State-owned oil giant to cut debt and sell off money-losing overseas assets, including stakes in Eagle Ford and Dana Petroleum and sell Harvest Operations Corp. in Canada to stave off financial losses
President Yang Su-yeong of Korean National Oil Corp. is seen on an inspection tour of the oil refinery facilities in Ulsan. (Photos: KNOC)
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 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 industry sources recently, 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 ($490 million) 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 ($403.75 million) of investment from the JB Asset Management-Hana Financial Investment consortium in 2016 when international oil prices were between $30 to $40 (33,630 to 44,840 won). 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 (2.58 trillion won).
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.”
The key is the price. The book value of the KNOC’s stake in the Eagle Ford was 1.46 trillion won ($1.3 billion) as of 2017. The figure slightly fell as the Eagle Ford posted 148.2 billion won ($132.20 million) in net loss in 2016 due to a drop in oil prices. However, the stake is highly likely to be sold at a higher price than the book value since it turned into a profit in 2017 and the international oil prices reach nearly $80 (89,680 won) this year.
An official from the industry said, “The U.S. shale gas market is heating up to such an extent that even money-losing shale gas fields are sold. The Eagle Ford turned around last year and oil prices have surged so it can receive a fair price.”
Korea National Oil Corporation intends to sell 30% stake of Dana Petroleum Limited, according to a news report. The 30% stake in Aberdeen-headquartered Dana is considered to be worth more than 410 million. KNOC is willing to offload a stake to help reduce debts.Korea National Oil Corp. and Equinor ASA have signed a memorandum of understanding to jointly explore the opportunities to develop commercial floating offshore wind in South Korea.
The partnership will enable the companies to expand its portfolio within offshore wind and contribute to develop renewable energy solutions in South Korea.
Korea National Oil Corporation, together with its subsidiaries, engages in the exploration, development, and production of crude oil in Korea, Canada, the United Kingdom, the United States, Kazakhstan, and internationally. It operates through Oil and Gas, Petroleum Distribution, Oil Stockpiling, and Others segments.
The company sells oil and gas, as well as engages in oil trading activities; and distributes wholesale gasoline, gas oil, and kerosene. It also purchases and lends oil stockpiles, as well as constructs, manages, operates, maintains, and leases stockpile facilities.
In addition, the company provides oil information services, other research services, etc. It also has nine petroleum.
A view of the KNOC building in Ulsan.