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Thursday, June 24, 2010

SK Energy to Focus on Oil Drilling, Batteries for Future Growth

Bloomberg Business Week

SK Energy Co., South Korea’s biggest refiner, said it will focus on producing oil and gas overseas, developing electric-car batteries and making petrochemicals with emissions-reduction technology to drive future earnings.

“The current business model may not be able to boost the company’s operating profit a lot from now,” Chief Executive Officer Koo Ja Young told reporters on June 18. “Innovations in the business model, and in technology, are needed.”

Refiners in South Korea, Asia’s largest fuel exporter, are seeking new growth engines as expanding Chinese and Indian suppliers cut profitability. SK Energy took the first step toward reorganizing in October by turning its lubricants division into a wholly owned unit.

“This is very positive in the long term,” said Cho Seung Yeon, an analyst at HMC Securities Co. “The reorganization will let each division focus resources on its own business while the parent boosts investment in new sectors.”

Starting next year, SK Energy will spin off petroleum and chemicals divisions that accounted for 98 percent of overall revenue in the first quarter. Ahead of the change, the refiner has completed its first electric-car battery production line to supply Daimler AG’s Japanese unit. SK Energy has also signed up for 38 oil and natural-gas projects in 17 countries.

The petroleum and chemicals divisions, as they start off as wholly owned units, may sell assets or form partnerships with overseas companies to raise funds, Koo said.

The petroleum division posted an operating loss for three consecutive quarters last year as the global financial crisis cut demand and China and India increased shipments.

New Growth Engines

SK Energy has fallen 11 percent in Seoul trading this year, compared with the 1.7 percent gain by the benchmark Kospi index. The stock closed unchanged at 104,500 won on June 18.

The company’s smaller rival GS Caltex Corp. bought an unlisted waste-treatment company in April, while S-Oil Corp. may seek opportunities in alternative energy.

SK Energy plans to start up a 30 billion won ($25 million) trial plant in October that can produce more olefins while emitting less carbon dioxide than current facilities, Koo said. The refiner is also developing technology to use carbon dioxide as a raw material for producing plastics, he said.

“The technologies will help SK Energy reach its target of 100 trillion won in revenue before 2020, up from 35 trillion won currently,” Koo said.

In energy exploration, the company is seeking rights to overseas projects and may acquire exploration companies, the chief executive said. SK Energy is producing 71,000 barrels of oil equivalent a day currently.

The chemicals division may build ethane-based ethylene plants in Latin America, including Peru and Colombia, Koo said at the company’s Daejeon research & development center. SK Energy has a stake in a gas project in Peru.

The company’s lubricants unit is in talks with a European company and an Asian company to form joint ventures, he said.