09 skenergy_ar_english_business overview

Business OvervieW

INVESTING IN FUTURE SOURCES OF GROWTH

Despite uncertain business conditions in 2009 caused by sluggish global

economy, SK Energy has focused on enhancing growth potential and laying the

groundwork for a global energy company through preemptive risk management,

internal stability and development of new growth engines.

Our scenario planning has helped us flexibly respond to rapid market changes,

contributing to achieving stable operating performances compared to the

domestic competitors. Particularly, our petrochemical and E&P businesses

delivered recordable performances.

SK Energy has secured a leading position in the global energy business and is continuously identifying and seizing future growth opportunities.

> > >

> > >

SK Energy provides the energy that people need most to sustain their lifestyles and pursues a "Total Energy Provider." We are fortifying our leadership in the Korean refining industry through innovative marketing business models and commitment to customer satisfaction.

petroleum Business

36

_ Petroleum

The petroleum business environment was very tough in 2009 due to continuous economic slump

caused by global financial crisis in the previous year. However, we have consolidated our No. 1

position in the domestic refining industry through wisely meeting with market changes and

customer needs in every value chain. And our overseas business has also generated remarkable

performances.

In 2009, the stability of petroleum operations has been initiated to cope with weak refining margin and

secure competitive edge. To this end, we have continued to focus on reestablishing and optimizing

operational processes and improving revenue structure. Our plans for 2010 include driving productivity

improvements through every facet of our business and optimizing the operations of facilities to

preemptively respond to greater volatility in the crude oil and petroleum product market.

On the marketing front, SK Energy strived to block the distribution of adulterated petroleum products

by reinforcing its quality assurance program, which contributed to improving customer confidence.

And differentiated customer relations have been further upgraded through a variety of services such

as Enclean Bunus Card, Movie Plus and Enclean Coupon. As a result, in 2009, SK Energy ranked the first

in the KS-SQI survey sponsored by Korea Standards Association and was awarded the best prize in the

KCSI (Korean Customer Satisfaction Index) sponsored by Korea Management Association Corporation.

The Company also forged an alliance with Lotte Card to launch the SK-Lotte Joint Membership Card,

providing cardholders with the benefits of both the Enclean Bonus Card and Lotte Card. Our Netruck

business which provides total solutions to truck driver and the "Enclean.com" portal for motorists are

also being activated. These advanced and innovative marketing programs will concrete our leading

position in the industry.

In 2010, we will continue to focus on expanding our petroleum business into overseas markets as well

as increasing market share in China. Thus we will take a leap forward to a major energy provider in the

Asia-Pacific region and secure a robust foundation for sustainable growth and development.

CORPORATE GOVERNANCE

BUSINESS OVERVIEW

SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

285,306 thousand barrels

* Petroleum Product Sales Volume in 2009

Market Share in Korea (as of Dec. 2009)

* Sales volume in the domestic market (ex-cluded the supply for the US Army and bun-kering sales in the world)

* Source: Petroleum Information System of Korea National Oil Corporation

33.6%

37

_ LPG

Despite the release of LPG-powered compact and hybrid vehicles, the year 2009 was a very

challenging year for LPG industry due to unfavorable market conditions such as the decrease of LPG

demands led by economic recession, government-led lowering of entrance barriers, price-cutting

pressures by taxi operators and handicapped institutes, and investigation of price-fixing by Fair Trading

Commission.

To overcome the difficulties and lay the groundwork for sustainable growth, SK Energy has focused on

securing solid LPG imports channels and enhancing sales network competitiveness. And the Company

transferred the operation of low-profit gas stations in the regions to SK Gas. These efforts boosted our

operating profit and fortified our market leadership in the LPG business despite sluggish sales revenue.

Our major plans for 2010 include securing long-term competitiveness and enhancing marketing

capabilities in this business. The LPG industry is anticipated to face rapid market changes such as

government-led energy diversification, fiercer competition and the expansion of alternative energy

sources and hybrid vehicles. Based on market insight, SK Energy will preemptively cope with these

market changes and continue to establish a solid market leadership position.

_ Specialty Petroleum Products

Since the inception of specialty petroleum product business in 1998, SK Energy has sold more than

two million tons of high-quality asphalt at home and abroad every year. Today SK Energy boasts the

No.1 position in both Korea and China. The Company's technological prowess was also bolstered with

the registration of a patent for styrene-butadiene-styrene polymer modified asphalt (SBS PMA), the

first of its kind developed and commercialized by a Korean refinery.

Sales volume of asphalt increased 131 thousand tons, or 5.5%, over the previous year to 2.5 million

tons in 2009, despite the revamping of No.2 VDU facility in Ulsan CLX. Particularly, sales volume of

SBS PMA surpassed 30 thousand tons in the domestic market for the first time in this business. The

domestic asphalt market grew approximately 21% over the previous year thanks to the expansion of

SOC investments led by the increase of governments’ public expenditure. Our sales volume in the

domestic market also soared 135 thousand tons, or 20%, year on year to 810 thousand tons in 2009.

Overseas sales volume reached 1.7 million tons on the strength of stable demands for asphalt in China

and development of new markets such as Southeast Asian and Oceanian countries. Meanwhile, we

established a joint venture in Xiamen, Fujian, China, in order to expand marketing activities.

SK Energy will leverage its stable supply capabilities, outstanding product quality and services to

remain Korea’s top domestic seller and exporter of asphalt. To this end, the company will strengthen

its marketing network and expand business areas to run the entire value chain, from production and

trading to sales in China, the main target, along with Southeast Asian and Oceanian countries. The goal

is to steadily increase the company’s presence in the Asia-Pacific region.

Operating Income fromLPG Business

Sales Growth of Specialty Petroleum Products

(KRW in billion)

(Sales Volume)

43.82009

54.02008

32.52007

5.5%

38


BUSINESS OVERVIEW


_ Special Story

SK Energy is exporting technology to oil producing countries around the world.

SK Energy has dispatched nine engineers to Equate, the largest petrochemical company in Kuwait, to provide technical support for paraxylene test-production. SK Energy engineers offered technical guidance for addressing possible problems during test operations of the facility from May to October 2009. Equate’s aromatics complex, completed in June 2009, cracks naphtha to produce 768,000 metric tons of paraxylene and benzene annually. Equate had sent four groups of trainees (33 in total) to SK Energy to learn process technology from 2007 to 2008.

In September 2009, we concluded a contract with BSR, a subsidiary of Vietnam’s state-run Petro Vietnam(PVN), for providing plant operation and maintenance services. Under the contract, we will be tasked with general operations and maintenance of the BSR refinery for five years, until September 2014. For this mission, SK Energy will dispatch to Vietnam more than 100 engineers with at least 10 years' experience in production technology, production management, facility management and health, safety & environmental management. Another 40 specialists from overseas engineering firms will also take part to ensure efficient plant operation.

SK Energy expects revenue from the Equate contract to be around KRW2 billion while the BSR project will be worth about KRW95 billion. The company has leveraged 47 years' experience in running refineries and petrochemical plants to build a business model of exporting know-how.

Our technology export started in 1998 with Formosa, a Taiwanese company. Since then, the business expanded into Singapore-based JAC in 2007 and Indonesia-based PT Pertamina in 2008. Total annual sales in this business have increased from KRW25 billion in 2007 and KRW30 billion in 2008 to KRW45 billion in 2009, and are expected to continue to rise going forward.

VIETNAM

KUWAIT

Vietnam

Kuwait

39

Market conditions in petrochemical business are anticipated to be weak in 2010 due to newly constructed and expanded petrochemical facilities. SK Energy will focus on expanding sales network in the domestic petrochemicals market and diversifying export markets based on world-class cost competitiveness and superior quality.

petrochemical Business > > >

40

_ Olefins

SK Energy produces olefins, ethylene and propylene, as well as the intermediates including butadiene

and butane-1. These core petrochemical products are supplied as feedstock to downstream plants

inside the SK Ulsan Complex, as well as in the larger Ulsan Petrochemical Complex, thus playing a

key role in the Korean petrochemical industry's development. The increased output from a new

Residue Fluid Catalytic (RFCC) unit enabled the company to supply 1.69 million tons of olefins and

intermediates internally and an additional 1.12 million tons to outside petrochemical processors in

2009. Cost-cutting efforts and new technology development will continue in 2010 to ensure that

customers receive stable supplies of the high quality petrochemical feedstock they require.

_ Aromatics

The aromatics segment is characterized by a free flow of imports and exports globally; and domestic

prices closely follow international prices. SK Energy produces benzene, toluene, xylene, para-xylene,

ortho-xylene, styrene monomer, and cyclo-hexane. Despite the curbed demand due to fluctuations in

crude oil prices and fierce competition caused by excessive supply, the Company managed to sell 5.39

million tons of aromatics in addition to supplying internal requirements in 2009.

_ Performance Chemicals

SK Energy was Korea’s first company to produce solvents. Today, it is the nation’s largest performance

chemicals maker thanks to its untiring R&D efforts. The Company has continued to develop solvents

that are safer in the workplace and friendlier to the environment. The product lineup now spans more

than 95 different grades. To leverage its know-how and technical expertise, SK Energy established

a joint venture in China, Asia’s largest solvent market, as a platform for local solvent production and

marketing. SK Energy sold more than 870 thousand tons of performance chemicals in 2009. The

Company will continue to meet customer needs for product and applied technology support while

keep upgrading customer services through building an e-marketing system and visiting customers.


BUSINESS OVERVIEW


8,9282009

8,4452008

7,6172007

KRW9,660.8billion

* Sales of Petrochemical Business in 2009

Sales of Petrochemical Products (unit: thousand tons)

* Sales volume in the domestic market (ex-cluded the supply for the US Army and bun-kering sales in the world)

* Source: Petroleum Information System of Korea National Oil Corporation

41

_ Polymers

Our polymer business spans the production of linear low-density polyethylene, high-density

polyethylene and polypropylene. Combined sales amounted to 860 thousand tons in 2009. Polymers

widely used in the automotive, electronics and communications industries are also readily found in

everyday life, in everything from toothpaste tubes and stationery products to food containers.

New products have been developed to improve competitiveness and make inroads into the high-

value-added end of the polymer business. Competitiveness in China, the world’s largest polymer

importer, has been also improved by reinforcing the local marketing network. New customer value

will be created by offering online information and improving technical as well as financial support

programs and customer services.

_ Performance Rubber (EPDM)

SK Energy produces ethylene propylene diene monomer (EPDM), which features outstanding

resistance to weathering, heat and ozone. As the steady growth in sales of automotive and industrial-

use rubber parts has been driving demands for this value-added synthetic rubber, SK Energy upgraded

and restarted its idle EPDM plant in May 2006. The Company sold 25 thousand tons of EPDM in 2009.

Sales and profits from this business unit will be boosted by invigorating the operation of EPDM plant

and seizing more business opportunities at home and abroad.

_ I/E Material

Separators are essential materials in the production of rechargeable batteries, and SK Energy is Korea’s

first company to develop and produce the inter-electrolyte materials needed to make these separators.

Mass production on Line 1 began in November 2005. The lithium-ion battery separator (LiBS) market

continues to grow with the spread of notebook PCs and mobile phones, and SK Energy started up

the second production line in 2007 and the third production line in August 2009. The fourth and

fifth production lines will be run during 2010. Our ongoing technology development and aggressive

marketing will help to boost sales in this business.

* LiBS : Lithium-ion Battery Separator

-----BTX 35%

-----PX 20%

-----*Others 14%

-----SM 10%

-----PP • PE 10%

-----Propylene 5%

-----OX 3%

-----Ethylene 2%

-----Butadiene 1%

* Others include Solvents, H-RPG, NCB, Butene-1, MTBE, CHx, etc.

Factory Operation Rate ofPetrochemical Business in 2009

92.95%Ulsan Complex

Incheon Complex

85.90%

Sales Breakdown by Product in 2009

42

_ Special Story


BUSINESS OVERVIEW


_ Special Story

SK Energy’s advancedcatalyst technology moves the world.

Catalyst technology is essential in chemical engineering. Processes are defined by the catalysts they use, and catalyst performance is an important factor in determining overall process performance.

SK Energy has long understood that catalyst technology acquisition is vital for business success. Thus, the company has continued to hone related skills since 1985, when the first technical support center was launched. In 2004, the Catalyst Laboratory was established as a "center of excellence" (COE) unit dedicated to the development of catalyst technology.

In the late 1990s, we commercialized our proprietary advanced transalkylation (ATA) catalyst and advanced py-gas upgrading (APU) catalyst technologies. They have elevated the productivity of our production complex and made us Korea's first to be a catalyst technology licensor. In the 2000s, our R&D program was diversified. In the petrochemical area, a xylene isomerization catalyst was developed and commercialized in 2009 and the advanced catalytic olefin (ACO) process is about to go commercial. As for specialty chemicals, we have developed catalysts for the pharmaceutical intermediates DHIQ and HGBL. In addition, we have made diesel particulate filters and selective catalytic reduction into new businesses, creating new profit sources and strengthening our global stature.

ATA, the first of our proprietary catalyst technologies to be commercialized, is used in the process of converting toluene and C9+ aromatics into xylene and benzene. This isomerization catalyst, completed in 1999, was applied at the Ulsan Complex and has demonstrated outstanding performance and stability. In 2002, SK Energy became the first in Korea to export catalyst technology, and now plants around the world are using ATA. In 2009, the Formosa Plastics Group in Taiwan imported the technology.

ACO is an innovative new catalytic cracking process for producing light olefins and BTX from a predominantly paraffinic stream, such as straight-run naphtha. This process yields higher light olefin with a controllable propylene/ethylene ratio, and holds great promise as a replacement for conventional thermal cracking. The process has also attracted attention as a green technology that can reduce the amount of CO2 emissions by up to 20 percent. SK Energy, using its proprietary catalyst and process, pioneered the world’s first catalytic naphtha cracker for commercial use, and a demo plant is scheduled to start up in 2010.

43

Our involvement in overseas resource development projects continues to grow. As of the end of 2009, we are participating in 33 oil and gas blocks in 16 countries as well as 4 LNG projects, and our proven oil equivalent reserves stand at 503 million barrels. Our daily equity share in 10 production blocks in 8 countries averaged 41 thousand barrels of oil and gas in 2009.

exploration & production Business

> > >

44

_ Exploration & Production

SK Energy has focused on efficient operation of existing petroleum blocks as well as participation

in attractive petroleum exploration projects and LNG projects in 2009. The E&P business

generated KRW635.9 billion in sales and KRW335.2 billion in operating income.

As of the end of 2009, SK Energy is engaged in 33 blocks in 16 countries as well as 4 LNG projects.

Among these, 10 are production blocks in 8 different countries, and SK Energy’s daily equity share

averaged 41 thousand barrels of oil and gas during the year.

SK Energy received a daily equity share of 6 thousand barrels at Peru Block 56, one of our strategic

blocks, thanks to the restoration of petroleum production in 2009. The Yemen LNG project

commenced the production in mid-September, driving up SK Energy’s average daily production to 42

thousand barrels as of the end of 2009. The Company successfully joined 3 new exploration projects in

2009, including WA-425-P and WA-431-P Blocks in Australia and Equatorial Guinea S Block. In the CPO-

4 and SSJN-5 Blocks in Colombia and Peru Z-46 Block, SK Energy is taking the lead in the development

and exploration as an E&P operator.

In 2010, SK Energy will continue to expand E&P projects in South America and Southeast Asia by

efficiently operating its projects in Peru, Brazil, Colombia and Vietnam. At the same time, the other

production blocks will be managed efficiently to secure a steady revenue stream. The Company will

also strive to activate the Yemen LNG project which started the production in the second half of 2009

and Peru LNG project scheduled to begin the production in the second half of 2010.

Additionally, SK Energy will continue to nurture specialists in E&P business, find more business

opportunities and acquire operation experiences to enhance E&P competency. Other focuses in 2010

include efficiently managing existing production blocks, participating in new attractive exploration

projects and pursuing mergers and acquisition. SK Energy will maintain its goal of continuously

realizing high returns on E&P investments.


BUSINESS OVERVIEW


41,0002009

26,0002008

22,0002007

503.0 million barrels

* Proven (P1) Reserves (as of the end of 2009)

Daily Production Capacity (unit: barrel)

45

_ Coal and Minerals

Our coal and minerals business not only laid the groundwork for the takeoff but achieved satisfactory

operating results in 2009 backed by the recovery of global coal and minerals market.

In 2009, SK Energy imported 5.39 million tons of high quality bituminous coal from China, Indonesia

and Australia and provided this primary energy source to KEPCO, co-generation power plants and

cement manufacturers. Particularly the Company bolstered its position as a stable supply source by

providing 7 percent of all the coal used at five KEPCO subsidiaries.

SK Energy has been in the coalfield development business since 1990. Currently, the coal business

portfolio includes four working coal mines and four exploration projects in Australia along with one in

China, helping to ensure that Korea has access to a stable supply of energy. In addition, the Company

diversified its business by joining uranium exploration projects in Canada and Australia.

Future plans call for additional involvement in coalfield development projects in China, Indonesia

and other coal-rich regions. Investments will be also made in cutting-edge technologies – especially

methods for processing low grade coal into clean coal energy and developing clean coal – to help

ensure that stable supplies of bituminous coal are maintained. The company will expand into other

types of mineral resources and play a key role in developing related business sectors in the future.

4 coal mines

1 coal mines

Production

Exploration

Investment in China

Coalfield Development

(as of the end of 2009)

4 coal mines

46


BUSINESS OVERVIEW


Development / Production BlocksExploration Blocks

LNG Project

INDONESIA

AUSTRALIA

VIETNAMBlock123Block15-1Block15-1/05

Bangko

WA 34RNortheast Madura I

KAZAKHSTAN

UNITEDKINGDOM

KAZAK

ALGERIALIBYA

EGYPT

IRAQ

UNITEDKINGDOM

QATAR

OMAN

Zhambyl

9/2c9/6Captain

9/2b3/27a

Block8

BRAZIL

UNITED STATES

PERU

COLOMBIA

Iberia North

SSJN-5CPE-5

Z-46

BM-BAR-3

BM-C-32BM-C-30

BM-C-8

Block8

Block56Block88 (Camisea)

CPO-4

Peru LNG

EQUATORIAL GUINEA

COTE D'IVOIRE

YEMEN

OMAN

QATAR

ALGERIALIBYA

EGYPT

MADAGASCAR

Issaouane

CI-11 Area DCI-01

NC174

North Zaafarana

Yemen LNG

Majunga

Oman LNGBlock51

Qatar LNG

_ Special Story

Asia- Oceania

North & South America

Middle East &

Africa

Europe & Central Asia

SK Energy succeeds in exploring natural resources half-way around the world.

SK Energy succeeded in trial prospecting 7,500 barrels of crude oil and 4 million cubic feet of gas from the Wahoo field on the BM-C-30 mining block on April 7, 2009. The Wahoo field is a crude oil deposit in the rock salt understructure of the BM-C-30 mining block. Two trial drillings, conducted in October 2008 and November 2009, confirmed the existence of crude oil reserves, and the test production was conducted in the first-discovered oil well.

The BM-C-30 mining block is an offshore mining area located at the Campos Basin off the coast of Espirito Santo. SK Energy has explored this area since November 2004. Along with SK Energy, US petroleum developer Anadarko Petroleum, US Devon Energy and India's IVW are participating in the exploration of BM-C-30, while BP is expected to join.

The Wahoo well is producing light crude oil (31-degree API gravity). We expect this well will be capable of producing more than 15,000 barrels of oil per day. We now plan to move to another Wahoo well discovered in November 2009 to conduct a second drill-stem test.

The trial prospecting met success four years after the exploration contract was concluded. Lead stakeholder Anadarko Petroleum estimates that the Wahoo field has a gross resource potential of more than 300 million barrels of oil. SK Energy, along with the other partners, will conduct an additional estimate to determine the oil reserve more precisely.

SK Energy has participated in the BM-C-8 block, which has produced about 7,000 barrels of crude oil per day since July 2007, and in the BM-C-32, in which trial drilling confirmed crude oil deposits in December 2009.

47

Lubricants Business The lubricants business maintained growth in sales volume in 2009, despite challenging market environments. The value of our ZIC lubricant brand is well recognized as demonstrated by its top ranking on various domestic customer surveys.

> > >

48

The lubricants business was demerged from SK Energy as of October 1, 2009 to set a solid

foundation for growth by arranging specialized business infrastructure and efficiently executing

strategies. This business will be operated by a new company SK Lubricants.

Continued global economic recession and sluggish growth of automobile industry since 2008

has been unfavorable conditions for our lubricants business. Sales revenue and profits decreased

compared to the previous year due to the downturn of product prices and margins. Meanwhile, our

sales volume increased 10% year on year even though the market size decreased 10% during the same

period, which represented our competitiveness and growth potential.

The value of the ZIC brand is widely recognized in Korea. This line of lubricants has been ranked first in

Korea's Power Brand Survey for the past ten years; was named a “super brand” at the Brand Olympics,

sponsored by the Institute for Industrial Policy Studies; and received the Korean government’s Green

Management Award. In overseas markets, aggressive sales promotion in Russia increased ZIC brand

recognition to 60 percent. Competing shoulder to shoulder with world's leading brands, the ZIC has

the third largest market share among the imported lubricants in Russia. The Company is also striving to

grow sales and market position through proactive localization strategy in China.

Export volume expanded by 10 percent year on year to over 300 thousand barrels in 2009, showing a

steady upward trend. Particularly, local sales in China exceeded 100 thousand barrels in 2009, and the

Company also started the OEM-based supply of lubricants to General Motors through tall processing

in the US since May 2009.

Our base oil business experienced a slump in sales and profits in the first half of 2009 due to

unfavorable market conditions. However, in the second half, operating performance has been rapidly

restored thanks to our continued efforts for improving profitability and increasing demands for high-

quality base oil products in the global market led by the recovery of global economy. Demands for

fuel-efficient and environment-friendly engine oil products are stably increasing in the US, Europe and

Japan, which will deliver more opportunities to the Company, the world’s largest high-quality base oil

producer and provider.

Brand Power of ZIC

10 consecutive years

NO.1


BUSINESS OVERVIEW


KRW900.1billion

* Sales of Lubricants in 2009

49

_ Business Plans and Strategies for 2010

Business conditions in 2010 are anticipated to be as difficult as those in 2009. Because strong Korean

Won is a major factor contributing to pressures on our business that more than 70 percent of sales are

generated through exports and high oil prices raise production costs. However, we will be committed

to overcoming challenging market environments and emerging as a leading company in this business

by enhancing our foundation for current and future growth.

In the lubricants business in which export sales accounts for 50 percent, sales growth for premium

synthetic motor oil products such as ZIC XQ and ZIC OW series will further SK Energy’s position as the

Korean market leader. Sales growth for ZIC XQ and other premium synthetic motor oils will further

SK Energy’s position as the Korean market leader. At the same time, SK Energy will prepare for global

prominence through continuously expanding overseas sales in Russia, China and Pakistan.

As for base oil business, the priority in 2010 is to boost supply to meet increasing customer demands

through revamping existing facilities and building new facilities. The Company will also consolidate

partnerships with major clients at home and abroad to effectively respond to entrance of late comers

and pursue new business models continuously.

10%

Export Growth ofLubricants in 2009

50

_ Products


BUSINESS OVERVIEW


_ LBO Production Process (Ulsan CLX)

Atmospheric residue from hydro-cracking

Atmospheric residue from hydro-cracking

Atmospheric residue

Distillates

Distillates

Vacuum gas oil

No.1 LBO

No.2 LBO

Lubricants Lube Base Oil

Automotive

#2 Depressurized distillation process

#1 Wax isomerization process

Catalytic hydro-cracking process

Marine Industrial Grease

Gasoline engine oil

Diesel engine oil LPG engine oil Gear oil

LPG

Naphtha

Kerosene

Diesel

YUBASE 2

YUBASE L3

YUBASE 3

YUBASE 4

YUBASE 5

YUBASE 6

AntifreezeBrake fluid

Motorcycle engine oil

#3Depressurized

distillation process

#4Depressurized

distillation process

#2 Wax isomerization process, finishing process

using compressed hydrogen

51

Technology Business Based on more than 40 years of accumulated experiences and expertise in the energy business, SK Energy provides customers with the very best technology services. Sales from technology business rose by over 35% year on year in 2009.

> > >

52

In 2009, the Technology Business unit concentrated on stably creating profits in the domestic market

and securing mid-/long-term growth momentum in oversea markets. Particularly, expansion of global

network and marketing activities have been stressed for additional inroads to our strategic markets

such as Asian, the Middle Eastern, African and South American countries. As a result, SK Energy signed

a contract to provide operation and maintenance (O&M) services for the first refinery plant in Vietnam

with Binh Son Refining & Petrochemical Co., Ltd. (BSR) on September 15, 2009.

This project with a total volume of US$66 million is expected to pave the way for activating our

technology business in Southeast Asia and acquiring more O&M projects in the global market. Backed

by this BSR project and an additional O&M service contract with Kuwait-based Equate, Technology

Business unit achieved KRW45.4 billion in sales and KRW11.9 billion in operating profit in 2009.

The global O&M market is expected to rapidly grow in 2010 because a lot of projects to build or

expand refinery and petrochemical plants are being promoted in both the Middle East and developing

countries. To meet increasing demand for O&M services in the global market, the Company will put

more emphasis on overseas technology business in 2010.

In the mid-/long-term, our O&M services will be expanded and diversified into high value-added

areas such as LNG, E&P and project management consulting businesses. The ultimate goal is to lay the

foundation for stable growth and achieve a dominant position in the global O&M market. At the same

time, efforts will be made to grow sales and improve profitability through global business partnerships

and continuous management innovation.


BUSINESS OVERVIEW


35.5 %

>

KRW 45.4billion

* Sales of Technology Business in 2009

Sales Growth ofTechnology Business in 2009

53

research & DevelopmentThe SK Energy Institute of Technology (SKEIT) increases the competitiveness of core businesses through technology innovation and creates future growth drivers for the energy and petrochemicals areas to realize its "technology-driven company" vision.

> > >

54

In 2009, great emphasis has been placed on the enhancement of the R&D management process to

accelerate technology development. To this end, systematic task operation, continuous innovation

and capitalization of developed technologies have been mainly implemented. Other focus was on the

development of new growth engines for sustainable future.

SK Energy has been a driving force for Korean economic growth by providing a stable supply of energy.

The Company is committed to creating future growth drivers in the energy and petrochemicals

areas to contribute to national energy security. SKEIT is leading the development of technologies for

medium and large sized batteries, carbon dioxide recovery and reuse, clean coal energy, bio fuels, solar

cells, hydrogen energy and smart grid, which are core technologies in relation to the green business

and state-of-the-are convergence industry. With this technological leadership as a momentum, SK

Energy intends to emerge as a global leading energy company.

Technologies developed by SKEIT include the advanced catalytic olefin (ACO) process, C4 olefin

conversion technology and the GreenPol™. In 2009, SK Energy successfully completed a pilot plant for

the production of the GreenPol™ in order to advance the commercialization. The GreenPolTM made

from 40 percent carbon dioxide is a promising carbon conversion and utilization (CCU)✽ material that

does not emit toxic gas when burned. The commercialization is scheduled for 2013. Meanwhile, the

ACO process technology enables the reduction of energy use and carbon dioxide emissions in the

production of olefins by approximately 20%. The commercialization is scheduled for 2010.

(✽) CCU : Carbon Conversion & Utilization


BUSINESS OVERVIEW


860.32009

791.52008

851.72007

Investments in R&D (KRW in billions)

55

In the new and renewable energy segment, SKEIT focuses on technologies for medium and large

sized batteries, clean coal energy, bio fuels and hydrogen energy. SKEIT was awarded a contract for co-

development and supply of the battery systems for hybrid automobiles with a subsidiary of Daimler

Group in 2009, and the commercialization will begin in 2011. We were also selected as a leading

company for the Smart Transportation sector, one of the government-led Smart Grid pilot projects, in

2009. To this end, the world’s largest cutting-edge pilot plants will be completed by 2011. Clean coal

energy development is also being accelerated through cooperating with the Ministry of Knowledge

and Economy and POSCO. Meanwhile, the Company, Korea’s first and sole hydrogen station

technology developer, was selected as the leading company for constructing the Sangam Hydrogen

Station in 2009, and the completion is scheduled for 2010. Research on diverse bio fuels and solar cells

is also ongoing with the ultimate goal of developing next generation environment-friendly energies.

SKEIT also developed and commercialized advanced new materials such as lithium ion battery

separators (LiBS), flexible copper clad laminate (FCCL) and optical films. The Company's LiBS

technology, which was completed and commercialized in 2005 for the first time in Korea, represents

the third largest share of the global market. At the same time, the Institute is working on development

and expansion of proprietary technologies including FCCL and optical film. These technologies

significantly contribute to the localization of core parts and enhancement of competitiveness of the

domestic IT and electronics parts industry.

Other technologies under development include opportunity crude processing, premium asphalt,

and low distillate desulfurization in the petroleum segment, and ACO process, ALCO technology

and Nexlene™ in the petrochemicals. As such, SKEIT is taking a very significant role in boosting

the Company’s technology export and technological prominence by developing world-class new

technologies and products.

_ ACO : Advanced Catalytic Olefins

_ LiBS : Lithium-ion Battery Separator

_ FCCL : Flexible Copper Clad Laminate

_ Opportunity Crude : Substandard crude oil with alien substances

_ ALCO : Aromatics from LCO

_ Nexlene™ : Registered trademark of SK Energy’s premium polyethylene products

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BUSINESS OVERVIEW


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09 skenergy_ar_english_business overview

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