S-Oil’s 2023 operating profit more than halves on weak refining margins

S-Oil Corp., the South Korean unit of Saudi Arabian Oil Co., on Friday posted a 58.3% decline in its operating profit last year, weighed by lower refining margins amid weak global oil prices.

S-Oil, Korea’s third-largest oil refiner, said in a regulatory refiling that its 2023 operating profit on a consolidated basis fell to 1.42 trillion won ($1.1 billion) from 3.41 trillion won a year earlier.

Sales declined 16% to 35.73 trillion won from 42.45 trillion won while net profit shed 53% to 998.2 billion won from 2.1 trillion won.

The company said its sales decreased as product prices fell in the wake of weak global oil prices while large-scale regular maintenance work and weaker refining margins reduced its refining business profits.

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.

Refining margins usually move in sync with global crude oil prices.

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 posted an operating profit of 399.1 billion won in 2023, down sharply from 2.34 trillion won a year earlier. Its petrochemical business posted 203.7 billion won in operating profit, a turnaround from a loss of 49.8 billion won in the previous year.

The company’s lubricants business posted 815.7 billion won in operating profit, down from a profit of 1.1 trillion won.

On a quarterly basis, S-Oil swung to an operating profit of 7.6 billion won in the December quarter, from a loss of 160.4 billion won in the year-earlier period.

Fourth-quarter sales fell 7.2% on year to 9.83 trillion won from 10.59 trillion won while net profit declined 8.3% to 209.8 billion won from 228.9 billion won.

Its refining business posted an operating loss of 265.7 billion won in the fourth quarter while its petrochemical and lubricants divisions posted operating profits of 47 billion won and 226.2 billion won, respectively.

“Regional refining margins narrowed in the fourth quarter due to an off-seasonal demand slowdown for transport fuels and the milder-than-usual early winter weather, but low inventory levels offered support,” it said.

S-Oil said benchmark Dubai crude prices declined largely due to increased non-OPEC crude oil output, although the downside was restrained by the extension of production cuts by OPEC+, or OPEC members plus other oil-producing countries.

2024 OUTLOOK

The company said it expects regional refining margins to maintain at above-average levels this year, boosted by steady demand growth and low inventories.

It said it plans to shut its No. 1 crude distillation unit sometime this year for maintenance.

The company said the Asian market for the company’s key products paraxylene (PX) and benzene is forecast to grow at a solid pace this year, while the polypropylene (PP) and propylene oxide (PO) markets are expected to see a gradual recovery in line with a rebounding Chinese economy, although an industry facility ramp-up will limit upside potential.

SHAHEEN PROJECT

S-Oil said its Shaheen project is on the right track with construction work expected to be completed in the first half of 2026.

The mega-project 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).

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 years has ballooned the estimated costs to 9.26 trillion won.

During an earnings conference call with analysts on Friday, S-Oil executives said the company plans to limit investments in other projects until the Shaheen project is completed.

The company spent 1.65 trillion won on the Shaheen project last year and plans to spend 2.7 trillion won this year. The remaining investment will be made between 2025 and 2026, it said.

Write to Hyung-Kyu Kim at khk@hankyung.com

In-Soo Nam edited this article.