KNOC Goes Global, Bigger via M&As

CEO Kang has made a feat on the same wavelength as the government's policies



Korea National Oil Corporation (KNOC) President Kang Young-won had been credited with playing leading roles in the transformation of Daewoo International Corp. from the simple general trading company into a world-class resources and energy developer while serving as the Daewoo International CEO. For the past three-odd years since August 2008 when he took helm at the state-owned resources developer, Kang has made a dramatic feat and demonstrated his superb tactics and capability in keeping with the government? strategies to make the KNOC global and bigger.
The KNOC has made several significant achievements: it acquired Harvest Energy Trust of Canada and Dana Petroleum of the United Kingdom as well as it has signed an MOU to explore oil field with reserves of more than 1 billion barrels of crude oil in the United Arab Emirates.
In particular, in line with the government's plan to make the KNOC global and bigger, the Korean resources developer took over four petroleum companies in hostile M&As for the past two years ? the KNOC's streak of successful M&As started with the acquisition of Petro-Tech of Peru in 2009, followed by the buying of Harvest Energy Trust and Sumbe of Kazakhstan in the same year and the purchase of Dana in 2010. The KNOC's successful M&As led to raising the nation? own energy development and exploration ratio from 9.0 percent to 10.8 percent during the period between 2009 and 2010. The KNOC saw its own petroleum development and exploration ratio increasing from 4.4 percent to 5.8 percent during the same period. Of late, the KNOC has acquired a stake in a Texas shale-oil block from Anardako Petroleum Corp. in the first deal involving the non-conventional oil field.
The KNOC, which has focused on oil development and exploration abroad, is now shifting into a mode of post merger integration, the increasing of production of the existing oil fields and efficiency management and the enhancement of exploration and drilling capabilities in untapped areas in order to grow into a global major.
The Korean petroleum developer became the first public entity to hire foreigners as the chief of its affiliate, petroleum development and research institute, and an adviser in charge of human resources during last year. It also established a global technology research center in Calgary, Canada, and hired four local experts.
The KNOC has not only accomplished its task to make it bigger, but also yielded many outcomes by focusing on the advancement of management systems to ramp up its inner capabilities to global standards. By introducing a merit compensation system like private enterprises, revising a collective agreement with the union, building management accounting and companywide accounting management systems, led by the introduction of International Financial Reporting Standards (IFRS), business sources said, KNOC is devoted to developing itself into a world-class oil exploration and development company.
By turning to M&As, PMI and other steps, the KNOC aims to double its daily crude oil production and deposit capabilities to 307,00 barrels and 9.76 billion barrels, respectively, in 2012 with its 2011 business performance goals of posting $9.76 billion in sales, as 4.4 times as the current levels, and $1.13 billion in operating profit, a two-fold jump.
Due to the strategies to make the KNOC bigger, its liabilities more than tripled from 3.5 trillion won in the late 2006 to 12.3 trillion won in the late 2010. The rise in debts was attributable to the fact that the KNOC saw its debt in petroleum development and exploration rising from 1.3 trillion won to 9.7 trillion won during the period.
Despite the KNOC's debts, Standard & Poor's Ratings Services has maintained a "A" credit rating to the KNOC in which the government has a 100 percent stake, since September 2005, while Moody's upgraded the KNOC's credit rating from "A3" in September 2005 to "A1" in March 2010, a upper-middle investment grade range.
The KNOC plans to reduce financial risks by securing the funds necessary on time. The corporation plans to lower its debt ratio from the current 161.9 percent to 156.3 percent in 2015 and raise its operating profit from 1 trillion won to 2.7 trillion won during the period.
Borrowings have surged due to strategies to make the corporation bigger, but the long-term financial situation is expected to improve as its acquired production fields will likely see sales rising, and the KNOC plans to work out and implement a plan to dispose of its stakes in overseas oil fields to such institutional investors as the National Pension Service (NPS) to minimize a rise in its debts, the KNOC CEO was quoted as saying. nw

Photo on Courtesy of KNOC