S-OIL, 2Q Operating Profit 571 Billion Won... Record Half-Year Performance

[Asia Economy Reporter Hwang Yoon-joo] S-OIL has achieved its highest-ever half-year performance through an innovative transformation driven by large-scale petrochemical facility investments.

S-OIL announced on the 27th that it recorded an operating profit of 1.2002 trillion KRW in the first half of this year. This surpasses the previous best performance of 1.1326 trillion KRW in the first half of 2016.

S-OIL posted an operating profit of 571 billion KRW in the second quarter, continuing its 'earnings surprise' following 629.2 billion KRW in the first quarter. It has maintained a three-quarter streak of operating profit since the fourth quarter of last year. Half-year sales reached 12.0558 trillion KRW, a 39.4% increase compared to 8.0602 trillion KRW in the same period last year.

S-OIL’s outstanding performance, significantly exceeding market consensus despite unfavorable conditions due to weak Singapore refining margins, is particularly noteworthy. Even though inventory-related profits were reduced by more than half compared to the previous quarter (286 billion KRW → 139 billion KRW), improved margins on key products such as gasoline and diesel helped maintain high performance, with sales volume and revenue increasing by 11.6% and 25.6%, respectively.

Regarding this, S-OIL stated, "Due to the weak price of heavy oil, Singapore refining margins were poor, leading to lower operating rates for economically less viable regional refining facilities. However, S-OIL utilized its new upgrading complex (RUC) to process heavy oil as feedstock to produce gasoline and propylene (a petrochemical raw material), thereby continuing maximum operation and turning this into an opportunity to enhance profitability." The spread of heavy oil such as high-sulfur bunker-C (HSFO-Dubai crude price) fell from -$4.9 per barrel in Q1 to -$7.8 in Q2. Meanwhile, S-OIL’s main product, gasoline, rose 58.8% from $5.1 to $8.1 during the same period. Product sales volume also increased by 11.6% compared to the previous quarter.

S-OIL’s excellent results are even more encouraging as the operation of the new petrochemical complex facilities (RUC/ODC) stabilizes, diversifying and strengthening sources of profit. The non-refining sectors such as petrochemicals and lubricants accounted for 58.8% (705.7 billion KRW) of the half-year operating profit. Notably, although the lubricant base oil segment’s sales accounted for only 9.8% (1.1858 trillion KRW), it generated 39.4% (473.4 billion KRW) of operating profit. Meanwhile, the refining segment accounted for 71.7% of sales (8.6456 trillion KRW) and 41.2% of operating profit (494.5 billion KRW), driving balanced performance growth across business divisions.

Efforts to prepare by conducting scheduled maintenance of major production facilities during the difficult second and third quarters of last year?amid the worst conditions caused by COVID-19 impacts on petroleum product demand, refining margin declines, and large inventory valuation losses?also paid off. Since the fourth quarter of last year, S-OIL has operated all major facilities at maximum capacity without shutdowns due to maintenance. Operating rates of key production facilities are at full capacity: crude oil refining at 98.8%, heavy oil cracking at 103.9%, olefin production at 109.7%, and lubricant base oil at 101%.