S-Oil basks in hefty Q3 profit, expects strong winter demand

S-Oil Corp., the South Korean unit of Saudi Arabian Oil Co., said on Monday it swung to a net profit in the third quarter from a loss the year earlier as higher oil prices boosted its refining margins.

S-Oil, Korea’s third-largest oil refiner, also said it expects strong winter demand, coupled with low global inventories and limited supply potential, to continue to support Asia’s refining margins at solid levels.

In the July-September quarter, S-Oil posted 545.4 billion won ($403 million) in net profit, a turnaround from a loss of 959.3 billion won in the year-earlier period, the company said in a regulatory filing.

Its operating profit jumped 68% to 858.9 billion won on a consolidated basis from 511.7 billion won while sales fell 19% to 9 trillion won from 11.1 trillion won.

Company officials said maintenance work at some Asian refiners led to tight supply in the third quarter while sales of jet fuel and gasoline jumped due to increased travel demand during the summer holiday season.

In the first nine months of the year, S-Oil posted a 58% fall in net profit to 788.3 billion won from 1.87 trillion won a year ago.

Its January-September operating profit declined 60% to 1.41 trillion won from 3.56 trillion won. Sales fell 19% to 26 trillion won from 31.85 trillion won.

A refining margin is the difference between the total value of petroleum products and the cost of crude and related services and is considered a key indicator of refiners' profitability.

Global crude oil prices usually move in sync with refining margins.

S-Oil, Korea’s No. 3 refiner after top player SK Innovation Co. and No. 2 GS Caltex Corp., is 63.4% owned by Saudi Arabia’s state-run oil giant Aramco.

BUSINESS BREAKDOWN

By business division, S-Oil’s oil refining business recorded 666.2 billion won in operating profit in the third quarter on sales of 7.2 trillion won.

Its petrochemical business posted 45.4 billion won in operating profit on sales of 1.12 trillion won.

The Asian market for the company’s key products paraxylene (PX) and benzene was strong in the third quarter, but the polypropylene (PP) and propylene oxide (PO) markets were weak due to the slowdown in the Chinese manufacturing industry.

S-Oil’s lubricants business posted 147.2 billion won in operating profit on sales of 676.1 billion won.

A company official said S-Oil’s Shaheen project is on the right track as it is raising funds at relatively favorable conditions.

“We have signed loan contracts with banks at favorable interest rates and secured diversified financing options to respond to future financial market uncertainty,” he said.

The megaproject titled Shaheen, meaning hawk in Arabic, is to build facilities at S-Oil’s main plant in Ulsan, southeast of Seoul, to manufacture petrochemical products such as ethylene and polyethylene (PE).

The company plans to complete construction work by 2026. When completed, the factory will have an annual production capacity of 1.8 million tons.

The project was estimated at around 7 trillion won when it was conceived in 2019, but the Korean currency’s weakness against the dollar over the past year has ballooned the costs.

SIGNS MOU ON WASTE PLASTIC DECOMPOSITION OIL

Separately, S-Oil said on Monday it has signed a memorandum of understanding with Korea Blue Energy Ulsan Co. on eco-friendly circular energy business cooperation.

Under the initial agreement, the two companies plan to establish a circular energy system to produce eco-friendly products from waste plastic, which used to be incinerated or landfilled.

S-Oil said it will receive thermal decomposition oil from its partner and then process it alongside crude oil to produce eco-friendly naphtha and polypropylene.

S-Oil obtained regulatory approval from the Ministry of Trade, Industry and Energy in July for the project.

"We are actively pursuing the eco-friendly, circular energy businesses. We are committed to reducing the use of limited energy resources and actively participating in the transition to a circular economy that minimizes negative environmental impacts,” said an S-Oil official.

Write to Mi-Sun Kang at misunny@hankyung.com

In-Soo Nam edited this article.