Kate Mackenzie North Korea: A new oil frontier?

Forgot West Africa, the Falkland Islands and even Greenland for exotic new oil frontiers. Two western small oil companies are funding exploration in North Korean waters.

The FT reports that Irish-Anglo company Aminex signed a 10-year production sharing agreement with the communist nation’s state oil company and together with Singapore-listed Chosun Energy, formed a company called Korex to explore a block east of North Korea.

There’s little data on the 50,000 square kilometre block, which is on the country’s eastern side and includes both deepwater and shallow areas.

More is known about the waters west of North Korea: Bohai Bay. for example, is among China’s biggest sources of offshore oil, and has been the subject of ramped up exploration and production efforts from China’s CNOOC in recent years, apparently with some success. There has long been speculation that North Korea’s western waters could also have recoverable reserves.

But the east, Aminex says, is politically easier than dealing with the territorial disputes with China to the east.

The company acknowledges that it is “a lightly explored area” but says there is “potential for large oil-bearing structures which may involve introducing larger companies as partners at a later date if it is to be explored comprehensively.”

Aminex’s interest in North Korean offshore oil goes back to 1998, and the company previously signed a co-operation agreement with authorities there in 2004, but says exploration did not go ahead “on account of international politics”.

The company however told the FT it is already examining seismic data and may bring in a ship to take more data off the east coast as early as next year.

It says the work doesn’t contravene North Korean sanctions, and that it is protected by a force majeure claus if tighter sanctions are applied.

Comments by Brian Hall, the company’s chairman, to the FT suggest the country is better equipped to facilitate oil exploration than some would think:

He said Pyongyang’s oil apparatus had recently undergone huge transformations, now run by highly organised technocrats who supplied seismic data quickly.

“It may seem high risk because of the torpedo, but it is easier to ask people to go there than southern Iraq or parts of Africa,” he said.

The company readily admits it is a high risk strategy, with Hall noting in the FT that its investors are not the types to invest in pension funds. And that is not a new strategy for Aminex: in early April, the company’s shares fell more than 15 per cent in early April after a well it drilled in Tanzania with Tullow Oil turned up dry.

The company spent  $8.5m on that project, but Hall says it will not spend “that kind of money” in North Korea.

Related links:

Greenland, the new oil frontier - FT Energy Source