BUSINESS OVERVIEW

INVESTING IN FUTURE
SOURCES OF GROWTH
> >>

SK Energy has secured a leading

position in the global energy business
and is continuously identifying and
seizing future growth opportunities.
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.
 > >>

Petroleum Business
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.

36
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Market Share in Korea

(as of Dec. 2009)

33.6%

* 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
_ 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
285,306
Asia-Pacific region and secure a robust foundation for sustainable growth and development.
thousand barrels

* Petroleum Product Sales Volume

in 2009

37
 Operating Income from _ LPG
LPG Business Despite the release of LPG-powered compact and hybrid vehicles, the year 2009 was a very
(KRW in billion)
challenging year for LPG industry due to unfavorable market conditions such as the decrease of LPG
2007 32.5 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
2008 54.0 Commission.
To overcome the difficulties and lay the groundwork for sustainable growth, SK Energy has focused on
2009 43.8 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
Sales Growth of Specialty first of its kind developed and commercialized by a Korean refinery.
Petroleum Products
(Sales Volume)
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

5.5%
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.

38
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

_ 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.
VIETNAM
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
Vietnam
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.
KUWAIT

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- Kuwait
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.

39
 > >>
Petrochemical Business
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.

40
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Sales of Petrochemical Products

(unit: thousand tons)

2007 7,617

2008 8,445

2009 8,928

* 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
_ 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

9,660.8
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 KRW billion
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.

* Sales of Petrochemical Business

in 2009

41
 Factory Operation Rate of
Petrochemical Business in 2009

Ulsan Complex

92.95%
Incheon Complex

85.90%
_ 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
-----Butadiene 1%
-----Ethylene 2%
programs and customer services.
-----OX 3%

-----Propylene 5%
_ Performance Rubber (EPDM)
-----PP • PE 10%
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-
-----SM 10%
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.
-----*Others 14% 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.

-----PX 20%

_ I/E Material
Separators are essential materials in the production of rechargeable batteries, and SK Energy is Korea’s
-----BTX 35% 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
Sales Breakdown by continues to grow with the spread of notebook PCs and mobile phones, and SK Energy started up
Product in 2009 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
* Others include Solvents, H-RPG, NCB, Butene-1,
MTBE, CHx, etc.
marketing will help to boost sales in this business.
* LiBS : Lithium-ion Battery Separator

42
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

_ Special Story

SK Energy’s advanced
catalyst 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 CO 2 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
 > >>
Exploration &
Production Business
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.

44
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Daily Production Capacity

(unit: barrel)

2007 22,000

2008 26,000

2009 41,000

_ 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

503.0
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 million barrels
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.

* Proven (P1) Reserves

(as of the end of 2009)

45
 Coalfield Development
(as of the end of 2009)

Production
4 coal mines

Exploration
4 coal mines

Investment in China
1 coal mines

_ 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.

46
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

_ Special Story

Asia-
SK Energy succeeds in exploring natural Oceania

resources half-way around the world.

VIETNAM
Block123
Block15-1/05 Block15-1

Bangko
INDONESIA
Northeast Madura I
WA 34R
SK Energy succeeded in trial prospecting 7,500 barrels of crude oil and 4 million cubic feet AUSTRALIA

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
UNITED STATES
crude oil reserves, and the test production was conducted in the first-discovered oil well.
Iberia North
The BM-C-30 mining block is an offshore mining area located at the Campos Basin off the North & South
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 SSJN-5
America
CPO-4 CPE-5
IVW are participating in the exploration of BM-C-30, while BP is expected to join. COLOMBIA
BM-BAR-3
Block8
The Wahoo well is producing light crude oil (31-degree API gravity). We expect this well BRAZIL
Z-46
PERU
Block56
will be capable of producing more than 15,000 barrels of oil per day. We now plan to move Peru LNG
Block88 (Camisea)
BM-C-32
to another Wahoo well discovered in November 2009 to conduct a second drill-stem test. BM-C-30
BM-C-8
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 Issaouane North Zaafarana
of crude oil per day since July 2007, and in the BM-C-32, in which trial drilling confirmed
ALGERIA
LIBYA
EGYPT Qatar LNG Oman LNG
QATAR
NC174
crude oil deposits in December 2009. Block51OMAN
YEMEN
Yemen LNG

Middle East &

COTE
D'IVOIRE

CI-01

Africa
CI-11 EQUATORIAL Area D
GUINEA

Majunga
MADAGASCAR

3/27a
9/2b
9/6 9/2c
Captain

Block8
Zhambyl
UNITED
KINGDOM

KAZAKHSTAN

Europe &
Central Asia

Development / Production Blocks

Exploration Blocks
LNG Project

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
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Brand Power of ZIC

10 consecutive
years

No.1
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-

900.1
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 KRW billion
Japan, which will deliver more opportunities to the Company, the world’s largest high-quality base oil
producer and provider.

* Sales of Lubricants in 2009

49
 Export Growth of
Lubricants in 2009

10%
_ 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.

50
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

_ Products

Lubricants Lube Base Oil

Automotive Marine Industrial Grease

Gasoline Diesel Antifreeze Motorcycle

LPG engine oil Gear oil
engine oil engine oil Brake fluid engine oil

_ LBO Production Process (Ulsan CLX)

Atmospheric residue
LPG
#2 Depressurized
distillation process
Naphtha
Catalytic
Vacuum hydro-cracking process
gas oil Kerosene

Diesel
Atmospheric
residue from
hydro-cracking
YUBASE 2
#3
Depressurized #1 Wax
distillation YUBASE L3
No.1 LBO Distillates isomerization process
process

Atmospheric residue YUBASE 3

from hydro-cracking

#2 Wax isomerization YUBASE 4

#4
Depressurized process, finishing process
distillation using compressed
No.2 LBO Distillates
process hydrogen YUBASE 5

YUBASE 6

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
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Sales Growth of
Technology Business in 2009

35.5 %

>
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.

KRW 45.4 billion

* Sales of Technology Business

in 2009

53
 > >>
Research & Development
The 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
 BUSINESS OVERVIEW

CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

Investments in R&D
(KRW in billions)

2009 860.3

2008 791.5

2007 851.7

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

55
 _ 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

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

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.

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CORPORATE GOVERNANCE SOCIAL RESPONSIBILITY MANAGEMENT’S DISCUSSION & ANALYSIS AUDIT REPORT

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