KNOC Pulls Out of Iraq’s Sangaw South Oil Field Project

Korea National Oil Corporation (KNOC) will pull out of Iraq’s Sangaw South oil field project, following Iraq’s Bazian oil field project in 2014 and Kazakhstan's Zhambyl oil block in the first half of this year. The Korean resource development industry is expected to be hardly hit by the movement as all of these oil field projects had high expectations for successful exploration.

According to industry sources on August 22, the KNOC said its board of directors recently made the decision to withdraw from Sangaw South on the grounds that the project has no profitability. The Sangaw South Block covers an area of 354 square kilometers in the southeastern Kurdistan region of Iraq. The company has the largest stake in the operation rights of the Sangaw South project at 50 percent, while Daesung Industrial Co. holds 10 percent of the operation rights and the Iraq’s Kurdistan Regional Government has 20 percent. Daesung Industrial took part in the development project after purchasing the 10 percent stake owned by the KNOC in 2014.

As the state-run company has decided to withdraw from the Sangaw oil field, it cannot avoid taking losses. The KNOC has injected more than US$200 million (223.5 billion won) into the project since 2008. Daesung Industrial, which owns the 10 percent stake in the project, also said that it saw an asset impairment loss of 21.3 billion won (US$19.06 million) in the Sangaw South oil field project through the semi-annual report.

The development of the Sangaw South Block has been started with the acquisition of the stake in the oil field in June 2008. In particular, the KNOC purchased the stake in oil exploration projects in the Kurdistan Regional Government of Iraq, including the Sangaw South, after then President-elect Lee Myung-bak and Prime Minister of the Kurdistan Regional Government, who visited Korea in February 2008, met to agree with the joint resources development and signed a production-sharing contract the same year, despite strong resistance from Iraq’s central government.

Expectations were high when the company started the drilling process. An official from the resources industry said, “When the KNOC acquired the stake, the Kurdish region of Iraq was considered the land floating in crude oil.” The oil field was expected to produce 2,105 barrels of oil per day through the exploration drilling in the fourth quarter of 2014. However, it was later found to lack profitability after comprehensive assessments. The evaluation drilling is designed to calculate the total reserves in an oil field. The contract period of the Sangaw South oil field project, which is lack of profitability, ended in December last year. The Korean consortium led by the KNOC decided not to return the oil field immediately and planned to make a final decision in May this year. However, its members of the board have finally decided to shut down the oil project in Iraq in July.