SK Energy announced first quarter earnings results for 2009. In the first quarter operating profit and net income increased by 62% at KRW645.8 billion.

SK Energy’s operating profit jumped by 62% year-over-year (YoY), based on strong performance and operational excellence. Other factors such as additional petroleum export volume, propelled by the full operation of the No.2 RFCC, higher daily production volume of exploration and production (E&P), and the strong US dollar versus the Korean Won have attributed to boost the operating profit.

The quarter’s net income increased by 2% YoY, due to the significant increase in operating profit in spite of increase in net foreign exchange losses by continued Korean Won depreciation in the first quarter.

Joon-Sung Choi, head of investor relations and controller at SK Energy, said, “Amid continued concerns of a volatile business environment and global economic slowdown, SK Energy achieved solid overall performance in the first quarter mainly due to the successful export drive in petroleum and petrochemical businesses.” He added, “We expect second quarter market conditions to continue to be challenging. However, SK Energy is committed to strengthening the fundamental competitiveness of each business sector, and continuing its global expansion drive to diversify export markets.”

Business Sector Performance:

Petroleum

— The petroleum business posted First quarter revenue of KRW5,807.7 billion, a 14% YoY decrease. Operating profits increased by 45% YoY to KRW430.2 billion, a result of improved refining margins and write-back of previous inventory evaluation losses

— Export volume of the three light distillates – gasoline, diesel, and kerosene – increased by 75% YoY. The full operation of the No.2 RFCC and No.2 RFCC (Residue Fluidized Catalytic Cracking)’s capacity expansion, from 60,000 b/d to 70,000 b/d, were the main driver of the record-breaking export sales in the quarter

— The first quarter petroleum business operating profit jumped by 76% quarter to quarter, higher than market expectation. The key reasons are, first of all, refining margins improved as global supply tightened from reduced refinery utilization in response to poor margins in the 4th quarter. Second, as crude oil and petroleum product market prices rebounded, a portion of previous quarter inventory valuation loss was recovered.

Petrochemical

— First quarter revenue of the petrochemical business decreased by 17% YoY to KRW1,807.3 billion while its operating profit sharply increased by 345% YoY to KRW129.4 billion

— Key factors contributing to the favorable petrochemical operating profit include rising demand from China following the government’s new economic stimulus package, the faster-than-expected rebound in market condition for Olefin/Aromatics, and favorable foreign exchange rates

— SK Energy forecasts the petrochemical business will maintain consistent performance in the second quarter based on the continued recovery of Chinese demand and delays of some new projects in the petrochemical industry.

Exploration and Production (E&P)

— First quarter revenue and operating profit of E&P business improved by 47% and 60% YoY, to KRW150.6 billion and KRW97.1 billion respectively, due to the additional crude oil production volume and rise in foreign exchange rates. The quarterly operating profit, KRW97.1 billion, also marked the second largest amount in the its history

— E&P average daily production increased by 4,000 barrels quarter-over-quarter (QoQ) to 40,000 barrels per day, driven by the timely production ramp-up at the new Sutuvang field in Vietnam 15-1 and normalization of Brazil BMC-8 block production

— E&P business expanded its portfolio this year by acquiring five additional exploration blocks, the Oman 51 block, Brazil BM-BAR3 block, Kazakhstan Zhambyl block, WA-425-P block and WA-431-P block in Australia.

Lubricants

— In the first quarter, revenue of the lubricants business decreased by 16% YoY and 46% QoQ to KRW267 billion with its quarterly operating loss of KRW7.7 billion

— The sharp drop in base oil prices and declining demand for lubricant products due to weak new automobile sales, related to the global economic downturn, caused the business’ operating performance to move to loss side

— SK Energy forecasts current adverse market conditions will continue throughout the second quarter 2009, with signs of recovery, including improved earnings, to come in the second half of 2009.