Korean and foreign investors are showing a keen interest in the Harvest oil field in Canada, which is 100 percent owned by Korea National Oil Corporation (KNOC), as the Korean government is seeking to sell off the oil field to the private sector.
According to the government and oil industry sources on April 23, Morgan Stanley sounded out investors about acquiring a minority stake in Harvest. As a precondition for investment, Morgan Stanley suggested that the investor sign a 20-year long supply contract with a North American shale oil company where the investment bank has a stake.
The shale oil company owned by Morgan Stanley has expertise in the mid-stream (energy transport, storage, liquefaction, etc.) sector, which is in the middle part of oil development. Harvest, on the other hand, is a sand oil company, which belongs to the upstream part (resource exploration) ahead of the midstream part.
"It seems that Morgan Stanley conducted an early-stage review only," said a KNOC official. “There has been no concrete negotiation.”
Some experts in the investment banking industry say that the chairman of a large US energy company will visit Korea to express an intention to take over a stake in Harvest when he meets officials of the Korean Ministry of Trade, Industry and Energy.
Korean IBs are also interested in Harvest. Last year, Korea Investment & Securities and Macquarie Infrastructure Asset Management formed a consortium and pushed forward with a plan to invest several hundreds of billions of won. "The sand collection method is also improving, which can improve economic efficiency and make the oil field lucrative in the long run," an industry official said.
The KNOC is known to be seeking to raise US$240 million to repay the Canadian subsidiary's debt. "Investors are asking for one percentage point higher than the interest rate in the market," said a KNOC official. “The negotiation broke down.”
KNOC acquired the Canadian sand oil company in 2009. But the state-run corporation has been criticised for failing to evaluate Harvest’s profitability in the acquisition process. Harvest, which had book value of 4.55 trillion won (US$4.0 billion) at the time of its acquisition, was valued at 307 billion won as of the end of 2016.
A source says that a task force set up under the Ministry of Trade, Industry and Energy to evaluate overseas resource development projects will recommend the sell-off of assets of insolvent projects that have been pursued by KNOC and KOGAS.
The Korea Institute of Geoscience and Mineral Resources has been undertaking a review of the two corporations' overseas resource development projects since December last year. It is expected to release a report soon. Some experts even insist that Korea National Oil Corporation itself be sold off.