SK Energy's Q4 refining business suffers from weak margins

SK Innovation’s refining business SK Energy suffered a drop in operating profit in the fourth quarter of 2012 due to weak refining margins and inventory losses.
The refining business posted a 55% year-on-year drop in operating profit to US$70.7 million for the fourth quarter, SK Innovation said on February 1.
It attributed the decline to weak refining margins from the, “unfavorable petroleum market conditions and an inventory-related loss caused by lower oil prices during the fourth quarter.”
The refiner did not give details on its fourth-quarter margins, only saying that refining margins decreased due to a fuel oil deficit and increased supply after global refineries completed their maintenance. The fuel oil deficit widened to minus US$11.3/barrel in Q4 2012 compared with minus US$2.8/barrel in the same period the previous year, it said.
The refining margin, “is forecast to improve in Q1 2013, as stable demand is expected from emerging Asian countries such as Indonesia and Vietnam, especially during the season of overall supply reduction as European and other Asian refineries enter their regular maintenance period,” it said.
The refiner sold 78.26 million barrels of refined oil products in the fourth quarter of 2012, up 2.4% from 76.41 million barrels sold a year earlier, and up 2.6% from third-quarter sales. Of the total, 48.41 million barrels, or 61.8%, were shipped to overseas markets in the October-December 2012 quarter, up from 57.3% a year earlier and 60.3% in the third quarter.
SK Innovation’s overall operating profit, including its petrochemicals and upstream business segment, fell 44.1% year-on-year to US$182.2 million, which the company again attributed to weak refining margins, inventory-related losses incurred by lower oil prices and a reduction in base oil demand. But its net profit went up 50.8% year-on-year to US$209.6 million, helped by foreign exchange gains.
The refiner operated its crude distillation units (CDU) at an average 80% capacity in the fourth quarter, flat from a year earlier and slightly up from 79% in the previous quarter.
The company’s exploration and production segment reported an operating profit of US$118.5 million in the fourth quarter, up 59.6% from US$74.3 million a year ago. The average daily production in the quarter was 61,000 bpd of oil equivalent, down from 66,000 bpd in the third quarter. (February 4, 2013)