A Pioneering Biz Deal

SK Corp and New Nippon Oil forge alliance over wide-ranging areas of energy business

SK Corp announced last month that it has forged a business tie-up with New Nippon Oil Co. in Japan in wide-ranging business areas including the exploration of oil fields, petrochemical, lubrication and other overseas operations. New Nippon Oil, the largest oil company in Japan, also announced the news simultaneously in Tokyo.
SK Corp. President Shin Hun-cheol said the alliance would help strengthen the two companies'competitive edge, the formation of joint business ventures for mutual benefits in the Asian region, where the economy has been growing rapidly along with other areas of business.
The development is the first example of two oil companies with different nationalities forging an alliance over a wide area of oil business designed to save expenses, boost business effectiveness and to search for new business areas.
In the area of natural resources exploration, the two partners agreed to set up a system for the exchange of information and joint use of transportation equipment,
and technology through a technology exchange committee that is aimed at considering possibilities for joint ventures, resource exploration, development and purchase.
In the area of oil supply, the two companies agreed to facilitate product exchanges between them such as refined oil products and crude oil during a slowdown in oil demand aimed at building joint oil supply facilities, leasing and joint use of oil transportation equipment and lease of oil products during the regular downtime for each other's oil refining facilities.
In the area of petrochemical, SK and New Nippon Oil agreed to lease and exchange petrochemical products, mutual and joint uses of production and delivery installations of petrochemical products, along with a study on the joint construction of production facilities.
In the area of lubrication oil, the two oil giants agreed to build a stable and effective supply system for lubrication oil including lease and exchange of lube products and push for joint use of lube brand installations and their mutual use in an effort to expand the lube oil business overseas where demand for lube oil has been rising.
For overseas business, the two firms agreed to look into the possibility of building joint petroleum production facilities in Asia and joint ventures in oil and other energy sectors. The two companies also agreed to help each other in cutting production costs in the areas of transportation, competition and R&D activities and look for opportunities to set up joint ventures.
The agreement runs for 10 years from the date of signing, with a clause for automatic extension if neither partners raise objections. In order to make the agreement more solid, the two partners also agreed to hold stakes in each other company shares at 1 percent each. SK will buy 1.432 million shares of its Japanese partner's stake and New Nippon Oil will also buy 1 percent of its Korean partner's stake amounting to 1.29 million shares. Each company would have to spend some 90 billion won each to buy those shares.
SK officials said the two companies would implement the agreement step-by-step to build a solid base for future management.
New Nippon Oil, set up in 1888, is the largest oil company in Japan having and is engaged in all areas of the energy business from refining to power generation, imports of gas and marketing. The company's sales in 2005 amounted to $52.3 billion with a net profit of $1.4 billion.
The company operates 7 oil refineries in Japan with a total daily oil refining capacity of 1.22 million barrels, the third largest in the Asia-Pacific region. It has 836 million barrels of oil deposited in its oil fields around the world.
SK is the largest oil refiner in Korea and the fourth largest in the Asia-Pacific region with total oil refining capacity of 1.115 million barrels per day, including those by Incheon Oil, its affiliate. nw

(from left photo) Chairman Chey Tae-won is on an inspection of a SK Corp. service station. SK Group Chairman Chey.