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South Korea Seeks Oil Security

By: EW News Desk Team Date: 2 September 2010

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EconomyWatch, News Desk Team

02 September 2010

South Korea, which imports almost all of its oil, has increasingly felt threatened,

as countries with high energy demands, like China, snatch up oil reserves from around the world.

As a result, the government gave its state-run oil company - Korea National Oil Corp., or K.N.O.C. -

a $6.5 billion war chest this year to fund acquisitions and project developments.

South Korea as a whole has set aside $12 billion for overseas energy projects and acquisitions this year,

up from $6.7 billion last year, the government has said.

That compares with $30 billion for China, whose population is more than 25 times as large.

K.N.O.C. hopes to raise its daily oil production capacity to 300,000 barrels in 2012 from 130,000 last December.

South Korea’s focus on increasing oil reserves grew after K.N.O.C. narrowly lost out to the Chinese oil giant Sinopec

in a bid for the Swiss-based oil explorer Addax Petroleum last year.

Eni of Italy outbid K.N.O.C. to acquire Burren Energy, a British company, in 2007.

But in 2008 and 2009, K.N.O.C. acquired:

Harvest Energy Trust of Canada for $3.9 billion;
an 85 percent share of Sumbe JSC of Kazakhstan for $284 million;
a 50 percent share of the U.S. company Petro-Tech for $450 million;
and an 80 percent stake in Taylor Energy of the United States for $877.4 million.

At the end of last month, K.N.O.C. made a hostile £1.87 billion bid for Dana Petroleum of Britain,

a new attempt by Asia’s fourth-largest oil importer, to secure future energy supplies in an increasingly competitive market.

K.N.O.C. took the bid — worth $2.9 billion, and the biggest takeover attempt ever by a South Korean state company —

directly to Dana shareholders after that company’s management rejected an earlier offer of £18 per share.

In a regulatory filing with the London Stock Exchange, K.N.O.C said it had enlisted the support of 48.62 percent of Dana shareholders for the latest bid.

K.N.O.C. said that the support of at least 50 percent of shareholders was needed.

“We are very disappointed that the board of Dana does not agree that 1,800 pence per share represents a full and fair value for the company,”

said Kim Seong-hoon, senior executive vice president of K.N.O.C.

The price in the latest offer carries a premium of 59 percent over where Dana shares were trading before the bid talks emerged.

Dana said previously that it had ended takeover talks with K.N.O.C.

after the Korean company declined to sign a nondisclosure agreement that Dana sought before opening its books;

such an agreement could have included clauses precluding K.N.O.C. from later making a hostile bid, news services reported.

“We believe Korea National Oil Corp. is offering a fair price for Dana Petroleum,”

said Richard Hurowitz, chairman and chief executive of Octavian Advisors, which holds 710,000 Dana shares,

in this article from the New York Times.

“We hope Dana’s Board will act in the best interest of its shareholders, who have clearly expressed their support for this transaction.”

Dana’s activities are focused in the North Sea and in northern and western Africa.

The company said in a filing with the London Stock Exchange on Friday that it advised shareholders and convertible bond holders to take no action on K.N.O.C.'s offer.