Good morning, this is Katie Kang, Treasurer of S-Oil. I'd like to extend my gratitude to our investors and analysts in [joining?]

S-Oil's conference call for Q2 2026 earnings results. For today's conference call, we have CFO, J.W.

Bong, IR team leader, Mr. H.D.

Jeong, and team members. First, I will take you through the highlights of Q2 results.

In [Q2 2026?] , global refining margins remained strong as the impact of the Middle East conflict continued.

Despite lower crude prices toward the end of Q2 as the blockade of the Strait of Hormuz was temporarily lifted, operating income reached 965 billion won, supported by strong global refining margins and record high lube base oil spreads. In particular, the lube business contributed significantly to Q2 earnings, posting a record quarterly operating profit of 477.4 billion won.

Next is the market outlook. Due to the Middle East conflict, crude oil and product supply disruptions continued in the first half, leaving global inventories at significantly low levels.

With tight supply-demand conditions expected to persist in the second half, we expect firm market conditions to continue. Next is the progress of Shaheen Project.

The Shaheen Project is progressing toward commercial operation in early 2027. The company is currently conducting field inspections, equipment performance checks, and document verification to confirm mechanical completion.

Pre-commissioning and commissioning activities are also in progress across the process units. The company will make every effort to ensure a smooth start-up in the second half and achieve commercial operation in early 2027.

Next, Mr. H.D.

Jeong will get into more details for Q2 performance and market outlook.

Good morning, this is S-Oil IR team leader, H.D. Jeong.

Before we begin, please note that Q2 2026 financial [results are provisional?] and therefore subject to change according to outside independent external auditor's audit results.

First, [the details?] for Q2 2026 financial results.

In Q2, the company posted sales revenue of 11.5 [trillion won, down?] 26.8% Q-on-Q, driven by higher crude prices.

Operating income was 965 billion [won], down [XX?] % Q-on-Q, as the one-off impact of higher crude prices recognized in Q1 largely subsided.

If you look at each business segment, operating income from the refining segment declined 49% Q-on-Q to 532.4 billion won. Although global refining margins remained strong, particularly for diesel and kerosene, amid the Middle East conflict, operating income decreased Q-on-Q due to the reverse base effect from the one-off crude price benefit recognized in the first quarter.

Although margins improved slightly Q-on-Q, the segment turned into a loss due to inventory-related impact. Operating [income from the lube segment?]

rose 187% Q-on-Q to 477.4 billion won, driven by record high product spreads amid tight supply-demand conditions. As mentioned earlier, this represents the highest quarterly operating profit on record.

For reference, the company recorded 113.7 billion won in inventory-related gains in Q2, most of which were generated by the lube segment. This was significantly lower than 643.4 billion won recorded in the previous quarter.

In financial and other gains and losses, the company recorded net interest loss of 66.6 billion won and net foreign exchange loss of 155.6 billion won due to foreign exchange increase. Q2 income before tax and net income come in at 705.5 billion won and 514.6 billion won, respectively.

Moving on to financial status, as of the end of Q2 2026, the company held 1.5 trillion won in cash, while net debt-to-equity ratio was 78.1%. Despite external market volatilities, the company continues to maintain [a sound?]

and stable financial structure through competitive and timely financing at low interest rate to support smooth execution of Shaheen Project and proactive working capital management. EBITDA for the first half came in at 2.1 trillion won.

Now, I'll go through market environment and outlook by each [business segment?] .

Turning to the refining segment on page 7. As mentioned earlier, [supported by firm?]

margins driven by the Middle East conflict, second quarter operating income from the refining [segment declined?] Q-on-Q to 532.4 billion won, as the substantial inventory-related gains recognized in the first quarter did not recur in the second quarter.

Turning to Dubai crude prices in the second quarter, prices remained above $100 per barrel throughout April and May as the Middle East conflict continued [and the Strait of Hormuz?] remained closed.

However, following the temporary easing of the blockade in June, crude prices declined rapidly, with Dubai crude averaging $79.5 per barrel for the month. Since then, crude prices have continued to fluctuate sharply in line with developments in the conflict, and they are expected to remain highly sensitive to geopolitical developments going forward.

Asian refining margins [remained strong in?] Q2 as tighter refined product supply relative to crude drove product spreads sharply higher.

The market was supported by the start of the driving season, continued Ukrainian drone attacks on Russian refineries, and supply disruptions from the Middle East. Accordingly, the average kerosene and diesel spreads widened further Q-on-Q to around $62 per barrel.

Gasoline spreads also increased Q-on-Q with the onset of the driving season, reaching 20 [dollars?] per barrel in Q2.

[Looking ahead, a?] tight market environment [is expected to continue?]

in Q3 amid ongoing crude and product supply disruptions. [Summer cooling demand is?]

expected to increase demand for diesel used in power generation due to heat waves. Also, as Ukrainian drone attacks continue on Russian refineries, Russia's export restrictions on products such as jet fuel and diesel are expected to keep major product markets tight.

However, geopolitical developments are expected to influence the strength of product spreads in the second half of the year. A more detailed outlook [will be?]

provided in the key business update section with supporting data. Next is petrochemical business segment.

In Q2, petrochemical segment posted an operating loss of 44.8 billion won. Although margins improved somewhat, supported by higher PO spreads, inventory-related gains turned into losses from the previous quarter.

Let me now discuss the market environment in Q2. In April and May, PX spreads narrowed to around $200 per ton on average, as feedstock naphtha prices surged following the Middle East conflict, while PX prices failed to keep pace with the increase in naphtha prices.

However, in June, naphtha prices stabilized following the easing of the Strait of Hormuz blockade, allowing PX spreads to recover to the $350 per ton range. As a result, the average PX spreads for Q2 came in at 200 [and...?]

per ton. For benzene, lower operating rates at major facilities due to naphtha supply disruptions, together with the resumption of downstream [facilities?]

, helped improve the regional supply-demand balance. As a result, [benzene spreads?]

for Q2 increased by $20 Q-on-Q to $139 per ton. For olefin downstream products, the average PP spreads over propylene improved to $229 per ton in Q2.

For PO, the market remained strong as lower operating rates caused by feedstock supply disruptions following the Middle East conflict, together with pre-buying demand from downstream customers concerned about supply shortages, supported the prices [at around $... ?]

per ton in Q2. Let me discuss the outlook for the petrochemical segment in Q3.

For aromatics, supply is expected to decline as planned maintenance shutdowns at Chinese facilities, originally scheduled for Q2, have been postponed to Q3, resulting in lower operating rates. However, market conditions are likely to remain volatile, depending on the timing of plant restarts and the pace of downstream demand recovery.

If geopolitical tensions persist, volatility in feedstock supply and prices, including naphtha and propylene, is also expected to continue. For olefin downstream products, PP is expected [to remain weak?]

amid continued regional supply growth from new capacity additions. Meanwhile, for PO, spreads are expected to moderate as supply recovers from the previous quarter and seasonal demand weakens.

Next is lube business segment. Operating income from the lube segment reached a record high 477.4 billion [won.

Spreads remained?] strong across all grades due to supply disruptions in the Middle East, with particularly tight market conditions for Group III base oil.

Direct product disruptions at Middle East facilities, together with logistics constraints [around the?] Strait of Hormuz, drove a sharp increase in LBO prices.

As [a result, spreads?] increased by approximately $90 per barrel Q-on-Q to a record high $139.7 per barrel.

Tight supply-demand conditions are expected to persist in Q3 as supply disruptions continue. A more detailed explanation will be provided in the key business update section.

Next is key business update. First, let me walk you through the supply and demand outlook.

The Middle East conflict continues to affect global crude oil and refined product [markets. Blockades of the Strait?]

of Hormuz and the Red Sea have disrupted crude oil transportation, leaving global crude inventories at historically low levels. Refined product inventories have also remained at historically low levels due to the blockade [and disruption at?]

refineries in the Middle East and Russia. With both crude oil and refined product inventories remaining at low levels, tight supply-demand conditions continue to persist.

Despite US refineries operating at exceptionally high utilization [in the 90-something? percent] range during Q2, US gasoline inventories have fallen to historical low levels due to reduced imports amid tight market conditions.

In addition, as demand for diesel for power generation has increased amid the European heat waves, Russia has expanded its export restrictions to include gasoline, jet fuel, and diesel following damage to its refining facilities. Meanwhile, refinery operations and exports in Middle East continue to be disrupted [by the conflict and blockade of the?]

Strait of Hormuz following the Middle East conflict. As a result, tight supply-demand conditions are expected to continue, affecting market conditions through at least the end of this year and into next year.

Accordingly, global refining margins are expected to remain firm for the foreseeable future. LBO market is also being significantly [tightened, particularly?]

for Group III, as tight supply in the Middle East continues to intensify. The Middle East accounts for approximately [a large share of?]

global Group III base oil supply capacity, and as a result, Group III spreads have reached record high levels. Given the disruptions to Middle Eastern LBO production facilities, the current supply tightness is expected to persist for an extended period even after the Strait of Hormuz reopens.

More than 35% of the company's LBO production capacity consists of Group III products. Accordingly, the current strength in the LBO market is having a meaningful impact on our earnings.

Based on current inventory levels and supply-demand conditions, the company expects market conditions for the refining and lube businesses to remain firm throughout the second half of the year. Last is the progress of Shaheen Project.

The company is currently verifying mechanical completion through site inspections, equipment performance checks, and reviews of submitted documents to verify whether the requirements for mechanical completion have been met. At the same time, pre-commissioning and commissioning activities are underway, with start-up scheduled to follow and commercial operation targeted for early next year.

On the marketing side, annual supply agreements for olefin monomers have been secured with customers, while additional contracts are being pursued to expand the customer base. [For polymers, compounding?]

and commissioning is planned in line with Shaheen start-up. For PE, quality evaluations are being conducted through pre-marketing, while marketing efforts are underway for early securing key domestic customers.

We will keep you updated on [the progress of Shaheen?] project.

This concludes our presentation. Thank you.

Now

Good morning, I have three questions, and thank you for the opportunity to pose my questions. First is your outlook on the refining business in the second half of the year, and how will the company respond to the escalating [geopolitical risks in the?]

Middle East, namely a possible closure of the shipping route in the Red Sea, and how are you going to counter these risks in terms of sourcing crude? My second question has to do with your understanding and market intel on the global refining facility [disruptions caused?]

by the war in Iran and Ukraine's drone attacks against refining facilities in Russia, [and how you expect?] the overall market supply and demand conditions to evolve after the end of the war?

My third question is your CAPEX plan for this year and in 2027. Thank you.

To answer your first question on the refining market conditions in the second half of the year, as was also explained by the IR team leader, the [refining margins remain strong?] for a number of reasons.

We are seeing exports from the Middle East being contracted because of the war. Russia's refining facilities are also disrupted because of the drone attacks from Ukraine, and this subsequently moved the Russian government to impose restrictions on jet fuel and diesel exports, and China is also restricting its exports of refined products.

We don't expect this situation to clear itself in the short term, even if [geopolitical issues in the Middle East are resolved, the tight supply situation will continue?] at least until the end of the year and even in 2027.

In response to the company's crude sourcing due to [geopolitical tensions in the Red Sea?] , we are actually coming up with various response measures to this.

We have been securing crude through a different shipping route from the Yanbu Port, and we've also utilized the non-desaharan blend, and we also secure crude oil from the Fujairah Port as an alternative, and we're also securing Saudi crude oil stored in Ulsan, and we also lease the government stock-piled oil. These are all the measures that we are working on in response to the crude sourcing.

Again, we are using the detour shipping routes since the war broke out, and we're also looking into various supply scenarios and countermeasures under the assumption that there will be some disruptions in the shipping routes from the Red Sea. If we opt for the detour [around the Cape of Good Hope, instead of the Suez Canal?]

, this could delay the crude arrival to South Korea by about 30 days. We'll [implement contingency measures?]

such as leasing the stockpiled crude oil from the government and tapping into spot crude oil on a contingency basis. By doing so, we'll be able to minimize the impact of the disruptions in the shipping routes even if there are, again, disruptions in the shipping routes from the Red Sea.

To answer your second question, we understand that there have been quite sizable disruptions in the operation of refining facilities in Russia because of Ukraine's continued drone attacks on Russia's refining facilities. As of July, this month, about 40% of Russia's refining capacity has been hit by the drone attacks, and in terms of the utilization rate, it is equivalent to about 36%.

Subsequently, the Russian government [announced export bans?] of refined products.

In June, they announced banning the exports of jet fuel, which will continue until November this year, and they also recently made the announcement that export ban of gasoline and diesel will be extended until January next year. In relation to the war in Iran, we cannot have a clear information on how much [damage was done?]

because there is direct attack on the refining facilities in the Middle East and also the supply disruptions of crude oil from the Middle East had an indirect impact on the global utilization rate of the refineries. Based on the outlook from the institutions, the damage and the disruptions done to the refining facilities in the Middle East was very heavy right after the start of the war.

However, they are expecting the facilities [to recover?] .

As for the size of disruption, it was roughly 2.3 million BD in July, but they believe that it will slowly clear down to 1 million BD in October this year. However, this is all subject to change depending on the situation in the Strait of Hormuz and the Red Sea.

To sum up, the global refining facilities are disrupted, but they vary to some degree from one region to another, and subsequently the inventory level is also off the normal level compared to the past, and therefore it will take time before the market comes back to the pre-war supply conditions. To answer your third question on the CAPEX outlook this year, as the Shaheen Project is progressing well, and as was shared with you earlier, our CAPEX for this year is 2.1 trillion

won.

This year we are going to wrap up Shaheen Project, and in 2027, most of the CAPEX will be the ordinary CAPEX around maintenance and repair, and we don't have any major investment plans for 2027 so far. At the moment, of setting the budget for 2027, and once the final numbers are out, we will share them with you.

This concludes my answer to your third question.

I have three questions, and thank you for the opportunity to pose questions. First is [the bullish?]

of kerosene and diesel margins since June, and what is your outlook on the sustainability of this [bullish margin?] ?

My second question has to do with Shaheen Project. You explained about Shaheen Project in [the presentation?]

, [could you?] just walk us through in a more detail about Shaheen Project and when it will go into commercial operation, and also explain to us about the government's petrochemical restructuring policy in Ulsan [and what impact it will have on Shaheen?]

? My third question has to do with the dividends.

The company's performance has recently improved significantly. How much do you think this will reduce the company's borrowings, and do you think this will also raise the company's dividend?

If so, when and by how much? To answer your first question, I believe there are a number [of factors impacting?]

the supply side and also affecting the diesel and kerosene margin. The kerosene and diesel exports from the Middle East have been contracted because of the war, and the refineries in Asia are sourcing lighter crude oil, which is affecting the overall utilization rate and the [yield?]

supply of kerosene and diesel. We are seeing quite sizable disruptions in Russia's refining facilities because of Ukraine's drone attacks, and this is affecting [the supply?]

of kerosene and diesel, and so is China, which is also restricting its exports as well. As a result, the kerosene and diesel spread, which was in the upper $30 level in Q1, has shot up to $60 level in Q2, and as [of?]

the middle of July, the spread further widened to over $70 at the moment. We do not think this disruptive situation will clear itself in the short term.

It is likely to continue in the mid-to-long term, and therefore we are expecting this bullish [trend to?] continue towards the second half of the year.

To answer your question on Shaheen Project, as [I said earlier?] , Shaheen Project's target commercial operation is early 2027.

To walk you through [the progress?] , on June 30th, the EPC contractors have submitted to the company the documents related [to mechanical completion?]

, and we are now in the process of checking the process of field inspection and verifying the performance of the equipment, and also verifying the documents submitted by the EPC

contractors [to confirm mechanical completion or not?] .

Given the fact that this is a mega project, we are doing the verification work unit by unit and step by step, and in parallel with this, we are also in the process of pre-commissioning and commissioning work. Our plan is to complete the commissioning and the start-up in the fourth quarter of this year, and as I said earlier, we are going to go into commercial operation from early 2027.

Speaking of the petrochemical restructuring in Ulsan, the company is fully aligned with the government's policies to make the petrochemical industry more competitive, and we are closely cooperating with the government's restructuring policy. However, we are [yet to see?]

the restructuring solution. As you know well, Shaheen Project is very cost-competitive, which means it will have very competitive facilities, but at the moment, the companies involved have different interests, it is taking some time before the companies involved are coming up

[with a suitable plan?] .

Going forward, the company will continue to avail all the company-wide resources and capabilities to ensure safe completion and stable operation of Shaheen Project, and at the same time, we will fully align ourselves with the government policies. To answer your third question on the company's plan to downsize the borrowings and any outlook on any plans to raise dividends based on the strong performance that the company has been recording recently.

Our plan [is to improve our?] financial structure by reducing the borrowings based on the strong earnings that we have been making recently,

and also reasonably allocate resources to dividends.

As investment into Shaheen Project is almost over, but however, how much we will reduce the borrowings will [depend on?] the company's income size and the working capital, which is affected by the oil price.

However, in the long term, our plan is to keep the debt-to-equity ratio in the range of 80%

to 100%.

For this year's dividend, it will be paid [based on the announced policy of maintaining a?] dividend payout ratio maintaining at 20% or above.

However, when the company's earnings go [up, the total dividend amount will?] increase correspondingly.

As for the dividend payout ratio from 2027 and onwards, we are going to develop the dividend guidelines in the future, and we will share them with you in 2027.

Thank you for the opportunity to pose questions. I have three questions.

First is the inventory gains and losses in Q2, and was this affected by some one-off factors such as maximum price cap? Second question is, how do you think this will affect the company's performance in the second half of the year, and do you think the OSP could recover and go up again because of the renewed geopolitical risks in the Middle East?

My third question is, what is your outlook on the lube base oil business in the second half of the year and for 2027, and also any outlook on the expansion? To answer your first question on the inventory gains and losses in Q2 and the one-off impact, as I presented earlier, in Q2, the inventory-related gains is 113.7 billion won, and the FX-related is 116.8 billion

won.

As I said earlier, in Q2, most of the inventory gains came from the lube base oil business. In the refining business, even though the international oil price at the end of June was lower than that at the end of March, it recorded a slight positive because we treated the crude oil from the inventory and the OSP of crude oil treated in June was high.

In the petrochemical business, it was slightly negative because of reduced naphtha price in Q2. As for the impact from the maximum price cap, as you know well, the government made the announcement on this policy [in March?]

, and it is still ongoing. The government also made the notice about compensating the refiners' loss later, and it will deliberate this on a quarterly basis in the government-led committee and also compensate, and we understand that the government made an extra budgeting to compensate for the refiners' loss.

Subsequently, the company expects compensation for the loss [that incurred?] as a result of the maximum price cap with some time lag.

However, the amount of loss [will depend?] on the formula and assumptions.

At the moment, the government organized the related [committee, and is preparing?] the guidelines on what kind of documents need to be submitted to the government and how to estimate [the loss?]

. The amount of loss and the compensation to the refiners is all fluid, and therefore we cannot arrive at any conclusive facts at the moment.

Your second question about the OSP. Since the company mostly sources Saudi crude oil, lower OSP has a direct impact on the company's margin in a positive note.

We've been seeing very high volatility in the OSP movement lately. The Saudi crude OSP for May lifting went up by $17 from the previous month, which is the record high ever, but it turned down from June as the geopolitical risks in the Middle East subsided and the OPEC+ moved towards raising the output.

In particular, the OSP for [August lifting was cut by $11?] from the previous month, which is also the lowest cut ever in history.

We are expecting the OSP to remain quite volatile going forward. If [there is risk?]

of the Red Sea being blocked on top of the Strait of Hormuz, there is the risk related to crude sourcing from the Middle East. If the Red Sea is indeed blocked, then the Saudi crude will have to make a detour through the Suez Canal and all the way to the African continent, which will extend the transportation period and add an additional burden and pressure to Asian refiners in terms of freight and working capital.

This could move the OSP both ways. [It could lower OSP due to price?]

competitiveness; however, it could go up if there is restrictions in crude oil supply from the Middle East because of the blockade of the Red Sea. If the lock-up of the Strait of Hormuz and the Red Sea are entirely and completely cleared, then the oil producers in the Middle East could compete to secure their market share, in which case the OSP could remain quite low, just like the August lifting OSP.

At this moment, it's very hard to predict how the OSP [will move?] , and all this will depend on the evolution in the geopolitical situation in the Middle East.

To answer your third question on the lube base oil supply, as I said in my presentation earlier, we are expecting this tight lube base oil supply situation to continue at least until the end of the year or even next year, led mostly by Group [III due to production?] disruption and logistical disruptions in the Middle East.

We believe out of the three groups, Group III will lead the overall lube base oil market conditions. As for the new capacity expansions, we believe the impact of capacity expansions will be limited until 2027.

First,

since lube base oil is not a commodity, it usually takes extra time before the new facilities impact the market. At the end of 2025, there was a Group II expansion [of 1 million tons per?]

year in Singapore. However, we understand that there are some partial operational glitches there, and therefore it will take some time before the new facilities expansion impact the market.

Next year, there is a schedule of facilities expansion for Group II and III in India, Saudi Arabia, and Poland. However, the production could be adjusted or the schedule could be slightly delayed because of the war in the Middle East.

Therefore, it will be maybe 2027 or the year after that when the new facilities start to seep into the market, and [therefore we expect the lube base oil market to remain strong for the time being?] .

That concludes my answer to your third question. Thank you once again for showing your interest in S-Oil, and I would like to thank all the analysts and investors for participating in the earnings release.

Going forward, S-Oil will continue to engage in transparent and fair communications with the market, and if you have any further questions, please feel free to contact the company's IR team. Thank you very much.