Global Insight Perspective
The Korean Ministry of Commerce, Industry, and Energy said yesterday that state-owned Korea National Oil Corp. (KNOC) has agreed to buy a 100% stake in the BlackGold mine in Alberta.
The US$270-million acquisition—KNOC's first foray into the Canadian oil sands industry—is geared to help South Korea increase its oil production self-sufficiency.
Among state-owned Asian oil companies, KNOC arrived late to the overseas investment game, but recent acquisitions and an aggressive strategy show that the company intends to compete for oil reserves on the international stage.
South Korea's Ministry of Commerce, Industry and Energy said yesterday that KNOC, the country's state-owned oil company, has clinched its first deal in Canada, agreeing to take over the BlackGold mine from U.S.-based Newmont Mining Corp. The US$270-million deal will see KNOC acquire a 100% stake in the oil sands mine, which has an estimated 250 million barrels of bitumen reserves. Reuters reported that the mine, located in the province of Alberta, is set to begin producing around 35,000 b/d from 2010 once KNOC puts in production facilities in 2008.
For KNOC, the acquisition is a boon, as it gives the company access to a proven source of oil—albeit in the form of oil sands—in a politically and economically stable country, while also advancing South Korea's goal of increasing its "self-sufficiency" in terms of oil production. Although South Korea has no domestic oil production, the government is pursuing an overseas investment programme that is geared to increase the country's output self-sufficiency from 4.1% at present to around 18% by 2013. The Ministry of Commerce, Industry and Energy said that the acquisition of the BlackGold mine alone would increase South Korea's production self-sufficiency by 1.2%.
Moreover, KNOC reportedly beat Chinese and Indian firms to acquire the Canadian mine, according to the Korean Ministry. At a time of high oil prices, state-owned Asian energy companies have been particularly aggressive in seeking out oil reserves on the international stage; while Chinese and Indian companies such as the China National Petroleum Corp. (CNPC) and India's Oil and Natural Gas Corp. (ONGC) have taken the lead, South Korea's KNOC has been something of a late arriver—until recently (see "Related Articles" below). A string of co-operation and development deals between KNOC and Central Asian countries has demonstrated that the South Koreans intend to play ball, and the acquisition of the BlackGold mine in Alberta shows that KNOC can compete with its Asian brethren for oil assets.
Outlook and Implications
Given the size and scope of some of some of the projects in Alberta's oil sands industry, the BlackGold mine development is small potatoes. Yet, with the introduction of KNOC to an increasingly international mix of players, the importance of the Canadian oil sands sector to world oil markets is becoming ever more apparent. The expansion of bitumen production from the tar sands is clearly being counted on to tamp down high oil prices on the world market, with non-Canadian companies infiltrating the province and basing their growth prospects on oil sands extraction.
With KNOC making its first foray into the Canadian oil sands sector, the company is signalling its intention to compete for access to oil on an international stage, not merely where others dare not invest. Although KNOC may have lagged behind its Asian counterparts in pursuing oil assets outside its "home region", recent moves to bolster the company's portfolio and expand its access to proven and potential oil reserves indicate that KNOC means business, and not just in South Korea.
Kazakhstan: 7 July 2006: Korean-Kazakh JV Announces Oil Discovery in Kazakhstan
Canada: 19 June 2006: Oil Sector Ripe for Consolidation in Canada
South Korea: 18 May 2006: South Korea Arrives Late to Overseas Oil Investment Party
Azerbaijan: 12 May 2006: KNOC Signs Upstream MoU with Azerbaijan's State Oil Company
Uzbekistan: 30 March 2006: South Korea, Uzbekistan Reach Energy Co-Operation Agreement
Nigeria: 10 March 2006: Korean State Oil Company Concludes Nigeria Deal, Clears Problems over Signature Payment in State Visit