime and a higher full-time employee ratio may cause labor costs to increase. A shortage of qualified employees may require Sunoco to enhance wage and benefits packages in order to compete effectively in the hiring and retention of such employees or to hire more expensive temporary employees. No assurance can be given that Sunoco’s labor costs will not increase, or that such increases can be recovered through increased prices charged to customers. Sunoco is especially vulnerable to labor shortages in oil and gas drilling areas when energy prices drive higher exploration and production activity.
Sunoco is not fully insured against all risks incident to its business.
Sunoco is not fully insured against all risks incident to its business. Sunoco may be unable to obtain or maintain insurance with the coverage that it desires at reasonable rates. As a result of market conditions, the premiums and deductibles for certain of Sunoco’s insurance policies have increased and could continue to do so. Certain insurance coverage could become unavailable or available only for reduced amounts of coverage. If Sunoco were to incur a significant liability for which it were not fully insured, it could have a material adverse effect on its business, financial condition, results of operations and ability to make distributions to its unitholders , including SunocoCorp .
Terrorist attacks and threatened or actual war may adversely affect Sunoco’s business.
Sunoco’s business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of its control. Terrorist attacks or threats, whether within the United States or abroad, rumors or threats of war, actual conflicts involving the United States, its allies or other countries or regions where Sunoco operates, or military or trade disruptions impacting Sunoco’s suppliers or its customers may adversely impact its operations. Specifically, strategic targets such as energy related assets (which could include refineries that produce the motor fuel Sunoco purchases, ports in which crude oil is delivered or attacks to the electrical grid) may be at greater risk of future terrorist attacks than other targets in North America, the Greater Caribbean and Europe. These occurrences could have an adverse impact on energy prices, including prices for motor fuels, and an adverse impact on Sunoco’s operations by increasing its operating costs, reducing customer demand, supply chains, or limiting its ability to operate certain locations or serve certain markets. Any or a combination of these occurrences could have a material effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp, and could increase in Sunoco’s financial performance and results from period to period .
Cybersecurity attacks, data breaches and other disruptions affecting Sunoco, or its service providers, could materially and adversely affect its business, operations, reputation, and financial results.
The security and integrity of Sunoco’s information technology (“IT”) infrastructure and physical assets is critical to its business and its ability to perform day-to-day operations and deliver services. In addition, in the ordinary course of Sunoco’s business, it collects, processes, transmits and stores sensitive data, including intellectual property, its proprietary business information and that of its customers, suppliers and business partners, as well as personally identifiable information, in its data centers and on its networks. Sunoco also engages third parties, such as service providers and vendors, who provide a broad array of software, technologies, tools, and other products, services and functions (e.g., human resources, finance, data transmission, communications, risk, compliance, among others) that enable it to conduct, monitor and/or protect its business, operations, systems and data assets.
Sunoco’s IT and IT infrastructure, physical assets and data, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events (e.g., distributed denial of service attacks or ransomware attacks) that are beyond its control. These events can result from malfeasance by external parties, such as hackers, or due to human error by Sunoco or its service providers’ employees and contractors (e.g., due to social engineering or phishing attacks). In addition, Sunoco’s providers’ work-from-home arrangements may present additional operational and cybersecurity risks to its IT infrastructure and physical assets.
Sunoco and certain of its service providers have, from time to time, been subject to cybersecurity attacks and other security incidents. The frequency and magnitude of cybersecurity attacks is expected to increase and attackers are becoming more sophisticated. Sunoco may be unable to anticipate, detect or prevent future attacks, particularly as the methodologies used by attackers change frequently or are not recognized until launched, and it may be unable to investigate or remediate incidents because attackers are increasingly using techniques and tools designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
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Moreover, the increasingly broad global operating footprint of Sunoco may increase its exposure to cybersecurity risks, as a larger and more geographically dispersed workforce requires broader access to its information systems and intranet, which may increase the likelihood of unauthorized access, data breaches or other cyber incidents. Breaches of Sunoco’s IT infrastructure or physical assets, or other disruptions, could result in damage to its assets, safety incidents, damage to the environment, potential liability or the loss of contracts, and have a material adverse effect on its operations, financial position and results of operations. A successful cybersecurity attack or other security incident could compromise Sunoco’s networks and the information stored there could be accessed, publicly disclosed, or . Any such access, disclosure or could result in legal or proceedings, regulatory and enforcement, and , increased costs for system remediation and compliance requirements, of Sunoco’s operations, to its reputation, of confidence in its products and services, any or all of which could have a material effect on its business and results. Sunoco may be required to invest significant additional resources to comply with evolving cybersecurity regulations and to modify and its information security and controls, and to and remediate any security . Any , costs or liabilities may not be covered by, or may exceed the coverage limits of, any or all of Sunoco’s applicable insurance policies. See “Item 1C. Cybersecurity” for additional information on Sunoco’s cybersecurity risk management, strategy and governance.
Sunoco relies on its information systems to manage numerous aspects of its business, and a disruption of these systems could adversely affect its business.
Sunoco depends on its information systems to manage numerous aspects of its business transactions and provide analytical information to management. Sunoco’s information systems are an essential component of its business and growth strategies, and a serious disruption to its information systems could significantly limit its ability to manage and operate its business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses, which could result in a loss of sensitive business information, systems interruption or the of Sunoco’s business operations. To protect access or attacks, Sunoco has implemented infrastructure protection technologies and recovery plans, but there can be no assurance that a technology systems or systems will not have a material effect on its financial condition or results of operations. See “Item 1C. Cybersecurity” for additional information on Sunoco’s cybersecurity risk management, strategy and governance.
Failure to retain or replace current customers and renew existing contracts on comparable terms to maintain utilization of Sunoco’s pipeline and storage assets at current or more favorable rates could reduce its revenue and cash flows to levels that could adversely affect its ability to make quarterly distributions to its unitholders, including SunocoCorp.
A significant portion of Sunoco’s revenues and cash flows are generated from its customers’ payments of fees under throughput contracts and storage agreements. Failure to renew existing contracts or enter into new contracts on acceptable terms or a material reduction in utilization under existing contracts could result from many factors, including:
• sustained low crude oil prices;
• a material decrease in the supply or price of crude oil;
• a material decrease in demand for refined products, renewable fuels or anhydrous ammonia in the markets served by Sunoco’s pipelines and terminals;
• political, social or economic instability in the United States, Canada or another country that has a detrimental impact on Sunoco’s customers and its ability to conduct its operations;
• competition for customers from companies with comparable assets and capabilities;
• scheduled turnarounds or unscheduled maintenance at refineries or production facilities of customers Sunoco serves;
• operational problems or catastrophic events affecting Sunoco’s assets or the customers it serves;
• environmental or regulatory proceedings or other litigation that compel the cessation of all or a portion of the operations of Sunoco’s assets or those of the customers it serves;
• increasingly stringent environmental, health, safety and security regulations;
• a decision by Sunoco’s current customers to redirect products transported in its pipelines or stored in its terminals to markets not served by its pipelines or terminals, or to transport or store crude oil, refined products or anhydrous ammonia by means other than its pipelines or storage terminals; and
• a decision by Sunoco’s current customers to shut down, limit operations of or sell one or more of the refineries/production facilities it serves to a purchaser that elects not to use its pipelines or terminals.
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Sunoco’s business and its reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cybersecurity attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
In the normal course of Sunoco’s business as a motor fuel, food service and merchandise retailer, it obtains large amounts of personal data, including credit and debit card information from its customers. In recent years several retailers have experienced data breaches resulting in exposure of sensitive customer data, including payment card information. While Sunoco has invested significant amounts in the protection of its information systems and maintains what it believes are adequate security controls over personally identifiable customer, employee and vendor data provided to it, a breakdown or a breach in its systems that results in the unauthorized release of personally identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on its reputation, operating results and financial condition. Such a breakdown or breach could also materially increase the costs Sunoco incurs to protect against such risks. Also, a material failure on Sunoco’s part to comply with regulations relating to its obligation to protect such sensitive data or to the privacy rights of its customers, employees and others could subject it to or other regulatory sanctions and potentially to lawsuits.
Cybersecurity attacks are rapidly evolving and becoming increasingly sophisticated, and recent developments in the space of artificial intelligence increase the cybersecurity attack surface. A successful cybersecurity attack resulting in the loss of sensitive customer, employee or vendor data could adversely affect Sunoco’s reputation, results of operations, financial condition and liquidity, and could result in litigation against it or the imposition of penalties. Moreover, a security breach could require that Sunoco expend significant additional resources to upgrade further the security measures that it employs to guard against cybersecurity attacks. See “Item 1C. Cybersecurity” for additional information on Sunoco’s cybersecurity risk management, strategy and governance.
Sunoco relies on its suppliers to provide trade credit terms to adequately fund its ongoing operations.
Sunoco’s business is impacted by the availability of trade credit to fund fuel purchases. An actual or perceived downgrade in Sunoco’s liquidity or operations (including any credit rating downgrade by a rating agency) could cause its suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms. Any material changes in Sunoco’s payment terms, including early payment discounts, or availability of trade credit provided by its principal suppliers could impact its liquidity, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Increases in power prices could adversely affect operating expenses and Sunoco’s ability to make distributions to its unitholders, including SunocoCorp.
Power costs constitute a significant portion of Sunoco’s operating expenses. Sunoco uses mainly electric power at its pipeline pump stations and terminals, and such electric power is furnished by various utility companies. Requirements for utilities to use less carbon intensive power or to add pollution control devices also could cause Sunoco’s power costs to increase; its cash flows may be adversely affected, which could adversely affect its ability to make distributions to its unitholders , including SunocoCorp .
Sunoco depends on cash flow generated by its subsidiaries.
Sunoco is a holding company with no material assets other than the equity interests in its subsidiaries. Sunoco’s subsidiaries conduct all of its operations and own all of its assets. These subsidiaries are distinct legal entities and, under certain circumstances, legal and contractual restrictions may limit Sunoco’s ability to obtain cash from its subsidiaries and its subsidiaries may not be able to, or be permitted to, make distributions to it. In the event that Sunoco does not receive distributions from its subsidiaries, it may be unable to meet its financial obligations or make distributions to its unitholders , including SunocoCorp .
An impairment of goodwill and intangible assets could reduce Sunoco’s earnings.
As of December 31, 2025, Sunoco’s consolidated balance sheet reflected $3.03 billion of goodwill and $2.41 billion of intangible assets. Goodwill is recorded when the purchase price of a business exceeds the fair value of the tangible and separately measurable intangible net assets. GAAP require Sunoco to test goodwill and indefinite-lived intangible assets for impairment on an annual basis or when events or circumstances occur, indicating that goodwill or indefinite-lived intangible assets might be impaired. Long-lived assets such as intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If Sunoco determines that any of its goodwill or intangible assets were impaired, it would be required to take an immediate charge to earnings. Impairment charges are allowed to be removed from its debt covenant calculations. See Note 9 to Sunoco’s consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data.”
Acquisitions and Future Growth
If Sunoco is unable to make acquisitions on economically acceptable terms from third parties, its future growth and ability to increase distributions to unitholders will be limited.
A portion of Sunoco’s strategy to grow its business is dependent on its ability to make acquisitions that result in an increase in cash flow. The acquisition component of Sunoco’s growth strategy is based, in part, on its expectation of ongoing strategic divestitures of wholesale fuel distribution assets by industry participants. If Sunoco is unable to make acquisitions from third parties for any reason,
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including if it is unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, it is unable to obtain financing for these acquisitions on economically acceptable terms, it is outbid by competitors, or it or the seller are unable to obtain all necessary consents, its future growth and ability to increase distributions to unitholders will be limited. In addition, if Sunoco consummates any future acquisitions, its capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial, and other relevant information considered in determining the application of these funds and other resources. Finally, Sunoco may complete acquisitions which at the time of completion it believes will be accretive, but which ultimately may not be accretive. If any of these events were to occur, Sunoco’s future growth would be limited.
Integration of assets and businesses acquired in past acquisitions or future acquisitions with Sunoco’s existing business will be a complex, time-consuming and costly process, particularly given that assets acquired to date significantly increased Sunoco’s size and diversified the geographic areas in which it operates. A failure to successfully integrate the acquired assets or businesses, such as NuStar and Parkland, with Sunoco’s existing business in a timely manner may have a material adverse effect on its business, financial condition, results of operations or cash available for distribution to its unitholders, including SunocoCorp.
The difficulties of integrating past and future acquisitions with Sunoco’s business include, among other things:
• operating a larger combined organization in new geographic areas and new lines of business;
• hiring, training or retaining qualified personnel to manage and operate its growing business and assets;
• integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees;
• diversion of management’s attention from its existing business;
• assimilation of acquired assets and operations, including additional regulatory programs, operational philosophies and complex systems;
• loss of customers, suppliers or key employees;
• maintaining an effective system of internal controls in compliance with the Sarbanes-Oxley Act of 2002 as well as other regulatory compliance and corporate governance matters;
• integrating new technology systems for financial reporting; and
• assuming contractual obligations of acquired businesses, potential unknown liabilities and unforeseeable increased expenses as a result of such acquisitions.
If any of these risks or other unanticipated liabilities or costs were to materialize, then desired benefits from past acquisitions and future acquisitions could result in a negative impact to Sunoco’s future results of operations. In addition, acquired assets may perform at levels below the forecasts used to evaluate them, due to factors beyond Sunoco’s control. If the acquired assets perform at levels below the forecasts, then Sunoco’s future results of operations could be negatively impacted.
Also, Sunoco’s reviews of proposed business or asset acquisitions are inherently imperfect because it is generally not feasible to perform an in-depth review of each such proposal given time constraints imposed by sellers. Even if performed, a detailed review of assets and businesses may not reveal existing or potential problems, and may not provide sufficient familiarity with such business or assets to fully assess their deficiencies and potential. Inspections may not be performed on every asset, and environmental problems, such as groundwater contamination, may not be observable even when an inspection is undertaken.
Sunoco acquired Parkland, a Canadian corporation, indirectly through Sunoco Retail, a wholly owned corporate subsidiary of Sunoco. The acquisition involved the creation of the Company as a separate public company and resulted in Sunoco’s expansion into jurisdictions where Sunoco did not previously have an operating footprint, which may expose Sunoco to additional regulatory, operational and geopolitical risks. See “—Regulatory Matters—Sunoco operates assets outside of the United States, which exposes it to different legal and regulatory requirements and additional risk” for more information.
The combination of two independent businesses is complex, costly and time consuming, and Sunoco will be required to continue to devote significant management attention and resources to integrating the business practices and operations of Parkland into Sunoco to achieve, among other things, the targeted cost synergies associated with the acquisition. To the extent Sunoco is unable to successfully integrate the business and operations of Parkland into itself, and to the extent it is unable to successfully manage the creation and associated expenses of us, a separate public company within its ownership structure, its business, results of operations and its ability to achieve the anticipated benefits of the acquisition may be adversely affected.
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Acquisitions are subject to substantial risks that could adversely affect Sunoco’s financial condition and results of operations and reduce its ability to make distributions to unitholders.
Any acquisitions involve potential risks, including, among others:
• the validity of Sunoco’s assumptions about revenues, capital expenditures and operating costs of the acquired business or assets, as well as assumptions about achieving synergies with its existing business;
• the validity of Sunoco’s assessment of environmental and other liabilities, including legacy liabilities;
• the costs associated with additional debt or equity capital, which may result in a significant increase in Sunoco’s interest expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance of additional common units on which it will make distributions, either of which could offset the expected accretion to its unitholders, including SunocoCorp from such acquisition and could be exacerbated by volatility in the equity or debt capital markets;
• a failure to realize anticipated benefits, such as increased available cash per unit, enhanced competitive position or new customer relationships;
• a decrease in Sunoco’s liquidity by using a significant portion of its available cash or borrowing capacity to finance the acquisition;
• the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; and
• the risk that Sunoco’s existing financial controls, information systems, management resources and human resources will need to grow to support future growth and it may not be able to react timely.
Sunoco could be subject to liabilities from its assets that predate its acquisition of those assets, but that are not covered by indemnification rights it has against the sellers of the assets.
Sunoco has acquired assets and businesses and it is not always indemnified by the seller for liabilities that precede its ownership. In addition, in some cases, Sunoco has indemnified the previous owners and operators of acquired assets or businesses. Some of Sunoco’s assets have been used for many years to refine, transport and store crude oil and refined products, and past releases could require costly future remediation. If a significant release or event occurred in the past, the liability for which was not retained by the seller, or for which indemnification by the seller is not available, it could adversely affect Sunoco’s financial position and results of operations. Conversely, if liabilities arise from assets Sunoco has sold, it could incur costs related to those liabilities if the buyer possesses valid indemnification rights against it with respect to those assets.
The Inflation Reduction Act of 2022 could accelerate the transition to a low carbon economy and could impose new costs on Sunoco’s operations.
In August 2022, President Biden signed the IRA 2022, which contains hundreds of billions in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions. In addition, the IRA 2022 amended the Clean Air Act to impose a fee on the emission of methane from sources required to report their GHG emissions to the EPA, including those sources in the onshore petroleum and natural gas production categories. However, the OBBBA amended the Clean Air Act to postpone the implementation of the fee until 2034. Although the OBBBA made various changes to the incentives created under the IRA 2022, including elimination of electric vehicle credits, if the incentives offered for various clean energy industries referenced above are pursued in the future, it could further accelerate the transition of the economy away from the use of fossil fuels and decrease demand for gasoline and diesel, increase Sunoco’s compliance and operating costs and consequently adversely affect its business.
Regulatory Matters
Sunoco’s operations are subject to federal, state and local laws and regulations, in North America, the Greater Caribbean and Europe, relating to the environment, health, safety and security that require it to make substantial expenditures.
Sunoco’s operations are subject to increasingly stringent international, federal, state and local environmental, health, safety and security laws and regulations, including those relating to: terminals and underground storage tanks; refinery operations; the release or discharge of regulated materials into the air, water and soil; the generation, storage, handling, use, transportation and disposal of hazardous materials; the exposure of persons to regulated materials; and the health and safety of its employees. A violation of, liability under, or noncompliance with these laws and regulations, or any future environmental law or regulation, could have a material adverse effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
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Regulations under the Clean Water Act, OPA 90 and state laws impose regulatory burdens on terminal operations. Spill prevention control and countermeasure requirements of federal and state laws require containment to mitigate or prevent contamination of waters in the event of a refined product overflow, rupture or leak from above-ground pipelines and storage tanks. The Clean Water Act also requires Sunoco to maintain spill prevention control and countermeasure plans at its terminal facilities with above-ground storage tanks and pipelines. In addition, OPA 90 requires that most fuel transport and storage companies maintain and update various oil spill prevention and oil spill contingency plans. Certain oil handling facilities that are adjacent to water require the engagement of Federally Certified Oil Spill Response Organizations to be available to respond to a spill on water from above-ground storage tanks or pipelines.
Transportation and storage of refined products over and adjacent to water involves risk and potentially subjects Sunoco to strict, joint and potentially unlimited liability for removal costs and other consequences of an oil spill where the spill is into navigable waters, along shorelines or in the exclusive economic zone of the United States. In the event of an oil spill into navigable waters, substantial liabilities could be imposed upon Sunoco. The Clean Water Act imposes restrictions and strict controls regarding the discharge of pollutants into navigable waters, with the potential of substantial liability for the violation of permits or permitting requirements.
Terminal operations and associated facilities are subject to the Clean Air Act as well as comparable state and local statutes. Under these laws, permits may be required before construction can commence on a new source of potentially significant air emissions, and operating permits may be required for sources that are already constructed. If regulations become more stringent, additional emission control technologies may be required at Sunoco’s facilities. Any such future obligation could require Sunoco to incur significant additional capital or operating costs. Additionally, permits or licenses may be difficult to obtain and may include public comment and other public involvement periods, which could affect agency considerations or the decisions reached. For more information, see regulatory disclosure titled “Air Emissions and Climate Change.”
Terminal operations are subject to additional programs and regulations under OSHA, such as the Process Safety Management rule. Liability under, or a violation of compliance with, these laws and regulations, or any future laws or regulations, could have a material adverse effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Pipeline operations are also subject to a number of environmental and safety programs and regulations. Should Sunoco’s operations fail to comply with applicable Department of Transportation or comparable state regulations regarding pipeline safety, it could be subject to substantial fines and penalties. In addition, the adoption of recently proposed or new laws or regulations that apply more comprehensive or stringent safety standards could require Sunoco to install new or modified safety controls, pursue new capital projects or conduct maintenance programs on an accelerated basis, all of which could require it to incur increased operational costs that could be significant. For more information, see regulatory disclosure titled “Pipeline Safety Regulation.”
Certain environmental laws, including CERCLA, impose strict, and under certain circumstances, joint and several, liability on the current and former owners and operators of properties for the costs of investigation and removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault. Under CERCLA and similar state laws, as persons who arrange for the transportation, treatment, and disposal of hazardous substances, Sunoco may also be subject to liability at sites where such hazardous substances are released. Sunoco may be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from, or in the vicinity of its current or former properties or off-site waste disposal sites. Costs associated with the investigation and remediation of contamination, as well as associated third-party , could be substantial, and could have a material effect on Sunoco’s business, financial condition, results of operations and its ability to service its outstanding indebtedness. In addition, the presence of, or to remediate, identified or unidentified contamination at Sunoco’s properties could materially and affect its ability to sell or rent such property or to borrow money using such property as collateral.
Sunoco is required to make financial expenditures to comply with regulations governing underground storage tanks as adopted by federal, state and local regulatory agencies. Compliance with existing and future environmental laws regulating underground storage tank systems of the kind Sunoco uses may require significant capital expenditures. For example, the EPA has previously published rules that amend existing federal underground storage tank rules, requiring certain upgrades to underground storage tanks and related piping to further ensure the detection, prevention, investigation and remediation of leaks and spills.
Sunoco is required to comply with federal and state financial responsibility requirements to demonstrate that it has the ability to pay for cleanups or to compensate third parties for damages incurred as a result of a release of regulated materials from its underground storage tank systems. Sunoco seeks to comply with these requirements by maintaining insurance that it purchases from private insurers and in certain circumstances, relies on applicable state trust funds, which are funded by underground storage tank registration fees and taxes on wholesale purchases of motor fuels. Coverage afforded by each fund varies and is dependent upon the continued maintenance and solvency of each fund.
Sunoco is responsible for investigating and remediating contamination at a number of its current and former properties. Sunoco is entitled to reimbursement for certain of these costs under various third-party contractual indemnities and insurance policies, subject to eligibility requirements, deductibles, and per incident, annual and aggregate caps. To the extent third parties (including insurers) do not pay for investigation and remediation, and/or insurance is not available, Sunoco will be obligated to make these additional
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payments, which could have a material adverse impact on its business, liquidity, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Although Sunoco believes that it has a comprehensive environmental, health and safety program, it may not have identified all environmental liabilities at all of its current and former locations; material environmental or pipeline safety conditions not known to it may exist; existing and future laws, ordinances or regulations may impose material environmental or pipeline safety liability or compliance costs on it; or it may be required to make material expenditures for the remediation of contamination or pipeline integrity and safety matters.
The occurrence of any of the events described above could have a material adverse effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders, including SunocoCorp.
Sunoco’s operations are subject to a series of risks related to climate change .
The threat of climate change continues to attract considerable attention in the United States and in foreign countries. In the United States to date, no comprehensive climate change legislation has been implemented at the federal level, although federal regulators, state and local governments, and private parties have taken (or announced that they plan to take) actions related to climate change that have or may have a significant impact on Sunoco’s operations. However, following the change in U.S. presidential administrations, proposals have been made to repeal or otherwise modify climate change-related requirements. For example, in February 2026, the EPA finalized a rule rescinding the GHG “Endangerment Finding,” which underpins the majority of EPA’s GHG regulations. Litigation challenging the rule is expected. As a result, there is significant uncertainty with respect to future regulation of GHG emissions. For more information, see our regulatory disclosure titled “Air Emissions and Climate Change.”
Internationally, the United Nations-sponsored Paris Agreement requires member states to individually determine and submit non-binding emissions reduction targets every five years after 2020. While previously a party to the Paris Agreement, in January 2025, President Trump issued an executive order withdrawing of the United States from the Paris Agreement and revoking any related financial commitments thereunder. State or local governments may, however, elect to continue to participate in international climate change initiatives and pursue state- or regional-level climate change-related regulations. Any efforts to control and/or reduce GHG emissions by the United States or other countries, or concerted conservation efforts that result in reduced consumption, could adversely impact demand for Sunoco’s products and, in turn, its financial position and results of operations. Increasingly, fossil fuel companies are also exposed to litigation risks from climate change.
Additionally, California has recently enacted a set of laws that may require climate-related disclosures from companies “doing business in California” with certain total annual revenue thresholds, though these laws are currently subject to litigation, and we cannot predict the ultimate outcome. Moreover, some other states in which Sunoco operates, such as New York and Illinois, are considering adopting climate disclosure laws. For more information, see regulatory disclosure titled “Air Emissions and Climate Change.” Although the final form and substance of these requirements is not yet known, these rules and laws may result in additional costs to comply with any such disclosure requirements.
Climate change may also result in various physical risks, such as the increased frequency or intensity of extreme weather events or changes in meteorological and hydrological patterns that could adversely impact Sunoco’s operations or those of its supply chains. Such physical risks may result in damage to Sunoco’s facilities or otherwise adversely impact its operations, the demand for its products, the frequency with which consumers may visit its locations or the cost or availability of insurance. Moreover, certain parties, including local and state governments, have from time to time filed lawsuits against various fossil fuel energy companies seeking damages for alleged physical impacts resulting from climate change or relating to false or misleading statements related to fossil fuel’s contribution to climate change. These various political, regulatory, financial, physical and litigation risks related to climate change have the potential to adversely impact Sunoco’s operations and financial performance.
A climate-related decrease in demand for crude oil could negatively affect Sunoco’s business.
Supply and demand for crude oil is dependent upon a variety of factors, many of which are beyond Sunoco’s control. These factors include, among others, the potential adoption of new government regulations, including those related to fuel conservation measures and climate change regulations, technological advances in fuel economy and energy generation devices. For example, legislative, regulatory or executive actions intended to reduce emissions of GHGs could increase the cost of consuming crude oil, thereby potentially causing a reduction in the demand for this product. A broader transition to alternative fuels or energy sources, whether resulting from potential new government regulation, carbon taxes, governmental incentives and funding such as those provided in the IRA 2022, or consumer preferences could result in decreased demand for products like crude oil. Any decrease in demand could consequently reduce demand for Sunoco’s services and could have a negative effect on its business.
Increased attention to environmental, social and governance (“ESG”) matters and conservation measures may adversely impact Sunoco’s business.
Attention from investors, customers, employees, regulatory bodies and other stakeholders to climate change, societal expectations on companies to address climate change or social and employment initiatives and other ESG matters, investor and societal expectations
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regarding voluntary ESG disclosures, and consumer demand for alternative forms of energy may result in increased costs, reduced demand for Sunoco’s products, reduced profits, increased investigations and litigation, heightened scrutiny of its statements and initiatives, and negative impacts on price of the Sunoco Common Units and price of our common units and access to capital markets.
Moreover, while Sunoco may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures may be based on expectations, assumptions and hypothetical scenarios. Such expectations, assumptions and hypothetical scenarios are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established approach to identifying, measuring and reporting on many ESG matters. Additionally, while Sunoco may announce various voluntary ESG targets, such targets are often aspirational. Sunoco may not be able to meet or progress against such targets in the manner or on such a timeline as initially contemplated, including but not limited to as a result of unforeseen costs or technical difficulties associated with achieving such results. To the extent Sunoco meets such targets, it may be achieved through various contractual arrangements, including the purchase of various credits or offsets that may be deemed to mitigate its environmental impact instead of actual changes in its business operations. Some of these arrangements may receive from certain constituencies.
Certain regulators, such as various state agencies, as well as nongovernmental organizations and other private actors have filed lawsuits under various securities and consumer protection laws alleging that certain ESG statements, goals or standards were misleading, false or otherwise deceptive, including for alleged “greenwashing” ( i.e. , the process of conveying misleading information or making false claims that overstate potential ESG benefits). Certain social and inclusion initiatives are the subject of scrutiny by both those calling for the continued advancement of such policies, as well as those who believe they should be curbed, including government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. More recent political developments could mean that Sunoco faces increasing criticism or litigation risks from certain “anti-ESG” parties, including various governmental agencies. Such sentiment may focus on Sunoco’s environmental commitments (such as reducing GHG emissions) or its pursuit of certain employment practices or social initiatives that are to be political or polarizing in nature or are to laws based, in part, on changing priorities of, or interpretations by, federal agencies or state governments. Consideration of ESG-related factors in Sunoco’s decision-making could be subject to increasing and from such anti-ESG parties. As a result, Sunoco may be subject to pressure in the media or through other means, such as governmental , enforcement actions, or other proceedings, all of which could affect its reputation, business, financial performance, market access and growth. Accordingly, there may be increased costs related to reviewing, implementing and managing such policies, as well as compliance and risks based both on positions Sunoco does or does not take, or work it does or does not perform.
ESG activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward Sunoco and its industry and to the diversion of investment to other industries, which could have a negative impact on price of the Sunoco Common Units and price of our common units and its access to and costs of capital. Also, institutional lenders may decide not to provide funding for fossil fuel companies based on climate change related concerns, which could affect Sunoco’s access to capital.
Sunoco is subject to federal laws related to the RFS.
New laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments could require Sunoco to make additional capital expenditures or incur additional liabilities. For example, at times, certain independent refiners have initiated discussions with the EPA to change the way the RFS is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors. Under the RFS, which requires an annually increasing amount of biofuels to be blended into the fuels used by U.S. drivers, refiners/importers are obligated to obtain renewable identification numbers (“RINs”) either by blending biofuel into gasoline or through purchase in the open market. If the obligation was shifted from the importer/refiner to the blender/distributor, Sunoco would potentially have to utilize the RINs it obtains through its blending activities to satisfy a new obligation and would be unable to sell RINs to other obligated parties, which may cause an impact on the fuel margins associated with Sunoco’s sale of gasoline. Additionally, the price of RINs is not fixed and is subject to change due to various considerations, including regulatory actions. In June 2025, the EPA proposed volume requirements for 2026 and 2027 that continue to build on the increasing volume requirements established in July 2023, though the substance of any final rule is uncertain.
The occurrence of any of the events described above could have a material adverse effect on Sunoco’s business, financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
Sunoco is subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products it purchases, stores, transports, and sells to its distribution customers.
Various federal, state, and local government agencies have the authority to prescribe specific product quality specifications for certain commodities, including commodities that Sunoco distributes. Changes in product quality specifications, such as reduced sulfur content in refined petroleum products, or other more stringent requirements for fuels, could reduce Sunoco’s ability to procure product, require it to incur additional handling costs and/or require the expenditure of capital. If Sunoco is unable to procure product or recover these
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costs through increased selling price, it may not be able to meet its financial obligations. Failure to comply with these regulations could result in substantial penalties.
Sunoco operates assets outside of the United States, which exposes it to different legal and regulatory requirements and additional risk.
A portion of Sunoco’s revenues are generated from its assets located in Canada, the Greater Caribbean, northern Mexico and Europe. Sunoco’s operations are subject to various risks that could have a material adverse effect on its business, results of operations and financial condition, including political and economic instability from civil unrest; labor strikes; war and other armed conflict; inflation; currency fluctuations, devaluation and conversion restrictions or other factors. Any deterioration of social, political, labor or economic conditions, including the increasing threat of terrorist organizations and drug cartels in Mexico, and escalating tensions in Venezuela or affecting a customer with whom Sunoco does business, as well as difficulties in staffing, obtaining necessary equipment and supplies and managing foreign operations, may adversely affect its operations or financial results. Sunoco is also exposed to the risk of foreign and domestic governmental actions that may: impose additional costs on it; permits or otherwise its operations; limit or markets for its operations, restrict payments or limit the movement of funds; impose sanctions on or otherwise restrict its ability to conduct business with certain customers or persons or in certain countries; or result in the of contract rights. Sunoco’s operations outside the United States may also be affected by changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including the Foreign Practices Act and foreign laws prohibiting payments, as well as travel restrictions and import and export regulations.
Disputes regarding a failure to maintain product quality specifications or other claims related to the operation of Sunoco’s assets and the services it provides to its customers may result in unforeseen expenses and could result in the loss of customers.
Certain of the products Sunoco stores and transports are produced to precise customer specifications. If the quality and purity of the products Sunoco receives are not maintained or a product fails to perform in a manner consistent with the quality specifications required by its customers, customers have sought, and could in the future seek, replacement of the product or damages for costs incurred as a result of the product failing to perform as guaranteed. Sunoco also has faced, and could in the future face, other claims by its customers if its assets do not operate as expected by its customers or its services otherwise do not meet its customers’ expectations. Successful claims or a series of claims against Sunoco result in unforeseen expenditures and could result in the loss of one or more customers.
The swaps regulatory provisions of the Dodd-Frank Act and the rules adopted thereunder could have an adverse effect on Sunoco’s ability to use derivative instruments to mitigate the risks of changes in commodity prices and interest rates and other risks associated with its business.
Provisions of the Dodd-Frank Act and rules adopted by the Commodity Futures Trading Commission (the “CFTC”), the SEC and other prudential regulators establish federal regulation of the physical and financial derivatives, including over-the-counter derivatives market and entities, such as Sunoco, participating in that market. While most of these regulations are already in effect, the implementation process is still ongoing and the CFTC continues to review and refine its initial rulemakings through additional interpretations and supplemental rulemakings. As a result, any new regulations or modifications to existing regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability and/or liquidity of derivatives to protect against risks Sunoco encounters, reduce its ability to monetize or restructure its existing derivative contracts, and increase its exposure to less creditworthy counterparties. Any of these consequences could have a material adverse effect on Sunoco’s financial condition, results of operations and cash available for distribution to its unitholders , including SunocoCorp .
The CFTC has re-proposed speculative position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents, although certain bona fide hedging transactions would be exempt from these position limits provided that various conditions are satisfied. The CFTC has also finalized a related aggregation rule that requires market participants to aggregate their positions with certain other persons under common ownership and control, unless an exemption applies, for purposes of determining whether the position limits have been exceeded. If adopted, the revised position limits rule and its finalized companion rule on aggregation may create additional implementation or operational exposure. In addition to the CFTC federal speculative position limit regime, designated contract markets (“DCMs”) also maintain speculative position limit and accountability regimes with respect to contracts listed on their platform as well as aggregation requirements similar to the CFTC’s final aggregation rule. Any speculative position limit regime, whether imposed at the federal-level or at the DCM-level may impose added operating costs to monitor compliance with such position limit levels, addressing accountability level concerns and maintaining appropriate exemptions, if applicable.
The Dodd-Frank Act requires that certain classes of swaps be cleared on a derivatives clearing organization and traded on a DCM or other regulated exchange, unless exempt from such clearing and trading requirements, which could result in the application of certain margin requirements imposed by derivatives clearing organizations and their members. The CFTC and prudential regulators have also adopted mandatory margin requirements for uncleared swaps entered into between swap dealers and certain other counterparties.
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Sunoco currently qualifies for and relies upon an end-user exception from such clearing and margin requirements for the swaps it enters into to hedge its commercial risks. However, the application of the mandatory clearing and trade execution requirements and the uncleared swaps margin requirements to other market participants, such as swap dealers, may adversely affect the cost and availability of the swaps that Sunoco uses for hedging.
In addition to the Dodd-Frank Act, the European Union and other foreign regulators have adopted and are implementing local reforms generally comparable with the reforms under the Dodd-Frank Act. Implementation and enforcement of these regulatory provisions may reduce Sunoco’s ability to hedge its market risks with non-U.S. counterparties and may make transactions involving cross-border swaps more expensive and burdensome. Additionally, the lack of regulatory equivalency across jurisdictions may increase compliance costs and make it more difficult to satisfy Sunoco’s regulatory obligations.
If third-party pipelines and other facilities interconnected to Sunoco’s fuel storage terminals and transmix processing facilities become partially or fully unavailable to transport refined products, its revenues could be adversely affected.
Sunoco depends upon third-party pipelines and other facilities that provide delivery options to and from its fuel storage terminals and transmix processing facilities. Since Sunoco does not own or operate these pipelines or other facilities, their continuing operation in their current manner is not within its control. If any of these third-party facilities become partially or fully unavailable, or if the quality specifications for their facilities change so as to restrict Sunoco’s ability to utilize them, its financial condition and results of operations could be adversely affected.
Sunoco may be unable to obtain or renew permits necessary for its current or proposed operations, which could inhibit its ability to conduct or expand its business.
Sunoco’s facilities, in the U.S. and internationally, operate under a number of federal, state and local permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. These limits and standards require a significant amount of monitoring, recordkeeping and reporting in order to demonstrate compliance with the underlying permit, license or approval. Noncompliance or incomplete documentation of Sunoco’s compliance status may result in the imposition of fines, penalties and injunctive relief. In addition, public protest, political activism and responsive government intervention have made it more difficult for energy companies to acquire the permits required to complete planned infrastructure projects. A decision by a government agency to deny or delay issuing a new or renewed permit, license or approval, or to revoke or substantially modify an existing permit, license or approval, or to impose additional requirements on the renewal could have a material adverse effect on Sunoco’s ability to continue or expand its operations and on its financial condition, results of operations, cash flows and ability to make distributions to its unitholders , including SunocoCorp .
Certain of Sunoco’s interstate common carrier pipelines are subject to regulation by the FERC and the Surface Transportation Board (“STB”), which could have an adverse impact on its ability to recover the full cost of operating its pipelines and the revenue it is able to receive from those operations.
Pursuant to the Impoundment Control Act of 1974 and various other laws, the FERC regulates tariff rates and terms and conditions of service for interstate crude oil and refined products movements on common carrier pipelines. The FERC requires that these rates be just and reasonable and not unduly discriminatory with respect to any shipper. The FERC or shippers may challenge required pipeline tariff filings, including rates and terms and conditions of service. Further, other than for rates set under market-based rate authority, if a new rate is challenged by protest and investigated by the FERC, the FERC may require amounts refunded where such amounts were collected in excess of the deemed just and reasonable rate. In addition, shippers may challenge by complaint tariff rates and terms and conditions of service even after they take effect, and the FERC may order a carrier to change its rates prospectively to a just and reasonable level. A complaining shipper also may obtain reparations for damages sustained during the two years prior to the date of the .
Sunoco is able to use various FERC-authorized rate change methodologies for its interstate pipelines, including indexed rates, cost-of-service rates, market-based rates and negotiated rates. Typically, Sunoco adjusts its rates annually in accordance with the FERC indexing methodology, which currently allows a pipeline to change its rates within prescribed ceiling levels that are tied to an inflation index. It is possible that the index may result in negative rate adjustments in some years, or that changes in the index might not be large enough to fully reflect actual increases in Sunoco’s costs. The FERC’s indexing methodology is subject to review and revision every five years, with the most recent five-year review occurring in 2025 and 2026. See regulatory disclosure titled “Regulation of Interstate Crude Oil and Products Pipelines” for additional information on FERC’s indexing methodology.
The FERC has granted Sunoco authority to charge market-based rates on some of its pipelines, which are not subject to cost-of-service or indexing constraints. If Sunoco were to lose market-based rate authority, however, it could be required to establish rates on some other basis, such as cost-of-service, which could reduce its revenues and cash flows. Additionally, competition constrains its rates in various markets, which may force it to reduce certain rates to remain competitive.
Pursuant to the ICC Termination Act of 1995 (“ITA”), the STB regulates interstate pipelines carrying products other than gas, oil or water, including the anhydrous ammonia Sunoco transports. Unlike the ICA, which allows the FERC to investigate a carrier’s rates on
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its own initiative, ITA prescribes the STB may only investigate issues in response to complaints by shippers and other interested parties. Further, carriers are not required by the ITA or the STB to report rates charged to transport anhydrous ammonia or other commodities, and the STB does not routinely collect such information. Adverse changes in the FERC’s or STB’s rate change methodologies or challenges to Sunoco’s rates that result in significant damages could negatively affect its cash flows, results of operations and its ability to make distributions to its unitholders , including SunocoCorp .
The third parties on whom Sunoco relies for transportation services to its fuel storage terminals and transmix processing facilities are subject to complex federal, state, and other laws that could adversely affect its financial condition and results of operations.
The operations of the third parties on whom Sunoco relies for transportation services are subject to complex and stringent laws and regulations that require obtaining and maintaining numerous permits, approvals and certifications from various federal, state and local government authorities. These third parties may incur substantial costs in order to comply with existing laws and regulations. If existing laws and regulations governing such third-party services are revised or reinterpreted, or if new laws and regulations become applicable to their operations, these changes may affect the costs that Sunoco pays for services. Similarly, a failure to comply with such laws and regulations by the third parties could have a material adverse effect on its financial condition and results of operations.
Indebtedness
Sunoco’s debt levels may impair its financial condition and its ability to make distributions on Sunoco Series A Preferred Units, Sunoco Common Units and Sunoco Class D Units.
Sunoco had $13.39 billion of debt outstanding as of December 31, 2025, which includes approxi mately $3.65 billion agg regate principal amount of debt it assumed and issued in connection with the Parkland Acquisition. Sunoco has the ability to incur additional debt under its Third Amended and Restated Credit Agreement (the “Sunoco Credit Agreement”), among Sunoco, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a letter of credit issuer, and the indentures governing its senior notes. The level of Sunoco’s future indebtedness could have important consequences to it, including
• making it more difficult for Sunoco to satisfy its obligations with respect to its senior notes and the Sunoco Credit Agreement;
• limiting Sunoco’s ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, the execution of its growth strategy and other activities;
• requiring Sunoco to dedicate a substantial portion of its cash flow from operations to pay interest and principal on its debt, which would reduce its cash flow available to make distributions to reimburse SunocoCorp Manager’s costs and provide us with equivalent distributions or dividends;
• making Sunoco more vulnerable to adverse changes in general economic conditions, its industry and government regulations and in its business by limiting its flexibility in planning for, and making it more difficult for Sunoco to react quickly to, changing conditions; and
• placing Sunoco at a competitive disadvantage compared with its competitors that have less debt.
In addition, Sunoco may not be able to generate sufficient cash flow from its operations to repay its indebtedness when it becomes due and to meet other cash needs. Sunoco’s ability to service its debt depends upon, among other things, its financial and operating performance as impacted by prevailing economic conditions, and financial, business, regulatory and other factors, some of which are beyond its control. In addition, Sunoco’s ability to service its debt will depend on market interest rates, since the rates applicable to a portion of its borrowings fluctuate. If Sunoco is not able to pay its debts as they become due, Sunoco will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring its indebtedness or selling additional debt or equity securities. Sunoco may not be able to refinance its debt or sell additional debt or equity securities or its assets on favorable terms, if at all, and if Sunoco must sell its assets, it may negatively affect its ability to generate revenues.
Increases in interest rates could reduce the amount of cash Sunoco has available for distributions as well as the relative value of those distributions to yield-oriented investors, which could cause a decline in the market value of the Sunoco Common Units and in turn, our common units.
Should variable interest rates rise, the amount of cash Sunoco would otherwise have available for distribution would ordinarily be expected to decline, which could impact its ability to make distributions on the Sunoco Series A Preferred Units or to maintain or grow its quarterly distributions, which our unitholders are entitled to for a period of two years following the Effective Date. Additionally, an increase in interest rates in lower risk investment alternatives, such as United States treasury securities, could cause investors to demand a relatively higher distribution yield on the Sunoco Common Units and in turn, our common units, which, unless it is able to raise its distribution, would imply a lower trading price for the Sunoco Common Units and in turn, our common units.
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Consequently, rising interest rates could cause a significant decline in the market value of the Sunoco Common Units and in turn, our common units.
Sunoco’s existing debt agreements have substantial restrictions and financial covenants that may restrict its business and financing activities and its ability to pay distributions to its unitholders, including SunocoCorp.
Sunoco is dependent upon the earnings and cash flow generated by its operations in order to meet its debt service obligations and to allow it to make cash distributions to its unitholders , including SunocoCorp . The operating and financial restrictions and covenants in Sunoco’s credit agreement, the indentures governing its senior notes, the indentures governing NuStar’s senior notes, the agreements governing the revenue bonds issued by the Parish of St. James, Louisiana pursuant to the Gulf Opportunity Zone Act of 2005 (the “GoZone Bonds”) and any future financing agreements may restrict its ability to finance future operations or capital needs, to engage in or expand its business activities or to pay distributions to its unitholders , including SunocoCorp . For example, Sunoco’s credit agreement, the indentures governing its senior notes, the indentures governing the NuStar senior notes and the agreements governing the GoZone Bonds restrict its ability to, among other things:
• incur certain additional indebtedness;
• incur, permit, or assume certain liens to exist on Sunoco’s properties or assets;
• make certain investments or enter into certain restrictive material contracts;
• make distributions;
• repurchase units; and
• merge or dispose of all or substantially all of Sunoco’s assets.
In addition, Sunoco’s credit agreement contains covenants requiring it to maintain certain financial ratios. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – [Liquidity and Capital Resources]” for additional information.
Sunoco’s future ability to comply with these restrictions and covenants is uncertain and will be affected by the levels of cash flow from its operations and other events or circumstances beyond its control. If market or other economic conditions deteriorate, Sunoco’s ability to comply with these covenants may be impaired. If Sunoco violates any provisions of Sunoco’s credit agreement, the indentures governing its senior notes, the indentures governing the NuStar senior notes, the agreements governing the GoZone Bonds or any agreements governing future indebtedness that are not cured or waived within the appropriate time period provided therein, a significant portion of its indebtedness may become immediately due and payable, its ability to make distributions to its unitholders , including SunocoCorp, will be inhibited and its lenders’ commitment to make further loans to it may terminate. Sunoco might not have, or be able to obtain, sufficient funds to make these accelerated payments.
Tax
As our only cash-generating assets are our limited partnership interests in Sunoco, our tax risks are primarily derivative of the tax
risks associated with an investment in Sunoco.
The tax treatment of Sunoco depends on its status as a partnership for U.S. federal income tax purposes, as well as it not being subject to a material amount of additional entity-level taxation by individual states or non-U.S. jurisdictions. If the IRS were to treat Sunoco as a corporation for U.S. federal income tax purposes or if Sunoco becomes subject to a material amount of additional entity-level or other forms of taxation for state or non-U.S. tax purposes, it would reduce the amount of cash available for distribution to us.
Our sole material and cash-generating assets are limited partnership interests in Sunoco. As a result, the value of our investment in Sunoco, as well as the anticipated after-tax economic benefit of an investment in our common units, depends largely on Sunoco being treated as a partnership for U.S. federal income tax purposes, which requires that 90% or more of Sunoco’s gross income for every taxable year consist of qualifying income, as defined in Section 7704 of the Internal Revenue Code. Based on Sunoco’s current operations, and current U.S. Treasury regulations, Sunoco believes that it is treated as a partnership rather than a corporation for such purposes; however, a change in Sunoco’s business could cause it to be treated as a corporation for U.S. federal income tax purposes.
Current law may change, causing Sunoco to be treated as a corporation for U.S. federal income tax purposes or otherwise subjecting Sunoco to additional entity-level taxation. In addition, several states impose and others have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, Sunoco is subject to entity-level tax on the portion of its income apportioned to Texas. Imposition of any similar taxes by individual states or additional federal or non-U.S. taxes on Sunoco may result in a decrease in the amount of distributions we receive from Sunoco and our resulting cash flows could be reduced substantially, which would adversely affect our ability to pay distributions to our unitholders.
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If Sunoco were treated as a corporation for U.S. federal income tax purposes, it would pay U.S. federal income tax on its taxable income at the corporate tax rate and would likely pay state income taxes at varying rates. Distributions to Sunoco’s unitholders, including us, would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to Sunoco’s unitholders. Because a tax would be imposed upon Sunoco as a corporation, its cash available for distribution would be substantially reduced. Therefore, treatment of Sunoco as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to us, likely causing a substantial reduction in the value of our common units.
The tax treatment of publicly traded partnerships or our investment in Sunoco could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including Sunoco, or an investment in Sunoco Class D Units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. Members of Congress have frequently proposed and considered substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships, including proposals that would eliminate Sunoco’s ability to qualify for partnership tax treatment. Recent proposals have provided for the expansion of the qualifying income exception for publicly traded partnerships in certain circumstances and other proposals have provided for the total elimination of the qualifying income exception upon which Sunoco relies for its partnership tax treatment.
In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. There can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department’s interpretation of the qualifying income rules in a manner that could impact Sunoco’s ability to qualify as a partnership in the future.
Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible for Sunoco to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We and Sunoco are unable to predict whether any changes or other proposals will ultimately be enacted. Any future legislative changes could negatively impact the value of our investment in Sunoco Class D Units.
If the IRS makes audit adjustments to Sunoco’s income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from Sunoco, in which case Sunoco’s cash distributions to us and our cash available for distribution to our unitholders might be substantially reduced.
If the IRS makes audit adjustments to Sunoco’s income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from Sunoco. To the extent possible, Sunoco GP may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if Sunoco is eligible, issue a revised information statement to each unitholder and former unitholder with respect to an audited and adjusted return. Although Sunoco GP may elect to have Sunoco’s unitholders and former unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties or interest) in accordance with their interests in Sunoco during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, we may bear some or all of the tax liability resulting from such audit adjustment, even if we did not own units in Sunoco during the tax year under audit. If, as a result of any such audit adjustment, Sunoco is required to make payments of taxes, penalties and interest, then the amount of distributions we receive from Sunoco could be substantially reduced, which would adversely affect our ability to pay distributions to our unitholders.
Sunoco has subsidiaries that are treated as corporations for U.S. federal income tax purposes and are subject to corporate-level income taxes.
Even though Sunoco (as a partnership for U.S. federal income tax purposes) is not subject to U.S. federal income tax, some of its operations are currently conducted through subsidiaries that are organized as corporations for U.S. federal income tax purposes. The taxable income, if any, of these subsidiaries is subject to corporate-level U.S. federal income taxes, which may reduce the cash available for distribution to us and, in turn, to our unitholders. If the IRS or other state or local jurisdictions were to successfully assert that these corporations have more tax liability than we anticipate or legislation is enacted that increases the corporate tax rate, then cash available for distribution could be further reduced. The income tax return filing positions taken by these corporate subsidiaries requires significant judgment by Sunoco, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is also required in assessing the amounts of deductible and taxable items. Despite Sunoco’s belief that the income tax return positions taken by these subsidiaries are fully supportable, certain positions may be successfully challenged by the IRS or applicable, state or local jurisdictions.
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Detail of Risk Factors Related to Our Structure
SunocoCorp Manager
Energy Transfer owns and controls SunocoCorp Manager, which has sole responsibility for conducting our business and managing our operations. SunocoCorp Manager and its affiliates, including Energy Transfer, may have conflicts of interest with us and have limited contractual duties and thus, they may favor their own interests to the detriment of us and our unitholders.
Energy Transfer owns and controls SunocoCorp Manager, and therefore appoints all of the directors of SunocoCorp Manager. Although SunocoCorp Manager has a contractual obligation to manage us in a manner it believes is not adverse to our interests, the executive officers and directors of SunocoCorp Manager also have a contractual duty to manage SunocoCorp Manager in a manner beneficial to Energy Transfer. Therefore, conflicts of interest may arise between Energy Transfer and its affiliates, including SunocoCorp Manager on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, SunocoCorp Manager may favor its own interests and the interests of its affiliates over the interests of our unitholders. Energy Transfer also owns Sunoco GP and, through us, will appoint all of the directors of the Sunoco GP Board. Similar conflicts may also arise with respect to Sunoco, which could also adversely affect our unitholders if Energy Transfer and its affiliates, including Sunoco GP, favor their own interests to the detriment of Sunoco and its other partners, including us as a holder of limited partnership interests in Sunoco.
These conflicts include the following situations, among others:
• SunocoCorp Manager’s affiliates, including Energy Transfer and its affiliates, are not prohibited from engaging in other business or activities, including those in direct competition with us and Sunoco;
• neither the Company Agreement nor any other agreement requires Energy Transfer to pursue a business strategy that favors us. The affiliates of SunocoCorp Manager have contractual duties to make decisions in their own best interests and in the best interest of their owners, which may be contrary to our interests;
• certain officers and directors of SunocoCorp Manager are expected to be officers or directors of affiliates of SunocoCorp Manager, and as such will also devote significant time to the business of these entities and will be compensated accordingly;
• affiliates of SunocoCorp Manager, including Energy Transfer, are not limited in their ability to compete with us or Sunoco, and may offer business opportunities or sell assets to parties other than us or Sunoco;
• the Company Agreement provides that SunocoCorp Manager may, but is not required to, in connection with its resolution of a conflict of interest, seek “special approval” of such resolution by appointing a conflicts committee of the board of directors of SunocoCorp Manager, composed of one or more independent directors, to consider such conflicts of interest and to either, itself, take action or recommend action to the board of directors of SunocoCorp Manager and any resolution of the conflict of interest by the conflicts committee shall be conclusively deemed to be approved by our unitholders;
• except in limited circumstances, SunocoCorp Manager has the power and authority to conduct our business without the approval of our unitholders;
• SunocoCorp Manager determines any transactions to be undertaken by us, including the amount and timing of any asset purchases and sales, borrowings or repayment of indebtedness and issuances of additional limited liability company interests in us as well as the level of reserves and amount and timing of any capital expenditures that may be undertaken by us, which can affect the amount of cash that is distributed to our unitholders;
• SunocoCorp Manager may cause us to borrow funds in order to permit the payment of cash distributions;
• SunocoCorp Manager determines which costs incurred by it and its affiliates are reimbursable by us;
• the Company Agreement does not restrict SunocoCorp Manager from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf. There is no limitation on the amounts SunocoCorp Manager can cause us to pay it or its affiliates;
• SunocoCorp Manager has limited its liability regarding its contractual and other obligations to us;
• SunocoCorp Manager may exercise its right to call and purchase our common units held by unaffiliated persons if SunocoCorp Manager and its affiliates own more than 80% of our outstanding non-managing membership interests; and
• SunocoCorp Manager controls the enforcement of obligations owed to us by SunocoCorp Manager and its affiliates. In addition, SunocoCorp Manager decides whether to retain separate counsel or others to perform services for us.
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SunocoCorp Manager may approve the issuance of our securities and specify the terms of such securities.
Pursuant to the Company Agreement, SunocoCorp Manager has the ability to approve the issuance of securities by us at any time and to specify the terms and conditions of such securities without the approval of our unitholders. The securities authorized to be issued may be issued in one or more classes or series, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and series of our securities), as are determined by SunocoCorp Manager, including:
• the right to share in our profits and losses;
• the right to share in our distributions;
• the rights upon dissolution and liquidation of us;
• whether, and the terms upon which, we may redeem the securities;
• whether the securities will be issued, evidenced by certificates and assigned or transferred; and
• the right, if any, of the security to vote on matters relating to us, including matters relating to the relative rights, preferences and privileges of such security or on which our common unitholders do not have the right to vote.
Cost reimbursements due to SunocoCorp Manager and its affiliates for services provided to us or on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements will be determined by SunocoCorp Manager.
We will reimburse SunocoCorp Manager for all expenses that SunocoCorp Manager and its affiliates incur and payments they make on our behalf pursuant to the Company Agreement. The Company Agreement does not limit the amount of expenses for which SunocoCorp Manager may be reimbursed. The Company Agreement provides that SunocoCorp Manager determines the expenses that are allocable to us. Reimbursement of these expenses and payment of fees to SunocoCorp Manager will, directly or indirectly, reduce the amount of cash available to pay distributions to our unitholders, either by reducing our cash available for distribution or, where we are entitled to reimbursement of some or all of such payments from Sunoco under the Omnibus Agreement, by reducing Sunoco’s cash available to make distributions to Sunoco’s unitholders, including on the Sunoco Class D Units owned by us.
Our Company Agreement
Our Company Agreement does not require us to distribute cash to our unitholders.
Under our Company Agreement, it is our policy to pay regular quarterly cash distributions of substantially all of our cash available for distribution to our unitholders. However, SunocoCorp Manager may change such policy at any time, and generally has discretion to determine the amount and timing of any such distributions. This includes broad discretion to establish and maintain reserves in amounts that SunocoCorp Manager determines to be appropriate and to determine the cash available for distribution to our members. Because of this discretion, as well as the fact that we will be dependent on distributions from Sunoco for cash available for distribution and may be subject to U.S. federal and state income taxes on any such distributions, we may be unable to make per-unit distributions at the level paid by Sunoco to its unitholders , or to otherwise maintain or increase our per-unit distribution levels. As a result of this cash distribution policy, we also may be unable to fund any acquisitions or capital investments that SunocoCorp Manager may otherwise determine to be in our best interests.
The Company Agreement limits the liability and duties of SunocoCorp Manager and restricts the remedies available to us and our unitholders for actions taken by SunocoCorp Manager that might otherwise constitute breaches of fiduciary duty if we were a Delaware corporation.
The Company Agreement limits the liability and duties of SunocoCorp Manager, while also restricting the remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty under Delaware law. Delaware limited liability company law permits such contractual reductions or elimination of fiduciary duties. By acquiring our common units, including pursuant to the Arrangement, our unitholders consent to be bound by the Company Agreement, and pursuant to the Company Agreement, each holder of our common units consents to various actions and conflicts of interest contemplated in the Company Agreement that might otherwise constitute a breach of fiduciary or other duties under Delaware law. For example:
• The Company Agreement permits SunocoCorp Manager to make a number of decisions in its individual capacity, as opposed to its capacity as our managing member. This entitles SunocoCorp Manager to consider only the interests and factors that it desires, with no duty or obligation to give consideration to the interests of, or factors affecting, us or our unitholders. Decisions made by SunocoCorp Manager in its individual capacity (as opposed to in its capacity as our managing member) are made by Energy Transfer, as the owner of SunocoCorp Manager, and not by the board of directors of SunocoCorp Manager. Examples of such decisions include:
◦ decisions to appoint or remove directors from the Sunoco GP Board;
◦ whether to exercise limited call rights;
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◦ how to exercise voting rights with respect to any units it owns; and
◦ whether to consent to any merger or consolidation of us, or amendment to the Company Agreement.
• The Company Agreement provides that SunocoCorp Manager does not have any liability to us or our unitholders for decisions made in its capacity as our managing member so long as it acted in good faith as defined in the Company Agreement, meaning it believed that the decisions were not adverse to our interests.
• The Company Agreement provides that SunocoCorp Manager and the officers and directors of SunocoCorp Manager will not be liable for monetary damages to us for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that SunocoCorp Manager or those persons acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal.
• The Company Agreement provides that SunocoCorp Manager will not be in breach of its obligations under the Company Agreement or its duties to our members with respect to any transaction involving an affiliate if the transaction with an affiliate or the resolution of a conflict of interest is:
◦ approved by the conflicts committee of the board of directors of SunocoCorp Manager, although SunocoCorp Manager is not obligated to seek such approval;
◦ approved by the vote of a majority of our outstanding common units, excluding any common units owned by SunocoCorp Manager and its affiliates; or
◦ the board of directors of SunocoCorp Manager acted in good faith in taking any action or failing to act.
If an affiliate transaction or the resolution of a conflict of interest is not approved by our unitholders or the conflicts committee, then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors of SunocoCorp Manager acted in good faith, and in any proceeding brought by or on behalf of us or any member, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our unitholders have limited voting rights and are not entitled to vote, and generally have no control over how SunocoCorp Manager votes the Sunoco Class D Units held by us.
Unlike the holders of common stock in a corporation, our common unitholders have no voting rights other than on the limited matters specified in the Company Agreement and, therefore, limited ability to influence management’s decisions regarding our business, including, subject to certain limited exceptions relating to the removal of Sunoco GP, no ability to control or influence how SunocoCorp Manager votes the Sunoco Class D Units held by us.
Our common unitholders are not entitled to elect SunocoCorp Manager or its directors. Even if our common unitholders are dissatisfied, they will not be able to remove SunocoCorp Manager.
Our common unitholders have no right on an annual or ongoing basis to elect SunocoCorp Manager or its board of directors. The board of directors of SunocoCorp Manager, including the independent directors, are chosen entirely by Energy Transfer due to its ownership of SunocoCorp Manager, and not by our unitholders. Unlike a publicly traded corporation, we will not conduct annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. The Company Agreement also contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders’ ability to influence the manner or direction of management.
If our unitholders are dissatisfied with the performance of SunocoCorp Manager, they will not have the ability to remove SunocoCorp Manager as the manager.
SunocoCorp Manager may transfer its managing member interest to a third party without the consent of our common unitholders.
SunocoCorp Manager may transfer its managing member interest to a third party without the consent of our unitholders so long as certain conditions are satisfied. Furthermore, the Company Agreement does not restrict the ability of Energy Transfer to transfer all or a portion of its interest in SunocoCorp Manager to a third party. Any new owner of SunocoCorp Manager or the managing member interest would then be in a position to control our management and operation of the business and affairs, including, as applicable to elect or replace the board of directors and executive officers of the managing member without the consent of our unitholders, and thereby may exert significant control over us and may change our business strategy.
SunocoCorp Manager has a limited call right that may require our unitholders to sell their common units at an undesirable time or price.
If, at any time, SunocoCorp Manager and its affiliates own more than 80% of the outstanding non-managing membership interests of us, SunocoCorp Manager will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of our outstanding non-managing membership interests held by unaffiliated persons at a price equal to the greater
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of (1) the average of the daily closing price per non-managing membership interest over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by SunocoCorp Manager or any of its affiliates for any such non-managing membership interests during the 90-day period preceding the date such notice is first mailed. As a result, our unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Our unitholders may also incur a tax liability upon a sale of their membership interests. SunocoCorp Manager is not obligated to obtain a fairness opinion regarding the value of the non-managing membership interests to be repurchased by it upon exercise of the limited call right. There are no restrictions in the Company Agreement on the ability of SunocoCorp Manager to issue additional common units and exercising its call right.
We may issue additional limited liability company interests without the approval of our common unitholders, which would dilute the existing ownership interests of our unitholders.
The Company Agreement does not limit the number of additional membership interests that we may issue. Further, SunocoCorp Manager may authorize the issuance of any number of interests, including interests that rank senior to our common units or that have preferential rights as it relates to voting, distributions or other matters, at any time without the approval of our unitholders. The issuance of additional common units or other equity interests of equal or senior rank relative to our common units will have the following effects:
• the proportionate ownership interest of our existing unitholders will decrease;
• the amount of cash available for distribution on each of our common units may decrease;
• the relative voting strength of each previously outstanding common units may be diminished; and
• the market price of our common units may decline.
We cannot predict the impact the indirect control by Energy Transfer may have on the trading price for our common units.
We cannot predict whether Energy Transfer’s ownership and control of SunocoCorp Manager will result in a lower trading price or greater fluctuations in the trading price of our common units, or will result in adverse publicity or other adverse consequences.
The Company Agreement restricts the voting rights of our unitholders owning 20% or more of any outstanding class of our units.
The Company Agreement limits our unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of the outstanding units of any class, other than SunocoCorp Manager and its affiliates, certain of their transferees and persons who acquired such units with the prior approval of the board of directors of SunocoCorp Manager, cannot vote on any matter.
Our unitholders may have liability to repay distributions.
Under certain circumstances, our unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 18-607 of the DLLCA, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of an impermissible distribution, members who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited liability company for the distribution amount.
The Company Agreement limits the forum, venue and jurisdiction of claims, suits, actions or proceedings.
The Company Agreement is governed by Delaware law. The Company Agreement requires that any claims, suits, actions or proceedings:
• arising out of or relating in any way to the Company Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the Company Agreement or the duties, obligations or liabilities among our members or of members to us, or the rights or powers of, or restrictions on, our members);
• brought in a derivative manner on our behalf;
• asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or SunocoCorp Manager, or owed by SunocoCorp Manager to us or our unitholders;
• asserting a claim arising pursuant to any provision of the DLLCA; or
• asserting a claim governed by the internal affairs doctrine,
be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction). By acquiring our common units, a member is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware in connection with any such claims, suits, actions or proceedings and waives any rights to a jury trial with respect to such proceedings.
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These provisions may have the effect of discouraging lawsuits against the directors, officers, employees and agents of us and/or SunocoCorp Manager. Our members will not be deemed, by operation of the forum selection provision alone, to have waived claims arising under the federal securities laws and the rules and regulations thereunder.
The forum selection provision is intended to apply to the fullest extent permitted by applicable law to the above-specified types of actions and proceedings, including, to the extent permitted by the federal securities laws, to lawsuits asserting both the above-specified claims and federal securities claims. However, application of the forum selection provision may in some instances be limited by applicable law. Section 27 of the Exchange Act provides: “The district courts of the United States ... shall have exclusive jurisdiction of violations of the Exchange Act or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder.” As a result, the forum selection provision will not apply to actions arising under the Exchange Act or the rules and regulations thereunder. However, Section 22 of the United States Securities Act of 1933, as amended (the “Securities Act”), provides for concurrent federal and state court jurisdiction over actions under the Securities Act and the rules and regulations thereunder, subject to a limited exception for certain “covered class actions” as defined in Section 16 of the Securities Act and interpreted by the courts. Accordingly, it is anticipated that the forum selection provision would apply to actions arising under the Securities Act or the rules and regulations thereunder, except to the extent a particular action fell within the exception for covered class actions.
As a “controlled company,” we are not required to comply with certain NYSE corporate governance requirements.
Because Energy Transfer has the ability to elect all of the members of the board of directors of SunocoCorp Manager, we are considered a “controlled company” for the purposes of the NYSE’s listing rules and corporate governance standards. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including:
• the requirement to have a majority of directors on SunocoCorp Manager’s board of directors consist of “independent directors” as defined under the rules of the NYSE;
• the requirement to establish a compensation committee that is composed entirely of directors who meet NYSE independence standards for compensation committee members or to adopt a written charter addressing the committee’s purpose and responsibilities;
• the requirement that director nominations be made or recommended by independent directors or a nominating committee consisting entirely of independent directors, or to adopt a written charter or board resolution addressing the nominations process; or
• the requirement for annual performance evaluation of the nominating and corporate governance and compensation committee.
We may rely on some or all of these exemptions for so long as we remain a “controlled company.” As a result, the members of the board of directors of SunocoCorp Manager and any committees thereof may have some or all directors who do not meet the NYSE’s independence standards. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, our common unitholders may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements.
Because our common units are non-voting, we and our members are exempt from certain provisions of U.S. securities laws. This may limit the information available to our common unitholders or their ability to vote on certain matters.
Because our common units are non-voting, our common unitholders are exempt from the obligation to file reports under Sections 13(d), 13(g), and 16 of the Exchange Act. These provisions generally require significant unitholders to report their beneficial and economic ownership. The directors and officers of SunocoCorp Manager and us, as applicable, are required to file reports under Section 16 of the Exchange Act. However, our significant unitholders, other than directors and officers, are exempt from the “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.
Since our common units are the only class of our equity registered under Section 12 of the Exchange Act and that class is non-voting, we also are not subject to the proxy rules under Section 14 of the Exchange Act, unless a vote of our common units is required by the Company Agreement or applicable law. Our common units are “non-voting” under the NYSE listing standards and corporate governance standards. Accordingly, our common unitholders may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements.
Detail of Tax Risks to Unitholders
Taxable gain or loss on the sale of our common units could be more or less than expected.
If a holder sells our common units, the holder will recognize gain or loss equal to the difference between the amount realized and the holder’s tax basis in those common units. To the extent that the amount of our distributions exceeds our current and accumulated earnings and profits, the distributions will be treated as a tax free return of capital and will reduce a holder’s tax basis in the common
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units. Because distributions in excess of our earnings and profits decrease a holder’s tax basis in common units, such excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of loss, recognized by the holder upon the sale of the common units.
We may be subject to a 1% U.S. federal excise tax in connection with redemptions of our common units.
Under the Company Agreement, we are entitled, in certain circumstances, to redeem the membership interests of certain of our members and we may from time to time create classes of membership interests that by their terms carry certain redemption rights. A 1% U.S. federal excise tax applies to certain repurchases (including redemptions) of stock by publicly traded U.S. corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from whom the shares are repurchased (although it may reduce the amount of cash distributable in a current or subsequent redemption). The amount of the excise tax is 1% of the fair market value of any shares repurchased by the repurchasing corporation during a taxable year, which may be potentially netted by the fair market value of certain new stock issuances by the repurchasing corporation during the same taxable year. In addition, a number of exceptions apply to this excise tax.
Any redemption or other repurchase by us of any of our membership interests may be subject to this excise tax. Because any such excise tax would be payable by us and not by the redeeming holder, it could reduce the cash available for distribution to our unitholders, including in a subsequent liquidation and may cause a reduction in the value of our common units.
The IRS Forms 1099-DIV that our unitholders receive from their brokers may over-report dividend income with respect to our common units for U.S. federal income tax purposes, which may result in a unitholder’s overpayment of tax. In addition, failure to report dividend income in a manner consistent with the IRS Forms 1099-DIV may cause the IRS to assert audit adjustments to a unitholder’s U.S. federal income tax return. For non-U.S. holders of our common units, brokers or other withholding agents may overwithhold taxes from dividends paid, in which case a unitholder generally would have to timely file a U.S. tax return or an appropriate claim for refund in order to claim a refund of the overwithheld taxes.
Distributions we pay with respect to our common units will constitute “dividends” for U.S. federal income tax purposes only to the extent of our current and accumulated earnings and profits. Distributions we pay in excess of our earnings and profits will not be treated as “dividends” for U.S. federal income tax purposes; instead, they will be treated first as a tax-free return of capital to the extent of a unitholder’s tax basis in their shares and then as capital gain realized on the sale or exchange of such shares. We may be unable to timely determine the portion of our distributions that is a “dividend” for U.S. federal income tax purposes, which may result in a unitholder’s overpayment of tax with respect to distribution amounts that should have been classified as a tax-free return of capital. In such a case, a unitholder generally would have to timely file an amended U.S. tax return or an appropriate claim for refund in order to obtain a refund of the overpaid tax.
For a U.S. holder of our common units, the IRS Forms 1099-DIV may not be consistent with our determination of the amount that constitutes a “dividend” for U.S. federal income tax purposes or a unitholder may receive a corrected IRS Form 1099-DIV (and may therefore need to file an amended federal, state or local income tax return). We will attempt to timely notify our unitholders of available information to assist with income tax reporting (such as posting the correct information on our website). However, the information that we provide to our unitholders may be inconsistent with the amounts reported by a broker on IRS Form 1099-DIV, and the IRS may disagree with any such information and may make audit adjustments to a unitholder’s tax return.
For a non-U.S. holder of our common units, “dividends” for U.S. federal income tax purposes will be subject to withholding of U.S. federal income tax at a 30% rate (or such lower rate as specified by an applicable income tax treaty) unless the dividends are effectively connected with conduct of a U.S. trade or business. In the event that we are unable to timely determine the portion of our distributions that is a “dividend” for U.S. federal income tax purposes, or a unitholder’s broker or withholding agent chooses to withhold taxes from distributions in a manner inconsistent with our determination of the amount that constitutes a “dividend” for such purposes, a unitholder’s broker or other withholding agent may overwithhold taxes from distributions paid. In such a case, a unitholder generally would have to timely file a U.S. tax return or an appropriate claim for refund in order to obtain a refund of the overwithheld tax.
