Korea’s National Oil Company, one of the world’s biggest importers of crude oil, has agreed to buy Canada’s Harvest Energy for up to $3.9bn – which makes a generous premium to its recent share price.
A third of Harvest’s 3bn-barrel estimated ‘original oil in place’ reserves are unconventional, so the deal may say something about the prospects for oil sands now that oil prices are rising – PetroChina last month bought stakes two projects run by Athabasca, for example.
But it also points to Korea keen to buy up more resources. KNOC has shown interest in other overseas resources lately – most notably it missed out on Addax, which Sinopec agreed to buy in June, and it already has some holdings in Canada as well as in Peru’s offshore fields and the Kurdistan region of Iraq.
A Moody’s note (which incidentally says KNOC’s credit rating will be unaffected by the deal) makes an interesting point about what it means for the sovereign and for South Korea more broadly. In short, while it boosts KNOC’s oil and gas holdings significantly, it only makes small inroads into the country’s overwhelming reliance on imports.
Moody’s writes:
The acquisition will add about 50,000 barrels of oil equivalent (“boe”) of daily oil & gas production to KNOC’s existing 75,477 boe (for 1Q2009). KNOC’s proved reserves will also rise to approximately over 380 million boe from 230 million boe as at March 2009. This increase in reserves will lift Korea’s oil & gas self-sufficiency ratio to over 8% of domestic demand, compared to the current 6.3%.
Korea is basically in the same position as Japan when it comes to its own energy resources, as this chart from the Asia Pacific Energy Research Centre shows:
The chart is from 2008, so some of the ‘equity oil ratio’ figures have obviously changed now, particularly for China. But Korea, unlike China, isn’t talking about going on a big spending spree – and in any case, it doesn’t have quite the same stratospheric level of GDP and energy consumption growth to worry about.
Related links:
KNOC lands Harvest (FT Alphaville, 22/10/09)
KNOC agrees $C4.1bn deal for Harvest (FT, 22/10/09)
PetroChina goes long oilsands (FT Energy Source, 01/09/09)
