State-run oil firm also seeks to diversify business to crude alternatives
State-run Korea National Oil Corp. is stepping up overseas development projects and expanding its portfolio into alternative resources in bid to boost the country’s energy security.
Korea, the world’s fifth-largest importer of crude oil, has been vulnerable to global oil price volatility and uncertainties in the market, especially those originating in the Middle East, from which it brings in 80 percent of its supply.
The country has been seeking to raise its energy independence through overseas development, instead of imports, to meet rapidly rising domestic demand.
KNOC has been at the forefront of this drive, aiming to be among the top 40 oil developers in the world by 2020.
Over the years, the firm has been getting involved in successful offshore business ventures. According to KNOC, it is involved in around 190 oil development projects in 24 countries as of late January.
These projects have pushed up the country’s self-reliance rate of oil and gas from 5.7 percent in 2008 to 10.8 percent as of last year. The firm said it aims to further boost the figure to 18 percent by 2012 and 30 percent by 2019.
Quantity-wise, the firm is planning to achieve daily oil production of 300,000 barrels ― from the current 179,000 ― and total reserves of 2 billion barrels ― from 1.2 billion ― by next year.
Key contributions to the developer’s notable achievement include a landmark oil development deal in the United Arab Emirates inked last month and a hostile takeover of U.K. oil firm Dana Petroleum in 2009.
The Korea-UAE oil deal, the biggest of its kind ever bagged by a Korean company, includes a memorandum of understanding which guarantees Korea the right to participate in the production of at least 1 billion barrels of crude oil from the Arab nation’s capital. It ensures exclusive rights for Korea to develop three untouched oil fields there.
The 1 billion barrel production arrangement is estimated to be worth around 110 trillion won ($95 billion) while the three undeveloped oil fields are speculated to have reserves of 570 million barrels of crude, according the firm.
Should the signing of concession contracts follow promptly, Korea will begin producing 35,000 barrels of oil a day in the UAE in 2013, KNOC said.
In addition to offshore development, KNOC has been looking to acquire foreign oil firms.
In 2009, the firm became the first Korean public company to acquire an international corporation through a hostile takeover with its bid for Dana Petroleum.
“The takeover is particularly meaningful in that we won the bid in a fierce competition with other state-run oil developers from China and India. It not only boosted our oil reserve and production but gave us confidence for our future overseas projects,” a KNOC official said.
Alongside crude oil development, KNOC has recently been broadening its focus to alternatives to crude, including unconventional oil, it said.
Unconventional oil is petroleum extracted using techniques other than the common drilling method.
Nations around the world have been turning to unconventional oil due to the increasing global demand for oil and growing scarcity of conventional oil reserves.
The development of unconventional oil has become more popular over the years as more affordable forms of advanced technology became available.
An aerial view of De Ruyter development area in the North Sea, operated by Dana Petroleum which was acquired by Korea National Oil Corp. in 2009. (KNOC)
Shale oil is a common type of unconventional oil. Synthetic oil and gas are produced from organic matter through hydrogenation or thermal dissolution.
The produce can be used immediately as fuel or upgraded to be qualified for refining. The refined products can be used for the same purposes as those derived from crude oil.
The ministry projected that the two deals would raise the country’s self-reliance rate of oil and gas by 0.5 percent point.
KNOC made unconventional oil development deals in the United States and Kazakhstan last month.
The firm paid Anadarko Petroleum Co. of the U.S. $1.5 million to acquire a 23.7 percent-stake in its shale oil field in Texas. It also acquired a 95 percent stake for Altius Holdings Inc., a Kazakhstani oil exploration and production firm, for $515 million.
They are to elevate Korea’s oil reserves by 1.7 million barrels and its daily production by 65,000 barrels, according to the firm.
Despite its accomplishments, KNOC said it is still to overcome a number of challenges to further spur its overseas presence.
They include the ever-intensifying international competition regarding resources and Korea’s relatively small investment size and lack of experience, officials said.
Emerging economy countries such as China and India have been aggressively increasing their purchase of overseas resources to meet surging domestic demand, while resource-abundant South American and African nations have begun restricting exports.
The situation has made the business environment even tougher for KNOC, a late-runner in the market which does not have a lot of overseas business experience or the ability to make large-scale investments, officials said.
By Koh Young-aah (email@example.com