Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- S-Oil Corp (XKRX:010950, Financial) reported KRW168.6 billion in operating income for Q2 2024, supported by improved results in the petrochemical segment.
- The company is actively enhancing its safety management systems, achieving Kosha MS certification and recording zero safety incidents in the first half of 2024.
- S-Oil Corp is progressing well with the Shaheen project, with a 94.9% progress rate in site preparation, aiming to enhance corporate value in the long term.
- The petrochemical business saw a significant income improvement, with operating income reaching KRW109.9 billion in Q2 2024.
- The company maintains a stable financial structure with a cash balance of KRW1.33 trillion and a net debt to equity ratio of 58.1%.
Negative Points
- S-Oil Corp's refining business segment recorded a loss of KRW95 billion in Q2 2024 due to weak refining margins.
- The company experienced a net FX loss of KRW152.2 billion due to an increase in the dollar rate.
- The overall impact of oil price movements led to a slight decrease in income before tax compared to the previous quarter.
- The company's cash balance slightly decreased due to capital expenditures for the Shaheen project and dividend payouts.
- There is uncertainty regarding the impact of global geopolitical tensions and extreme weather patterns on refining operations and margins.
Q & A Highlights
Q: What impact will hurricanes and extreme heat have on the supply side, and what is the status of new refineries like Dangote and Olmeca?
A: The US NOAA predicts a higher frequency of hurricanes, potentially causing operational disruptions in Gulf Coast refineries. Extreme heat could interrupt around 1.5 million BD of capacity, similar to last year. The Dangote refinery in Nigeria is operating at 40-50% capacity, with plans to ramp up in the second half of the year. The Olmeca refinery in Mexico is nearing construction completion but faces startup issues, with normal operations expected in the first half of 2025.
Q: How might the US elections impact the global refining industry, and could inflation affect the Shaheen project's CAPEX?
A: The US elections introduce uncertainties in economic and energy policies. If the Republican party wins, fuel efficiency regulations may ease, potentially boosting fuel demand. The Shaheen project's CAPEX is unlikely to be affected by inflation as it is based on a lump-sum turnkey contract, minimizing external market volatility risks.
Q: Why did chemical utilization rates fall in Q2 despite strong profits, and what is the outlook for lubricant capacity and margins?
A: The lower utilization rates were a strategic decision to optimize economics. The PX and TPNPO processes underwent cleaning, with plans to increase run rates in Q3. Lubricant demand is expected to grow, with net growth forecasted at 280,000 BD in 2024, increasing to 330,000 BD by 2026. Supply will slightly decrease due to restructuring, with uncertainties in market impact until products are fully marketed.
Q: How have Ukraine's drone attacks affected Russian refining capacity, and what is the progress on S-Oil's immersion cooling business?
A: Drone attacks have intermittently disrupted Russian refining capacity, with significant impacts in April and June. However, the overall market impact has been minimal due to slow diesel demand in Europe. S-Oil is developing immersion cooling solutions, currently in the demo testing phase, with updates expected in the second half of the year.
Q: What are S-Oil's plans for carbon reduction, and how will this affect costs and earnings?
A: S-Oil aims to reduce carbon emissions by 35% by 2030, focusing on energy efficiency and low-carbon technologies. In the short to medium term, no additional costs are expected as initiatives will secure their own economics. Long-term plans include co-generation and green energy sources, with potential new business opportunities in sustainable aviation fuel.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
