Korea, though not a crude-producing country, aims to produce 300,000 barrels of oil products by 2012. The world's 15th largest economy by GDP is thus trying hard to attain energy security by winning in their bids for overseas exploration projects. At the center of such efforts is the Korea National Oil Corp., the state-run energy developer established in 1979. Formerly the Korea Petroleum Development Corp., it aims to ensure an uninterrupted supply of petroleum resources.

Being the world's fifth-largest oil importer and seventh-largest consumer, Korea has always been sensitive to fluctuations in oil prices, which is why the company is expected to play a significant role in providing a firm basis for the country's future growth.

As of April, KNOC is involved in 46 different projects in 17 countries, producing 77,000 barrels of crude oil per day, which include 10,000 barrels produced by Petro-Tech - an oil production company KNOC and its business partner Ecopetrol, a Columbian state-run oil company, acquired in February. It beat out the China National Petroleum Corporation and Sinopec.

The deal was the first large-scale case of a Korean firm acquiring a foreign oil producer, which allows KNOC not only to acquire the oil producing company but to also participate in the management of it. The $900 million ($450 million from each) deal is expected to give the state-run Korean company the right to develop 10 offshore fields that potentially hold a combined 690 million barrels as well.

In November 2006, KNOC completed the Rong Doi gas field in Block 11-2 in Vietnam in the first case of the successful independent development of an overseas gas field by a Korean company. KNOC was responsible for the entire process, from exploration to production, with production facilities built by Hyundai Heavy Industries.

The project is expected to produce up to 47.5 billion cubic feet of natural gas and 1.53 million barrels of liquefied gas over the next 20 years. In the same year, KNOC bought "blackgold oil sands" in Alberta, Canada, with an estimated capacity of 216 million barrels of oil.

Earlier this year, the company signed a contract with Uzbekistan's state-owned energy firm Uzbekneftegaz in Tashkent to explore reserves in Namangan and Chust. These gas and oil fields located in the Fergana valley of east Uzbekistan hold gas reserves estimated at 10.5 million tons, equivalent to 67 million barrels of crude oil.

"This being the first project in which we participate as a manager of a resource development group in Uzbekistan, we expect the successful completion of this project will lead to expanded participation in new oil development projects in the country," a KNOC official said.

Out of the 46 overseas projects, the most important one is the massive oil development project in Iraq. Iraq holds the world's third-largest reserves, estimated at 115 billion barrels of crude. It produces up to 2.5 million barrels per day from its 24 fields.

The country is ardently seeking foreign investment in its projects to develop about 20 new oil and gas reserves to rebuild the Iraq's devastated economy.

KNOC signed a contract with the Kurdish Regional Government in September 2008 on the exploration and production sharing for eight oil blocks in northern Iraq, five located near Irbil and the other three near Sulaymaniyah. The eight blocks have estimated oil reserves of 7.2 billion barrels, and the deal gives the Koreans the rights to 1.9 billion barrels.

The Korean government, in exchange, promised to spend around $2.1 billion to build power facilities, water services, sewage systems and other infrastructure.

Under the deal with the Kurdish government, KNOC has acquired an 80 percent stake in Qush Tappa; a 60 percent stake in Sangaw South; 50.4 percent in Bazian; 20 percent in Sangaw North; and 15 percent each in K15, K16, K17 and K21 blocks in Hawler.

In May, the Kurdistan Regional Government of Iraq claimed that oil would soon be commercially exported from its large fields. Although the Iraqi oil ministry denied any deal had been completed - and no one expects the power struggle between the two parties to end any time soon - major players involved in the Kurdistan oil industry says that the two sides were closer than ever to an agreement over Kurdish oil exports.

The KRG's claim followed British Heritage Oil's announcement that it had discovered up to 4.2 billion barrels of oil in one half of its Miran field in Kurdistan, which drew new attention to the oil region's high potential. Since Miran field is located close to Bazian field, expectations are higher than ever for KNOC to discover oil in Iraq.

In 2007, the central government declared all oil licenses granted by the KRG after 2007 "invalid," and blocked Kurdistan oil operators from pumping oil through the Iraq-Turkey pipeline that is key to any commercial-scale export. But the statement may signal changes in Bagdad's standpoint toward the issue, a KNOC official said.

Despite progress in efforts for stabilization, Baghdad still suffers from a fragile security structure and a lack of reliable legal and bureaucratic framework, which hampers investment needed for development of its resources and industries. The World Bank once estimated that reconstruction of the war-torn country would cost $150 billion over eight years.

Based on all the above efforts, KNOC is seeking to further develop its exploration technology with an injection of 19 trillion won by 2012, aiming to increase its daily oil production to 300,000 barrels. The government will invest about 4 trillion won and the rest will be self-financed, KNOC said.

KNOC is now moving to substantially raise the country's self-sufficiency rate in oil and gas by focusing on the implementation and its new strategic task, "the expansion of KNOC." Ultimately, this will further improve Korea's energy security and ensure continued development of the national economy.

It also provides timely information on oil prices and national energy policies to the citizenry through an oil information network called Petronet (www.petronet.co.kr), a comprehensive gas station information system (www.opinet.co.kr), and publications.

"Seeking nothing less than to provide hope and a better quality of life for the people of Korea and to earn their trust, KNOC will fully establish itself as a global government-run petroleum company by applying ethical, sustainable, and environment-friendly management, and by taking corporate social responsibility seriously at all times," KNOC CEO Kang Young-won said.

(danlee@heraldm.com)

By Lee Yong-sung

2009.07.14