Why-has-S-Oil-become-underperfor
Declining crude oil prices chipped away at the bottom lines of S-Oil in 2018. Courtesy of S-Oil

Last year, declining crude oil prices substantially chipped away at the bottom lines of Korean refineries with most of them seeing their profits plunge more than 30 percent.

In particular, Korea’s No. 3 player S-Oil suffered the worst downturn as its operating income plummeted in excess of 50 percent.

CEO Score, a private think-tank headquartered in Seoul, said on March 12 that S-Oil was included in its list of the five worst companies that faced the sharpest cuts in their profits last year among the country’s top 100.

Of the five firms that witnessed their net incomes tumble more than 50 percent in 2018, the worst was LG Display, which netted 92.9 billion won last year compared to 2.46 trillion won in 2017.

Kakao came in at second with a fall of 53.2 percent, followed by Hanwha Chemical also with 53.2 percent, Netmarble with 52.6 percent and S-Oil, 50.4 percent.

S-Oil officials said that the disappointing performance was attributable to falling petroleum prices _ the crude oil price was higher than $80 per barrel early last October but plummeted to below $50 in December.

In this scenario, the value of refineries’ assets, or crude oil purchased in advance, goes down in tandem, which usually leaves indelible marks on their income statements and balance sheets.

But no other refineries or chemical companies in Asia’s fourth-largest economy experienced such a big dent in their profits as S-Oil. In other words, S-Oil underperformed the market.

During the fourth quarter of 2018, things were more evident. The country’s four refineries were stuck in deficit but that of S-Oil was the highest at 29.24 billion won, chased by SK Innovation at 27.89 billion won and GS Caltex at 26.7 billion won.

In consideration of the fact that SK Innovations and GS Caltex are far bigger than S-Oil, the struggle of S-Oil is prominent, according to observers.

It remains to be seen whether S-Oil and the other chemical companies will be able to rebound this year. The fluctuation of crude oil prices will be the most important factor along with the global economy,” CEO Score chief Park Ju-gun said.

Best CEO leading underperforming firm?

S-Oil-CEO-Othman-al-Ghamdi
S-Oil CEO Othman al-Ghamdi Courtesy of S-Oil

Of note is that S-Oil CEO Othman al-Ghamdi was selected as the best CEO of the year by Korean Management Association Consulting last December.

He became the first chief executive with a foreign nationality to get the acknowledgement at the annual awards presented by the association.

Ghamdi, who has worked at various positions at Saudi Aramco or Saudi Arabian Oil, took charge of S-Oil in 2015. With a stake of higher than 60 percent, Aramco is the largest shareholder of S-Oil.