Oil refiners to cut bonus payments amid worsening profits

Gasoline and diesel prices are posted at a gas station in Seoul, Sunday. Data compiled by the Korea National Oil Corp. showed Saturday that the average fuel price at domestic gas stations went down for 13 consecutive weeks. Yonhap

Employees of SK Innovation, S-Oil, HD Hyundai Oilbank and GS Caltex will receive much smaller performance-based bonuses than last year, as the falling global oil price nearly halved the earnings of the top four refiners in Korea last year, according to industry officials, Tuesday.

SK Innovation’s operating profit last year is estimated at 2.3 trillion won ($1.8 billion), down 40 percent from a year earlier, due to the decline in the refining margin as a result of the cheaper oil price.

Although a temporary oil price hike enabled the SK affiliate to make a profit during the third quarter following a 106.8 billion won operating loss in the second quarter, the company is expected to have suffered a 45 percent year-on-year drop in its fourth-quarter operating profit.

S-Oil’s annual operating profit is also estimated to have decreased to 1.9 trillion won in 2023 from 3.4 trillion won in 2022.

“The company’s fourth-quarter operating profit will fall 91 percent from the previous quarter to 79.1 billion won, significantly lower than the market consensus of 446.3 billion won,” Shinhan Securities analyst Lee Jin-myung said. “It seems to have suffered a 197.3 billion won operating loss from the oil refining business due to the sharp fall in the oil price and refining margin.”

HD Hyundai Oilbank and GS Caltex, both of which are not listed on the stock market, are considered to be in similar situations.

As a result, an employee of one of the four oil refiners said that he does not anticipate a large bonus this year, although the companies have remained cautious about the bonus payment, which will be announced later this month.

Last year, domestic oil refiners distributed record performance-based bonuses, thanks to the rise in global oil prices.

Performance-based bonuses paid by S-Oil, HD Hyundai Oilbank and SK Innovation were respectively equivalent to 1,500 percent, 1,000 percent and 800 percent of each employee’s base monthly wage. GS Caltex paid performance-based bonuses equivalent to 50 percent of each employee’s base annual salary.

Their hefty bonuses once prompted opposition party lawmakers to seek a tax on windfall gains last year, but the oil refiners are not facing such pressure anymore, due to the continuous fall in global oil prices.

In addition, the oil business environment is expected to remain tough during the first quarter of this year, as Saudi Arabia slashed the crude oil price to its Asian customers earlier this week, triggering a 4 percent nosedive in the West Texas Intermediate.