SK Energy's Romp in Peru

Company takes charge of producing 60 pct of oil and 90 pct of LNG in Peru

SK Energy Co. has been working to merge with its affiliate SK Incheon Oil Refining Co. The board of directors of the company has decided to take over the oil refinery by the first half of next year at a meeting on Sept. 6. The both companies will settle the merger ratio and other matters before concluding the merger officially at a board of directors meeting later.
SK Energy has expanded its operation in Peru by securing additional mining blocks to explore oil and gas. The international consortium that includes SK Energy will launch the commercial operation of the Cammisea oil field from next year.
The merger is expected to bring a strong competitive edge by mixing business capabilities of the two companies, build a base for continued growth through the advancement into overseas oil market and synergy in a wider area of the two companies'operations including purchasing, production, sales and R&D activities and the expansion in the scale to make the company more competitive in negotiating power.
When the merger is concluded, SK Energy's daily oil refining capacity will increase to 1.115 million barrels and the upgrading ratio to 14.4 percent from 12 percent.
SK Energy's push for merger is based on the fact that the oil refinery's operation has been normalized enough and the change to a holding company system makes SK Energy to focus on expanding its business capacity as judged by the company's management.
SK Energy thought about Incheon Oil Refinery being listed on the Korea Exchange or going for a strategic tie-up with other companies. But it decided to go for merger with Incheon Oil Refinery.
President Shin Heon-cheol of SK Energy said achieving the scale of economy would speed up the two companies'growth, while boosting their corporate value.
SK Energy took over Incheon Oil when it was under court management in 2006 and in March last year, it changed the name to SK Incheon Oil Refinery.
SK Energy in Peru:
In the meantime, SK Energy is speeding up the project to commercialize the Cammisea oil field in Peru, which the company won in a bidding in 2000 in consortium with Hunt Oil and Repsol of Spain. The 88 mining block is actually a gas field, with 570 million barrels of liquid gas reserves and 250 million tons of natural gas. Their total market value is estimated to be 110 trillion won, the single largest gas deposits in South America.
The first job the company performed for the commercialization of the gas field was to build the facility to separate liquid gas from and gas, which was completed near the gas field in 2004.
Once the liquid gas is separated, it will be sent to an oil refinery some 557 km away in Pisco, Peru, and produce diesel, naphtha, and LPG and shipped to foreign countries.
SK Energy has already built a refinery in Pisco, located in the coastal area of the Latin American country. Natural gas extracted from the facility totaling some 300 million tons that Korean can use for 13 years should be exported as soon as the buyers are found. Peru LNG is building a LNG production plant in Pampamelcholita, Peru, targeted to be completed in 2010, which will able to turn out 4.4 million tons of LNG per year. The plant site is some 540 km from Cammisea and pipelines are being laid also to ship the natural gas. Peru LNG is the company set up by Hunt Oil and SK Energy to build the LNG Plant at the cost of some $3.8 billion.
The LNG plant is the largest in Peru, which is why the local government has been providing all kinds of help to the builders so that the plant will be completed before term of office of the current Peruvian president is terminated. The local government has also assigned a team of police guards to prevent possible demonstrations by local residents.
When the LNG plant is completed, SK Energy will be part of a full business operation surrounding the gas field including production, transportation and exporting. But the company's energy business in Peru is not limited to Cammisea, it also secured the right to explore oil in the offshore(2-46) mining block and the 56 mining block. The 56 mining block is estimated to contain 200 million barrels of liquid gas and 80 million tons of natural gas and the commercial operation of the gas field is scheduled to begin next year.
SK Energy has been put in a position where it would take charge of producing 60 percent of oil, and 90 percent of natural gas, dominating a country's production of natural resources. The development of oil and gas in Peru is part of the company's plan to secure 1 billion barrels of reserve oil by 2015 to rank among the 30 largest oil producers in the world. nw