SK INNOVATION REPORTS 3^rd QUARTER 2011 EARNINGS RESULTS:

●        The 3^rd quarter 2011 revenue increased by 27% year-over-year(YoY), to KRW 17,209.6 billion showing similar performance from the previous quarter

●        Operating profit and net income for the quarter increased by 118% and 538% YoY respectively, to KRW 861.9 billion and 1,816.1 billion.  

* Please note that earnings results for 3Q 2011 are subject to further verification by independent auditors.

SEOUL, October 28, 2011 – SK Innovation [KS 096770], Korea’s leading energy provider, today announced the 3^rd quarter earnings results for 2011. The 3^rd quarter revenue increased by 27% year-over-year(YoY) to stand at KRW 17, 209.6 billion while operating profit and net income increased by 118% and 538% to KRW 861.9 billion and KRW 1,816.1 billion respectively from the same period in 2010.

The company’s revenue was maintained from the previous quarter, despite diverse variables in the market such as the fluctuation in refining margin and foreign exchange rates.

SK Innovation’s 3^rd quarter operating profit increased by 118% YoY to KRW 861.9 billion, which is also a significant improvement from the previous quarter. The main reasons include end of domestic price-cut effect for petroleum products, strong product spreads in the chemical business and positive performance in the lubricant business.

The 3^rd quarter net income increased by 538% YoY to KRW 1,816.1 billion. This increase was attributed to the historically high net profit owing to the disposal gains from the sale of ‘SK do Brazil’ last December, being reflected in this quarter’s non-operating profit.

The company’s financial structure remained stable in the 3 ^rd quarter of 2011. The debt-to-equity ratio decreased by 18% points YoY to 137% and the net debt-to-equity ratio decreased by 39% points YoY to 28% as the end of September 2011.

Mr.Sunghyun Yoo, Head of Finance and IR stated “The independent management system for each subsidiary company was adopted early this year to strengthen the key competitiveness of SK Innovation’s businesses and to enable sustainable growth. The system has been stabilized throughout the year to realize a specific and secure performance for each company.” He added, “Each company will continue to consolidate its competitiveness and actively seek investment opportunities to further boost value.”

BUSINESS DIVISION PERFORMANCE

SK Innovation (Exploration & Production business and others)

·         SK Innovation (E&P business and others) marked revenue of KRW 304.4 billion, with operating profit of KRW 99.7 billion in the 3^rd quarter.

·         SK Innovation’s E&P business recorded revenue of KRW 260.9 billion and operating profit of KRW 120.4 billion in the 3^rd quarter. The operating profit this quarter decreased slightly quarter-on-quarter (QoQ) due to marginal decrease in gas price.

·         The 3^rd quarter average daily production was approximately 67,000 barrels of oil equivalent per day (BoE/D) which is an increase of 2,100 BoE/D from the previous quarter.  This is due to the increased average daily production of Peru88 and 56 blocks.

·         SK Innovation will continue its strong performance during the 4^th quarter and continue to realizea favorable operating profit. For exploration activities, the drilling of Columbia CPO-4 block  is in progress.

SK Energy (Petroleum business)

·         SK Energy (petroleum business) recorded revenue of KRW 12,589.6 billion and operating profit of KRW 253.9 billion in the 3^rd quarter.

·         SK Energy’s operating profit this quarter increased slightly by KRW 156.5 billion QoQ. This was a result of the balance between the gains from the one-off costs and domestic price cut effect reflected in the 2^nd quarter, while the losses were caused by sharp fluctuations in the international oil prices and foreign exchange rates.

·         SK Energy forecasts favorable operating profit in the 4^th quarter as stable refining margins based on healthy regional demand in Asia, and as oil prices and foreign exchange rates are expected to stabilize.

SK Global Chemical (Petrochemical business)

·         SK Global Chemical (petrochemical business) recorded revenue of KRW 3,612.3 billion and operating profit of KRW 309.8 billion in the 3^rd quarter.

·         SK Global Chemical’s operating profit increased by KRW180.4 billion QoQ to KRW 309.8 billion, which is the biggest quarterly operating profit reported to date. This was mainly due to the improved Butadiene, PX and Toluene spread and weak Korean won.

·         SK Global Chemical’s performance during the 4^th quarter is forecasted to be similar with a slight downward correction as stagnant global economic condition and lower demand for downstream products are expected to continue. Given such market environment, SK Global Chemical will continue to pursue growth by reducing costs and excavating new markets.

SK Lubricants (Lubricants business)

·         SK Lubricants recorded revenue of KRW 694.3 billion and operating profits of KRW 198.5 billion in the 3^rd quarter.

·         SK Lubricant’s operating profit of KRW 198.5 billion this quarter is a historical high earnings for the business. The record-high performance of SK Lubricants was due to strong base oil prices boosted by its continuously tightened supply in the US and European markets as well as sharp devaluation of won vis a vis US dollar at the end of the 3^rd quarter. Favorable operating profit is expected to continue in the 4^th quarter as high demand and short supply of lean-burn/environmentally friendly engine oil is expected to continue.

·         As part of its global expansion effort, SK Lubricant is building new facilities at domestic and global level. The base oil business, completed the MOU signing with Japan’s JX Energy for the construction of Ulsan No. 3 LBO factory which aims for commercial production in the 2nd quarter of 2012. In addition, a lubricant plant is being built in Tianjin, China which will begin commercial production in 2012. Such mid- and to-long-term growth strategies will enable stable expansion and strengthen SK Lubricant’s position as a global leader.

Note1: SK Innovation’s lubricant business has been spun off as of October 1, 2009. The business’s sales revenue and operating profits are excluded in 2010.

Note2: The results of 2010 and this quarter are based on different accounting standards. 2010 results are based on K-GAAP, while those of 1^st and this quarter are based on K-IFRS.

About SK Innovation

Founded in 1962 as Korea’s first oil refiner, SK Innovation, formerly SK Energy, is one of the world’s leading energy and petrochemical companies. SK Innovation employs nearly 5,600 people and posted KRW 43.9 trillion in sales in 2010.

In January 2011, the former SK Energy transformed into SK Innovation with its three subsidiaries of SK Energy, SK Global Chemical and SK Lubricants. The independent management structure will enable each company to respond rapidly to the changes in the business environment and expedite growth through fast decision-making process. Each company will ute its own business strategy, consistent with its vision and optimized for its unique environment.

Based on its R&D capabilities, SK Innovation will emerge as a leading technology company focusing on lithium-ion batteries for electric vehicles, I/E(information electronic) materials, and E&P(exploration & development) business. SK Energy will evolve into a major trading company as it strengthens its position as the largest oil refiner and marketer in Korea. SK Global Chemical will become a leading chemical company in Asia by entering the burgeoning Chinese market.  SK Lubricants will continue to grow in the base oil market, as well as the lubricant market through affiliation with major European, North American and Asian companies.

Contact at SK Innovation

Taehoon Chung

Public Relations Team

Tel. (82)2-2121-5957

Mobile. (82)10-9026-2581

Email: thchung @sk.com