President Yang Su-young of Korea National Oil Corp.(KNOC)

President Yang Su-young of Korea National Oil Corp. (KNOC) declared an extraordinary year for KNOC’s operation this year, calling on every employee to do his or her best in the fear that most state-run employees are mentally lax.
He urged the exploration of resources overseas as key to the Korean economy at a briefing session with reporters held on Jan. 7 at a restaurant in Sejong City.

The KNOC president’s statement is directly opposed to the government move that condemned the former government’s overseas resources exploration projects as an example of accumulated poor habits.

He reminded the reporters present at the briefing that the successful percentage of oil exploration projects is low, at only 10 to 15 percent at best, but successful cases guarantee stable profits for a long time, which shows the need for long-term government-led resources exploration projects. He continued that the oil exploration projects are needed as some of the oil products are indispensable for power generation and chemical products.

The Korea National Oil Corp. (KNOC) has taken the first step toward reducing its debt and stabilizing its business. The state-run firm decided to sell off its stake in the Eagle Ford Shale Play in the United States, which takes up the lion’s share of its overseas assets. When the sale goes through as planned, the KNOC is expected to lower its debt ratio substantially from the current level of over 900 percent.

According to investment banking (IB) industry sources on Nov. 7, the KNOC selected Citigroup Global Markets Securities as the lead manager for the sale of the Eagle Ford Shale Play.

The Eagle Ford is a shale gas field located in the Maverick Basin, Texas with estimated reserves of 500 million barrels. The KNOC acquired a 23.67 percent stake in the gas field for 1.75 trillion won ($1.55 billion) from U.S.-based oil firm Anadarko Petroleum Corp. in 2011. In 2012, the National Pension Service and other domestic investors bought a 5 percent stake in it through a 550 billion won fund established by South Korean private equity fund firm Vogo Investment, currently VIG Partners.

The Eagle Ford is considered the KNOC’s most lucrative resource development project overseas. It produces not only shale gas but also ultra light oil, or condensate. As such, global investment banks are said to be interested in investing in it.

The KNOC was able to receive 452.6 billion won of investment from the JB Asset Management-Hana Financial Investment consortium in 2016 when international oil prices were between $30 to $40. Last year, U.S.-based energy firm Sanchez Energy Corp. formed a consortium with the world’s largest private equity fund Blackstone Group to purchase the stake of Anadarko, which was the largest shareholder of the gas field project, for $2.3 billion.

This is why the KNOC is forecast to make a hit by selling off its stake in the Eagle Ford. An official from the IB industry, who is well-versed in the global resource market, said, “Last year, a U.S.-based buyer asked if it is possible to buy the KNOC’s stake in the Eagle Ford. There will be no difficulty in selling the stake.”

A view of the new building in Ulsan where KNOC has offices. (Photos: KNOC)