A Move That Runs Counter to Overseas Asset Sales
Controversy is brewing as Korea National Oil Corp. (KNOC) is planning to invest approximately 300 billion won for oil development in the UAE just three months after the announcement of its plan to sell some of its assets in the United States and Britain. KNOC plans to participate, together with GS Energy, in an oil development project in the UAE that can serve as a source of stable oil supply until 2053.
The Korea Development Institute (KDI) recently initiated preliminary feasibility studies for the onshore crude oil production project. The total crude oil reserves for 2015 to 2054 are about 25.7 billion barrels and 1.68 million barrels of crude oil are to be developed on an average day. ADNOC Onshore, a subsidiary of the Abu Dhabi National Oil Co., controls the project.
GS Energy acquired 3 percent of ADNOC Onshore shares via its subsidiary Korea GS E&P in May 2015. Then, KNOC purchased 30 percent of the shares of Korea GS E&P to take part in the project with GS Energy. In other words, KNOC owns 15,000 barrels in daily production and 230 million barrels out of the total reserves. The corporation is expecting that the ownership will add to the stability of emergency crude oil supply.
If the corporation is to participate in the project at the beginning of 2020 with its shareholding of 0.9 percent, it should prepare a total of 296.4 billion won. It is planning to prepare the money based on government investment.
The financing plan is causing concerns in that KNOC announced in March to sell a lot of its profitable overseas assets within this year. The examples include the Eagle Ford shale gas field in the United States and Dana Petroleum, a British energy company. Besides, the corporation’s debt-to-equity ratio amounted to 2,287 percent last year in the wake of excessive overseas resource development during the previous Lee Myung-bak administration. Its net loss amounted to 1,159.5 billion won in 2018. The result of the feasibility studies is scheduled to be released late this year.