KNOC to Make $3.95B Bid for Canadian Oil Firm

SEOUL (Dow Jones), Oct. 22, 2009

State-run Korea National Oil Corp., or KNOC, has agreed to buy Canada's Harvest Energy Trust for C$4.1 billion (US $3.95 billion) in the latest in a string of acquisitions by resource-poor Asian countries trying to bolster their energy security.

The deal, expected to close in December after regulatory and court approval in Canada, will be South Korea's biggest overseas energy investment.

It will boost KNOC's crude oil output to 123,400 barrels a day from 70,000 barrels a day, moving it one step closer to its goal of raising daily production to 300,000 barrels a day by 2012.

The purchase will come as a relief to KNOC, which four months ago was outflanked by China Petrochemical Corp. when it tried to buy Addax Petroleum Corp., one of the largest independent oil producers in West Africa and the Middle East.

The Chinese company, also known as Sinopec, paid US $7.19 billion for Addax, in what was another example of Chinese companies being ready to pay more, or being more agile, than Korean or Indian peers in the hunt for foreign oil.

Under the agreement, KNOC will buy all the issued and outstanding trust units of Harvest Energy for approximately C$1.8 billion and will acquire C$2.3 billion of debt.

This represents a 47% premium over the 30-day weighted average trading price of units on the Toronto Stock Exchange up to and including Oct. 20, 2009, Harvest Energy said.

The Calgary-based company has confirmed reserves of 219.9 million barrels of oil as of January this year and has 950 employees.

It has producing oil fields and oil sands reserves in Alberta, Saskatchewan and British Columbia, as well as refining and distribution operations.

Junggwan Kim, deputy minister for energy & resources at the Ministry of Knowledge Economy, told reporters Thursday that KNOC plans to raise US $1.65 billion from overseas or domestic borrowings to buy Harvest Energy, as the South Korean oil developer currently has US $2.3 billion in funds.

KNOC is in talks to acquire three-four oil firms and could reach an agreement to buy another overseas oil firm by the end of this year, Kim said.

Resource-deficient South Korea, which imports most of its energy needs, has in recent years accelerated its hunt for foreign assets.

Its overall crude import needs averaged 2.37 million barrels a day in 2008.

The purchase will raise South Korea's self-sufficiency rate for oil and gas by 1.8 percentage points to 8.1%, exceeding the country's target of 7.4% for this year, South Korea's Ministry of Knowledge Economy said in a statement Thursday.

"Korea National Oil Corp. is excited about this acquisition and believes Harvest is a perfect fit for KNOC's North American growth strategy. KNOC has ambitious plans for future growth and is committed to a long term investment strategy in Canada," said Young-won Kang, President of KNOC.

Chung Woo-jin, senior research fellow at Korea Energy Economics Institute, said that KNOC is expected to benefit from the advanced oil development technologies and know-how of the Canadian company.

"North America is a politically stable region and oil companies there traditionally have advanced technologies," said Chung.

In February, KNOC and Colombia's state-controlled Ecopetrol S.A. jointly purchased Peru's PetroTech Peruana SA for $900 million, boosting the Korean firm's daily oil production by about 10,000 barrels.

A year earlier, in February 2008, a Korean consortium comprising KNOC and Samsung Corp. agreed to pay $1 billion for an offshore oil field in the Gulf of Mexico.

KNOC's oil exploration and production footprint extends to more than a dozen countries, including Canada, Nigeria, Russia, the U.K. and Indonesia.

In October, KNOC began exploratory drilling in the Bazian oil block in Iraq's Kurdistan. Results are expected by the end of the year.

The Seoul government plans to inject KRW4.1 trillion by 2012 to expand KNOC.

To finance further acquisitions, KNOC will continue to issue overseas bonds and will get financing from Export Import Bank of Korea as well as pension and other state funds, the energy ministry said.  

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

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