S-Oil Reports Record High Operating Profit of 2.3 Trillion Won Last Year... "'Shahin Project' to Complete in 2026" (Comprehensive)

Last Year Operating Profits: 1 Trillion KRW in Jeongyu, 300 Billion KRW in Seokhwa, 1 Trillion KRW in Yunhwalgiyu

"Expansion of Petroleum Product Demand and Increase in Refining Margins... Good Performance Expected This Year as Well"

"Dividend Payout Ratio Maintained at Around 30% of This Fiscal Year's Net Income"

Hussein Al Qatani, CEO of S-OIL. (Photo by S-OIL)

[Asia Economy Reporter Moon Chaeseok] S-OIL achieved its highest operating profit since its establishment last year. Riding on this success, the company plans to complete the basic design work and final investment approval for the 7 trillion KRW-scale petrochemical production facility construction project, the 'Shahin Project,' within this year and complete the facility by 2026.

S-OIL announced on the 27th that its annual operating profit last year recorded 2.3064 trillion KRW, turning positive compared to the previous year. During the same period, sales amounted to 27.4639 trillion KRW, marking a 63.2% increase from the previous year. Net profit also set a record high since the company's founding at 1.5001 trillion KRW.

The company explained that sales increased significantly due to the rise in product selling prices following the increase in oil prices and the recovery in demand for petroleum products. Improvements in refining margins due to the recovery in oil demand and inventory valuation gains from rising oil prices pushed up operating profits. Maintaining the operation rate of core facilities at the maximum level also impacted the performance.

By business segment, refining recorded an operating profit of 1.0277 trillion KRW, petrochemicals 277 billion KRW, and lubricants 1.017 trillion KRW. The recovery in demand for petroleum products, which had been depressed due to the COVID-19 pandemic, led to an increase in refining margins, and demand for high-quality lubricants continued, influencing the results. The company stated that profits were maintained at a level higher than before COVID-19.

The refining segment's performance was influenced by a significant rise in Asian refining margins as petroleum product demand continued to recover following the easing of COVID-19 restrictions. In the petrochemical segment, propylene oxide (PO) margins decreased due to the operation of new PO plants in China and a slowdown in downstream demand caused by the widespread COVID-19 variant outbreak. Conversely, polypropylene (PP) margins increased as demand for medical and packaging materials rose, and coal and propane prices surged, leading to lower PP facility operation rates in China. Lubricants, which posted record-high results in Q2 last year, maintained levels higher than pre-COVID-19.

The company also reported that net profit set a record high. The net profit will be used for dividends to shareholders, strengthening financial soundness, and funding the second phase petrochemical project, the 'Shahin Project,' which is being prepared for the company's sustainable growth.

Meanwhile, narrowing down to the fourth quarter of last year, sales reached 8.2911 trillion KRW, and operating profit was 556.7 billion KRW, marking five consecutive quarters of operating profit since Q4 2020. Sales increased by 16.5% quarter-on-quarter due to higher selling prices from rising oil prices and increased product sales volume. Operating profit rose by 1.3% quarter-on-quarter as refining margins surged significantly amid continued demand recovery.

The company expects to achieve good performance this year as well. Although petroleum product inventories are at their lowest levels in recent years, demand is increasing, making it highly likely that refining margins will rise. Demand for petrochemical products and lubricants is also expected to remain at high levels.

During the '2021 Q4 Earnings Conference Call' held online on the same day, S-OIL also explained the progress of the 7 trillion KRW 'Shahin Project.' S-OIL stated, "The Shahin Project will complete the basic design work by June and finalize investment approval within this year." They added, "We expect construction to be completed in the first half of 2026," and "Currently, detailed design is underway, and once FID is completed, we plan to communicate with the market regarding detailed investment scale and capacity."

This project is the second phase project that S-OIL is promoting to expand its petrochemical business, focusing on constructing SC&D (Steam Cracker and Olefin Downstream) facilities. The SC&D facilities will apply the TC2C technology (technology converting crude oil into petrochemical materials) developed by its parent company, Aramco. The steam cracker is a facility that produces about 1.8 million tons per year of ethylene and other petrochemical raw materials using naphtha and by-product gases as raw materials. The olefin downstream facilities produce high value-added petrochemical products such as polyethylene (PE) and polypropylene (PP).

Additionally, during the conference call, the company disclosed ▲ expectations for improvement in Asian refining margins due to export quota restrictions in China ▲ anticipation of cooperation with Saudi Arabia in blue ammonia and blue hydrogen production and distribution ▲ signing of a memorandum of understanding (MOU) with Aramco for plastic waste recycling technology cooperation ▲ plans to maintain a dividend payout ratio of about 30% of net profit for this fiscal year ▲ and plans for regular maintenance of crude distillation units (CDU) and residue fluid catalytic cracking units (RFCC) this year.