South Korea took a historic step yesterday in its bid to forge long-term strategic ties with Abu Dhabi, taking a 40% stake in new field concessions covering 10% of the emirate’s landmass.
The Korean National Oil Company (KNOC) has taken a 34% stake in three exploration blocks, with the country’s oil firm GS Energy taking a further 6%. In return South Korea is obligated to stump up $2 billion of the $5 billion investment required to develop the field. Abu Dhabi, via national oil company ADNOC, retains a 60% stake and will put up the rest of the required investment.
“We now have our own fields in the Middle East,” said Lee Myung-bak, South Korea’s president, remarking on South Korea’s first equity stake in the region’s oil. Abu Dhabi promised the deal to South Korea last year.
The 11,560 sq km up for development includes Tafula, Abu Dhabi’s largest undeveloped field, and prospects close to the Zakum field. South korea has announced the fields hold resources of around 570 million barrels.
Field development is slated to begin almost immediately, with production – which could reach 43,000 bpd – planned in 2014. The contract marks a new high in political relations between the countries and caps a huge PR campaign by South Korea that it is ready to move beyond its core EPC offering in the region and be rewarded for its industrial ties with secure oil supplies.
The move further consolidates South Korea’s oil ties to the Gulf, following a 20 year, 669,000 bpd oil supply deal with Audi Aramco last month, and a commitment to wean itself off Iranian crude under diplomatic pressure from Washington.
As part of its charm offensive, South Korean companies have huge large oil and gas EPC contracts on the basis of extremely competitive prices and a reputation for dedication huge resource to keeping projects on track. South Korean companies are also leading the charge on the UAE’s nuclear power ambitions, under a $20 billion deal that may struggle to come in on budget without being a loss leader for the Korean companies involved.
It is widely speculated that South Korea will also win a stake in the renewed contracts for Abu Dhabi’s onshore oil fields managed by the Abu Dhabi Company for Onshore Oil Operations, the management of which is currently dominated by western supermajors. The emirate announced at the World Future Energy Summit in January that the companies to work the field will be decided by tender.
ExxonMobil, Shell, BP, Partex and Total currently manage the ADCO fields under contracts with ADCO which were last revisited in the 1980s.
KNOC has a mixed time of it in the Middle East, recently announcing its ignominious retreat from Iraqi Kurdistan, having poured $400 million into wells at the Barzian and other fields to no effect.
The company’s record suggests that it is unlikely to be comfortable with larger or more complicated work such as carbon dioxide enhanced oil recovery operations at ADCO fields. As such its stake in the ADCO fields, if won, is likely to be small and their participated supported by at least one supermajor.
Whether it can execute what appears to be a straightforward field development project, time will tell.
