SK Innovation Co., the energy solutions arm of South Korean conglomerate SK Group, posted the second-highest-ever quarterly profit in the second quarter, benefiting from business rationalization efforts and returns from investment in chemical and lubricants business.

SK Innovation said in a regulatory filing on Friday that it registered 1.1 trillion won ($978 million) in operating profit on sales of 10.3 trillion won, up 20.9 percent on year, for the second quarter ended on June 30, 2016. The operating profit jumped 12.0 percent compared to the same quarter last year and it is the second-highest-ever operating profit after it posted 1.4 trillion won in the first quarter 2011. Its cumulated operating profit from January-June period this year marked 1.96 trillion won, a record high for a half-year period.

The company was able to maximize the profit from the petroleum business through operation optimization and “preemptive” investment in petrochemicals business, stated SK Innovation in the report. The operation optimization refers to a decision-making process based on the scientific analysis in all business areas ranging from raw materials procurement, production, and sales.

The petroleum division posted 705.2 billion won in operating profit on sales of 7.4 trillion won in the April-June quarter. The cracking margin, the difference between global oil price and the petroleum products that indicates profit margin of a petroleum business remained weak due to abundant petroleum products supplies from global oil refiner’s high factory operation rate.

But thanks to gains on oil inventory from oil price hike and upgraded business performance through the operation optimization process, its second quarter operation profit jumped 44 percent on quarter. The global oil price maintained upward trend throughout the second quarter this year due to the production delay in Canada and Nigeria and drop in both oil inventory and production in North America.

The company forecasts the cracking margin will recover in the second half as it expects the petroleum products shipment to fall from scheduled maintenance works at global oil refiners and slower output.

The petrochemical division posted a record-high quarterly operating profit of 302.7 billion won despite the declined sales due to regular repairs and maintenance as the spreads, the price difference between the chemical product price and the raw material naphtha over the main products including ethylene and p-xylene remained strong.

Its lubricants division recorded 132.9 billion won in operating profit in the second quarter. Although its profit margin suffered due to rising in raw material price, its sales expanded from demand hike in global lubricant market.

The oil exploration and development division registered 16.6 billion won, 28.5 percent drop compared to the previous quarter, due to higher operational expenses from expanded production. Its daily crude oil output for the second quarter edged up to 61,000 barrels from 55,000 barrels in the previous quarter. Its sales recorded 120.2 billion won, slightly improving from 120.0 billion won sales in the first quarter due to diminished sales and weaker exchange rate although the global crude oil price rose.

SK Innovation share finished Friday at 150,000 won, up 5,500 won or 3.81 percent from the previous session.

By Jung Wook

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