Oil companies having a great 2015

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Oil companies having a great 2015

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Recent low international oil prices have helped Korean oil companies in the first quarter overcome last year’s slump. But there are worries that the effect will be fleeting.

S-Oil, one of the nation’s big four oil refiners, announced Monday its highest operating-profit-to-sales ratio since 2012 and the other three are also expected to show good results, according to the industry.

S-Oil said its operating profit for the quarter was 238.1 billion won ($221.6 million), a 407.3 percent rise from a year earlier. The 5.4 percent operating-profit-to-sales ratio was the highest since the third quarter of 2012 when it was 6.1 percent.

In the fourth quarter of last year the company had a 243.9 billion won operating loss.

Its net profit also increased by 732.2 percent from a year ago to 211.3 billion won, but the year-on-year revenue dropped by 42.5 percent to 4.378 trillion won.

“Profitability in the oil refining business was improved due to the increased demand for oil products caused by low international oil prices,” said S-Oil in a statement.

Operating profit in oil refining was 119 billion won, the highest in six years and the first profit since the second quarter of 2013.

“As the demand for oil products increased, the benchmark Singapore complex gross refining margin in the first quarter increased to 6 dollars per barrel, the highest level in six years,” the company added. “That means that the profitability of the business has been improved greatly.” The margin for the first quarter of last year was only $2.9 per barrel.

“Due to the low oil prices, average demand for oil products in advanced countries increased by about two percent from a year ago,” said analyst Choi Ji-hwan of NH Investment & Securities. “It also boosted the sales of industrial products including bunker c-oil used for maritime transport.”

The industry expects other oil companies to post positive performances for the quarter. SK Innovation, which had a 463 billion won operating loss in the fourth quarter of last year, is expected to make 226.6 billion won in operating profit this quarter, while GS Caltex, which had a 452.3 billion won operating loss in the fourth quarter, is expected to make 200.5 billion won in operating profit this quarter, according to the industry.

But the companies worry the rebound might be temporary - especially if oil prices rise.

The companies are trying to cut expenses to keep profits going. The nation’s No. 1 oil company, SK Innovation, has cut its budget for business operations including overseas business trips and education programs for employees by 20 percent from a year ago. Executives who were able to enjoy business class on business trips were ordered to take economy class. The salary for SK executives was cut by an average of 10 to 20 percent. The company has put a plot of land in Incheon, which is worth about 20 billion won, on sale.

GS Caltex is trying to sell about 100 gas stations directly run by the company. That could raise about 300 billion won. S-Oil recently replaced all the lights at its headquarters in Mapo District, western Seoul, with LEDs.

BY KWON SANG-SOO, LEE SOO-K [kwon.sangsoo@joongang.co.kr]

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