Korean Firms Test Water Offshore China

SYDNEY (Dow Jones Newswires), Jun. 4, 2009

As oil deals go, US $8 million isn't likely to set many pulses racing. But could Majuko Group's purchase of a 5% stake in an oil block near Hong Kong pave the way for more deals offshore China by Korean firms?

Industry officials point to the track record of Korean companies in building consortia when bidding for oil and gas assets abroad. By working together, companies can keep a low profile and appear less predatory than if they acted alone.

China and South Korea are both net importers of crude oil, and concerns about energy security have driven their governments to encourage companies to expand overseas and secure a reliable supply of equity oil.

However, China's offshore oil industry has been off the radar of Korean companies until recently, despite the close proximity of the two countries and the lower cost involved in transporting crude oil.

That changed in April when Majuko, which is closely held, agreed to a deal to buy a 5% stake in Block 22/12 from First Australian Resources Ltd. (FAR.AU). The block is due to pump its first oil in late 2011 or early 2012, assuming the government backs a development plan.

"Our timing of purchasing was when the assets were, in general, depressed. We think this is a good entry time and size to go into China," said Y.S. Nam, managing director of Majuko.

Executives who met with Nam say the entry of Majuko into block 22/12 is likely to be a stepping stone for more deals.

"This was an opportunity for them (Majuko) to put their toe in the water, to get a feel for doing business in the oil and gas sector in China," said Michael Evans, executive chairman of First Australia Resources Ltd.

Majuko has oil and natural gas interests in North Africa, the Middle East and Russia as part of a wider portfolio of investments that include hotels, a golf course, and commodity trading.

The company, which has offices in Seoul and Singapore, helped to develop the huge Elephant oil field in Libya. The field produced an average of 140,000 barrels per day of crude oil in 2007.

"In many cases, exploration and production companies in Korea (act) as a consortium. It is always possible to form a consortium to invest in China," Nam said.

Paving The Way for KNOC?

In northern Iraq, Majuko is part of an eight-company consortium exploring the Bazian block, which has estimated reserves of 1.18 billion barrels of oil. Other partners in the block are Korean companies SK Energy Co. (096770.SE), GS Holdings Corp. (078930.SE), Daesung Industrial Co. (005620.SE) and state-owned Korea National Oil Corp.

KNOC is also a shareholder in the Elephant field and its close working ties with Majuko is generating speculation it could follow it into China's offshore oil sector.

"Having a private company come in would be easier for the Chinese than KNOC," said a Beijing-based oil industry executive, declining to be named. "Any acquisition by KNOC would look like a government-to-government deal."

Terry Fern, chairman of Australia's Petsec Energy Ltd. (PSA.AU), said a meeting with Nam several months ago to discuss the possible sale of part of his company's 25% stake in Block 22/12 to Majuko was also attended by KNOC.

KNOC has ambitious expansion plans, targeting production of 300,000 barrels per day by 2012 from 50,000 barrels per day at the end of 2007. In the same time frame, its assets are to more than triple in value to KRW30 trillion.

It has a foothold in China through a joint venture with Samsung C&T Corp. (000830.SE) and a local Chinese firm, for an oil field in the northwestern region of Ningxia Hui that is producing around 400 barrels per day, but nothing offshore.

Nam said Majuko has a close and active relationship with KNOC, but added: "We do not have any specific plan to invest in China jointly with KNOC at this moment."

When contacted by Dow Jones Newswires, a spokesman for KNOC said he wasn't aware of Majuko's deal in China and declined to comment further.

In the past two years, Asian energy companies have been more successful than Western rivals in securing assets offshore China via acquisitions, rather than through production sharing contracts with China National Offshore Oil Corp.

In September 2007, Singapore Petroleum Co. (S99.SG) agreed on a US $223 million acquisition of offshore oil fields and exploration working interests in China's Bohai Bay. The deal with U.S.-based Ultra Petroleum Corp. (UPL) was completed two months later.

"All Asian companies I know are in the marketplace looking for reserves," Petsec's Fern told shareholders at the company's annual meeting in Sydney on May 20.

"That said, they are not trying to be hyenas looking to pick up assets at terrible prices, but quality oil fields at fair value as they become available," he said.

Other shareholders in Block 22/12 are Australia's Roc Oil Ltd. (ROC.AU) and Horizon Oil Ltd. (HZN.AU), with stakes of 40% and 30%, respectively. Roc acts as operator.

Fern said talks between Majuko and Petsec didn't progress, partly because the Korean company only wanted a small stake to test the water with Cnooc.

"I'm either all in or all out," Fern said, adding his company's focus on the U.S. Gulf of Mexico and the need to fund development costs for the Block 22/12 project meant he would consider a sale in future.

"I suspect there will be a market for the China asset and that market will become apparent once the overall development plan is lodged" with Cnooc over the next few weeks, Fern said.

Asked whether Majuko would look to raise its stake in Block 22/12 via acquisition, Nam was noncommittal. "We want to see how the development plan is finalized," he said.

(Shin Jung-Won in Seoul contributed to this story.)

Copyright (c) 2009 Dow Jones & Company, Inc.

Related Companies
 Company: Roc Oilmore info
 - SapuraKencana Clinches $72M of Work in Malaysia, India & Cote d'Ivoire (Dec 8)
 - Faroe Completes Roc Oil Acquisition (Nov 6)
 - ROC Fails to Find Hydrocarbons at QK12-3-1D Well in China's Bohai Bay Basin (Oct 20)
 Company: CNOOCmore info
 - CNOOC Commences Oil Production at Weizhou 6-9/6-10 Project in Beibu Gulf (Sep 13)
 - Ifax: Gazprom Invites China's CNOOC to Take Part in Offshore Oil Exploratio (Sep 6)
 - China Oil Giants Unmoved By Bull Rally After Worst Earnings (Aug 25)
 Company: Petsec Energymore info
 - Petsec Energy Acquires 100% Stake in Damis Production License (Feb 5)
 - Petsec Energy Completes Acquisition of 29.75% Stake in Yemen's Block 7 (Oct 1)
 - Petsec Energy Opens Dubai Office to Support MENA Operations (Jul 29)
 Company: Horizon Oilmore info
 - Ensco 107 Prepares to Demobilize from Maari Field Offshore New Zealand (Jul 7)
 - OMV Successfully Completes Maari Redevelopment Project Off New Zealand (Jul 2)
 - OMV Commences First Oil from MR7A Development Well in NZ's Maari Field (May 25)
 Company: First Australian Resourcesmore info
 - Senegal Grants Extension on FAR's Offshore Blocks (Dec 4)
 - FAR Receives Extension on Offshore Senegal Blocks (Nov 13)
 - FAR Updates on Offshore Senegal Exploration Activities (Sep 21)
 Company: Ultra Petroleummore info
 - Houston Court Cuts into Delaware's Bankruptcy Business (May 11)
 - Midstates Petroleum, Ultra File for Bankruptcy Amid Weak Oil Price (May 2)
 - Oil Boom Built on Junk Debt Sees $19B Default Wave (Mar 11)
 Company: China National Offshore Oil Corpmore info
 - Sinopec Plans 1st Deepwater Well in South China Sea (Jun 16)
 - Korean Firms Test Water Offshore China (Jun 4)
 - Total to Decide on China Sulige Gas Investment in Mid-2009 (Nov 26)
 Company: Singapore Petroleummore info
 - Korean Firms Test Water Offshore China (Jun 4)
 - Seadrill Awards Semi-Tender Rig Construction Contract to Keppel (Jun 9)
 - Commissioning Underway at Oyong Field (Sep 11)
 Company: KNOCmore info
 - S.Korea's KNOC Says Drops Oil Field Project in Iraq's Sangaw South (Aug 22)
 - S.Korea's KNOC In Talks With Kazakhstan To Drop Oil Field Project (Aug 5)
 - S.Korea to Focus on Exploration as Cuts Overseas Energy Spend (Dec 4)
 Company: Samsung Corpmore info
 - Former Petrobras Exec Sentenced For Samsung Drillship Bribe (Aug 17)
 - Seadrill Orders New UDW Drillship for $600M (Apr 30)
 - TSC to Proceed with Construction at Shell's FLNG Facility (May 30)
 Company: Daesung Industriesmore info
 - Korean Firms Test Water Offshore China (Jun 4)
 - Total, KNOC Ink Deal for Onshore Yemen Farm-In (Oct 17)
 Company: GS Holdingsmore info
 - Sources: South Korea’s GS Energy Poised to Win Abu Dhabi Oil Stake (May 12)
 - Korean Firms Test Water Offshore China (Jun 4)
 Company: SK Energymore info
 - Maersk Oil to Purchase Brazilian Assets for $2.4B (Dec 23)
 - Gulf United Energy Appoints New Officers (Dec 22)
 - Total Fires Up 2nd Yemen LNG Train (Apr 5)

Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Logistics Coordinator & Optimization Analyst
Expertise: Logistics Management
Location: Billings, MT
Associate Category Manager or Category Manager Job
Expertise: Logistics Management|Purchasing|Supply Chain Management
Location: Denver, CO
Technical Coordinator
Expertise: Client Representative|Process Management|Technical Writing
Location: Houston, TX
search for more jobs

Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours