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SK Petrochemicals performance improves in second quarter
25
Jul '08
SK Energy, Korea's leading energy provider, today announced 2008 second quarter and first half earnings results. Second quarter operating profits rose 33% from the prior year to KRW 532.4 billion. The increase was led by solid performance in the petroleum business resulting from historically high cracking margins and better than expected petrochemical margins, despite a downturn in the petrochemical market.

The company's second quarter sales revenue increased 77% year-over-year to KRW 12,109.8 billion. The jump in sales revenue was the result of high product prices reflecting the ensuing rise in crude oil prices and expanded sales volume from the merger with SK Incheon Oil in February 2008.

Net profits decreased 61% YOY, due to a combination of the exclusion of equity method earnings from investment assets, which reverted to SK Holdings and the continued depreciation of the Korean won, which lead the company to post a foreign-exchange loss of KRW 205.1 billion. However, net profit will be normalized if foreign exchange is stabilized in the second half.

“Although the business environment for the second half of 2008 undoubtedly will be challenging, SK is prepared to exceed its annual business target with its diversified portfolio and flexible management strategies,” said Heon-Cheol Shin, President and CEO of SK Energy. “We are especially optimistic about the Exploration and Production business,. E&P is a core element of SK Energy's future growth strategy, which is to make the company a truly integrated energy player on a regional scale.”

SK Energy expects to continue the expansion of its strong performing E&P business in the second half of 2008. Daily production volume will increase with additional oil coming in from Peru 56 Block and Vietnam 15-1 Block. The company is also actively engaged in exploration activities with plans to explore blocks in Kazakhstan, Brazil, Russia and the U.K. SK Energy currently participates in 31 blocks in 16 countries with a proven reserve of 500 million BOE.

In addition, SK Energy expects to benefit from favorable cracking margins with the start-up of the new 60,000 B/D RFCC (Residue Fluid Catalytic Cracking) unit. The new facility started commercial production in June, producing premium refining products, such as gasoline and diesel, utilizes low-priced high sulfur fuel oil as feedstock further maximizing margins. With the new RFCC running at full capacity, the light to mid-distillate products will be added to the company's export volume to the Asia Pacific market, where petroleum demand continues to increase.

BUSINESS SECTOR PERFORMANCE:

Petroleum:
• Petroleum division's 2nd quarter sales totaled KRW 8,349 billion, an 84% jump YOY as a result of additional sales volume from SK Incheon Oil and higher product prices.

• 2nd quarter operating profit reached KRW 230 billion, a 21% increase compared to the same period in 2007 on the back of strongcracking margins and improved export margins.

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