Resuming Oil Exploration in Russia

KNOC, Rosneft in talks to restart oil exploration in Kamchatka

President Kang Young-won of the Korea National Oil Corp. said recently that KNOC will be able to continue to undertake the oil exploration project on the Kamchatka Peninsula, which was recently suspended by the Russian authorities.
The new CEO of the oil company said KNOC sent a letter to Rosneft, a Russian oil company, containing the proposal for terms to reopen the oil mining bloc on Sakhalin Island near the Kamchatka Peninsula in the North Pacific and is awaiting their reply.
"Oil exploration is important, but you can't do it when you lose money,"Kang stressed. The president, who took over KNOC on Aug. 19 officially, said he doesn't exactly know the workings of Russian petroleum authorities, but they are likely to handle with care contracts signed with national corporations, as they could flare up into diplomatic issues, suggesting the likelihood that KNOC will regain back the license to resume the suspended oil exploration in the Russian territory.
With regard to the matter, the Russian oil company proposed that the Korean consortium reduce its stake in the joint venture oil exploration company to 25 percent from the agreed-upon 40 percent.
KNOC officials said their proposal includes the reduction of the Korean stake to somewhere between 25 and 40 percent. The proposal is related to the failure of the first stage of the project to find oil in the mining district in West Kamchatka and the reduction of the projected crude oil reserves to around 2 billion barrels from the 3.7 billion barrels initially projected.
KNOC officials are concerned whether or not the consortium will be able to regain the license from the Russian government even with a reduction in its stakes in the joint venture company.
They said they asked Rosneft officials if they have received approval from the Russian government on the license and were told they were given "verbal approval."Seven Korean companies led by KNOC and Rosneft set up the JV consortium in the ratio of 6 to 4 in favor of the Russian partner and launched the project in the West Kamchatka mining bloc. But the Russian side notified the Korean consortium of the suspension of the project at the end of August.
The Russian oil company proposed to KNOC to set up another joint venture to restart oil exploration on Kamchatka.
In the meantime, the Ministry of Knowledge Economy (MKE) announced in June its plan to expand KNOC by funneling 19 trillion won in funds to the company to revamp its overseas oil exploration operations by 2012.
KNOC will secure oil wells and oil fields to increase Korea's oil production by six times the current volume by 2012. The company will also list its shares on the Korea Exchange in the near future, the MKE said.
A main objective of the government's decision to funnel so much funding into KNOC is to rapidly expand the country's crude oil self-sufficiency by either taking over producing oil wells or foreign oil companies with crude oil wells as oil exploration takes about five to seven years.
Vice MKE Minister Lee Kyung-hoon said if all goes well with the government plan to beef up KNOC financially, the country's self-sufficiency rate for gas and oil would climb to 25 percent by 2012 from the current 18 percent.
The government will soon allocate 4.1 trillion won from its budget to KNOC and the balance of 15 trillion won will be met with the issuance of KNOC bonds and investment by financial institutions and the National Pension Fund. nw

President Kang Young-won of Korea National Oil Corp.