Korea National Oil Corporation promotes aggressive oil development overseas and scales up
The Korea National Oil Corporation (KNOC) has aggressively developed oil sources in key strategic areas for the stable security of oil, and as of December 2009, 48 overseas oil source development programs in 17 countries (50 if including continental shelves in Korea) were being promoted.
KNOC plans to achieve daily production of 300,000 barrels, the standard to secure self-sustainment, by 2012 based on the corporation's scale up. In 2008, KNOC established “a plan to scale up” when 550,000,000 barrels of secured reserves and 50,000 barrels of oil production were made available, and as of December 2009, the reserves reached 880,000,000 barrels, with a daily production of 127,000 barrels, a remarkable increase.
Since 2009, KNOC has established the foundation to become a global oil company based on three successful M&A deals; Peru's Petro-Tech in February 2009, Canada's Harvest in October, 2009, and Kazakhstan's Sumbe in December 2009. The deals were made after competition with national oil corporations of major countries, including China and India. The deals were made based on the decision that 2008 was the best time for asset purchase and M&A due to a drop in assets values following the global financial crisis. In Korea, KNOC successfully developed the Donghae-1 gas field after 20 years of efforts. In addition, KNOC started to explore other important fields in Colombia, Uzbekistan, and Iraq's Kurdistan region.
KNOC attributes the successful M&A's to the organizational scale-up. Korea is the world's 5th largest oil importer and the 7th largest oil consumer, with the stable security of oil based on overseas development considered a major task. At the same time, KNOC recognizes the necessity to reduce dependence on the Middle East from which Korea imports 80% of its oil, promoting development in Central Asia, Africa, and South and Central America in order to achieve greater self-sustainability, which is also the prime goal of other national corporations of major oil users.
Meanwhile, KNOC aims to prioritize the Middle East and Central Asia regions between 2009-2015 because of their sound investment environments and large development potential, as well as develop new projects in South America, Australia, Russia (East Siberia), and western Africa.
In the long term, KNOC aims to develop oil sands, GTL and gas hydrates in order to diversify and develop alternatives to oil. Furthermore, it plans on becoming the world's 30th largest oil company with a daily production of 500,000 barrels by 2018, with a further goal to achieve a daily production of one million barrels.
KNOC finds its small organization a barrier when dealing with the fast changing external environment, particularly when it comes to pricing and the diversification of risks. The corporation has maintained that a large company is necessary in order to more effectively deal with risks, such as oil shock, as well as to diversify risks such as resource nationalism and increase competition with BRIC nations and other developing countries which use their large capital to purchase overseas oil fields. In addition, oil is now being recognized more as a strategic resource for political influence and international order. Furthermore, expansion will help strengthen Korea's status in terms of technology and experience and increase its competitive abilities with advanced countries. The success rate for oil exploration was 15% as of October 2008, still low compared to the 20% of advanced countries. Also, investment is still considered vulnerable, especially under the current financial state, as oil necessities a capital-oriented, high-risk, long term investment.