Oil Diplomacy at Work

Korea National Oil Corp., Samsung Corp. join hands to take over oil fields overseas

Korea National Oil Corp. (KNOC) said it has taken over three oil fields in the United States, Mexico and the Congo with combined oil reserves of some 90 million barrels on Jan. 31. The company said its consortium has also signed an MOU to take over drilling rights for a large oil field in the Kurdish region of Iraq, estimated to contain from 800 million to 1 billion barrels of crude oil.
The 'giant class'oil field is the second one explored by Korean firms after the Bajian oil field in the Kurdish region, which is estimated to contain 500 million barrels of crude oil. The Korean consortium led by KNOC won the rights for the oil field in November 2007.
Prime Minister L. Barzani of the Kurdish Autonomous Government and President Hwang Doo-yol of KNOC signed the instrument for their respective entities at the Shilla Hotel on Feb. 14. The Kurdish prime minister met with President-elect Lee Myung-bak on Feb. 13 and discussed closer cooperative relations between Korea and the Kurdish state, especially in the area of oil production.
KNOC's Hwang and Samsung Corp. President Chi Sung-ha signed an agreement for the takeover of an oil field located in the Gulf of Mexico from Taylor Energy Co. of New Orleans, Louisiana, the United States, with that state's governor Bobby Jindal and Vice Minister Lee Jae-hoon of the Ministry of Commerce, Industry and Energy in attendance at the signing.
KNOC took over an 80 percent stake in the oil field and Samsung Corp. received 20 percent. KNOC will be in charge of the oil drilling operation.
KNOC signed an agreement with Tullow Co. of Britain on Jan. 30 in Paris to take over an 11 percent stake in the Moundi mining district in the Congo, which is estimated to have 260 million barrels of oil reserves and currently produces 40,000 barrels of oil daily.
The takeover of three oil fields boosted Korea's oil self-sufficiency from 4.2 percent to 4.92 percent of its total oil requirement, expanding the daily production of crude oil pumped from fields owned and operated by Korean oil companies to 214,000 barrels daily.
The offshore oil well that the KNOC consortium has taken over is the fourth oil well to be directly operated by a Korean oil company after the Captain oil field in the North Sea from a British oil company, the No. 8 mining bloc in Peru, and a stake in SES oil field in Indonesia. The oil field in the Gulf of Mexico is the largest among the four.
The number of oil and gas fields overseas in which Korean firms hold stakes is now at 11, including the Vietnam 11-2 gas field and another in Indonesia.
The offshore oil field in the Gulf of Mexico holds some 61 million barrels of oil reserves and currently pumps 170,000 barrels daily, but can be increased to 190,000 barrels per day by 2009, which will allow the Korean consortium to recover its investment in about four years.
The Gulf of Mexico oil field cost the Korean consortium over $1 billion, making it the costliest takeover by a Korean company. The oil field, complete with oil drilling facilities and some 150 technicians, will provide the Korean owners with valuable experience in running an oil-drilling operation so that they will have ample opportunity in the future to become one of the major oil business operators in the world.
The Korea Pension Service, which signed an agreement with the three largest overseas oil exploration companies in the country, is inclined to invest in the Mexican oil field, which will make it the first overseas oil field in which KPS holds a stake.
KPS's move is likely to lead private resources development funds and other retirement funds to begin looking for chances to make investments in overseas natural resources exploration projects. KPS signed a contract with the three major overseas natural resources exploration companies to invest some 20 trillion won over the next 10 years.
The M'oundi mining bloc in the Congo is the second largest oil bloc in West Africa, with reserves estimated at 266 million barrels. KNOC's share would be 29 million barrels with the daily production capacity of 4,400 barrels. The largest mining bloc in West Africa is the Sanha bloc in Angola with total oil reserves of 622 million barrels.
KNOC conducted an investigation of the oil bloc last November with the intention to take over a stake from Tullow Co.
However, other shareholders of the oil field including ENI of Italy and two others have to agree to part with their stakes and get the approval of the Angolan government for the deal.
The deal will be the first push for Korean oil explorers into West Africa since they took over a stake in an oil company in Nigeria. The Angolan venture would be a bridgehead for Korean oil companies to expand their operations in the region.
The government will spur activities to turn oil blocs in the hands of Korean oil firms overseas into commercially viable oil fields and will use the takeover of the three working oil fields in the United States and West Africa as a turning point. This will help move Korea away from its efforts to secure oil exploration blocs and raise its resources diplomacy to boost the possibility for direct and independent oil exploration by acquiring productive oil blocs directly or through M&As, all aimed at raising Korea's oil self-sufficiency rate. nw

KNOC President Hwang Doo-yol, right, shakes hands with Kurdish Prime Minister L. Barzani after signing an MOU on Feb.14 at Shilla Hotel in downtown Seoul, providing for the Korean consortium led by KNOC exploration of a 'giant'oil field in Kurdish region of Iraq.