IEEJ: November 2009

Northeast Asia Petroleum Forum 2009

Korean Oil & Gas E&P :Current Status and Outlook
North East Asian Forum
Institute of Energy Economics, Japan

October 27, 2009

Contents

1. Global E&P Environment and Challenges for North East
Asian Countries
2. E&P Policy of Korea
3. Strategy of KNOC
4. Concluding Remarks : Suggestion for Cooperation

IEEJ: November 2009

Global E&P Environment and Challenges for NEA
Increasing Difficulties
 Easy, Cheap Oil ⇒Tough/Hard Oil No more decent reserves in ‘Easy-to-access’ Area- the industry turns to untapped resources!

(ex. deepwater, frontier, unconventional)
 Face an array of Challenges!
- Natural production declines in Mature fields- Number of new big discoveries are reducing!

IEEJ: November 2009

Global E&P Environment and Challenges for NEA
Increasing Difficulties
 “Aboveground Access” Is what really matters!
 Sufficient Oil & Gas Resources underground Proven Oil Reserves of 1.2Trillion Barrels plus Non-conventional
Oil(Upto 7 Tri.B)[IEA]

 However, Reserve Access is Limited due to ;
 Neo-Resource Nationalism in Producing Countries
 Heightening Geopolitical Risk in Producing Countries

IEEJ: November 2009

Global E&P Environment and Challenges for NEA
Increasing Difficulties
IEEJ: November 2009

 Spiraling E&P Costs !
 New E&P Spots : Deepwater, Frontier, Unconventional
 Limited access promotes E&P cost escalation : More thandoubled since 2000
 Prolonged E&P activities in Frontier areas will underscore risingcosts

Global E&P Environment and Challenges for NEA
Increasing Difficulties
 Lack of Investment
 Lack of E&P Investment in the 1990s(Low Oil Price Times)
causes ; Shortage of Skilled/Experienced personnel
 Shortage of Adequate Equipments

IEEJ: November 2009

Global E&P Environment and Challenges for NEA
Vulnerability in Oil Supply Security
Dependence on Middle East for Crude OilChinaJapanKorea

USEuropeMiddle East %ofTotal Imports

50.0%

86.9%

86.3%

18.6%

19.3%

AlternativeSources

FSU
West Africa

Almost NoneAlmost None

CanadaMexicoSouth America
Central America
West Africa
And so on . .

FSUNorth Africa
West Africa
South America
Central America
And So On . . .

Source : BP Statistical Review of World Energy 2009 , Petroleum Intelligence Weekly February, 2009• Compared to other regions NEA countries have few sources other than ME• It is hard to secure stable supply from ME for the political reasons• Thus it is inevitable for NEA countries to look for overseas E&P projects
IEEJ: November 2009

Global E&P Environment and Challenges for NEA
Vulnerability in Oil Supply Security
 Limited Oil Import Sources other than Middle East

WesternEurope

ASIAUSAIEEJ: November 2009

E&P Policy of Korea
 Korea’s Petroleum Demand• Korea is the World Ninth Largest Oil Consumer (2.1mil.B/D)•Oil Composes 43.3% of Total Energy Demand(2007)• To be reduced to 33.3% in 2030
• However, the absolute volume of consumption is to stay
• Large Portion of Industrial Use : 55%(1,150th.B/D)• Especially, Naphtha demand : 40% (847th.B/D)•Needs for Stable Supply Security ⇒ Needs for E&P

 Target Rate of Equity Productions to Consumption
2008

2009

2010

2011

2012

2013

2030

5.7%

7.4%

9.1%

13.9%

18.1%

20.0%

40.0%

IEEJ: November 2009

E&P Policy of Korea
 Milestones of Korea’s E&P History•1973 The First Oil Shock•1979 Establishment of KNOC
•1981 KODECO starts E&P in Indonesia•1984 KNOC, SK Energy led consortium starts E&P in Yemen•1987 Gas Discovery in Korean Continental Shelf•1990 Discovery of Libyan Elephant Fields(Production commence in 2004)•1992 Vietnam Block 11-2 Awarded (as operator)•1998 Discovery of Donghae-1 Gas Field (Production commence in 2004)•2000 Discovery in Vietnamese Block 15-1 (Production commence in 2003)•2003 Myanmar Block A-3 spud (Daewoo, Production commence in 2005)•2004 Production commence in Camisea, Peru (SK Energy)•2006 Acquisition of Black Gold (Oilsands) Block in Alberta, Canada•2008 Acquisition of ANKOR(former Taylor Energy) in Gulf of Mexico,USA•2009 Acquisition of Petro-Tech (Peruvian)
IEEJ: November 2009

E&P Policy of Korea
 Korean Equity Production and Reserves Increased
through 2000s
 Reserves : 916 mil.BOE(Dec.2000) ⇒ 2,248 mil.BOE(Dec.2008)
 Production : 47.6 thou.BOE/D(Dec.2000)⇒186 thou.BOE/D(Dec.2008)
Equity Reserves and Production
As of Dec.2008

Reserves
Equity Production(B/D, Ton/D)

Crude Oil(thou.Bbl)

Gas(thou.Ton)

Crude&Gas(thou.Bbl)

1,079,627

259,749

2,248,346

89.6

11.3

186

IEEJ: November 2009

E&P Policy of Korea
174 E&P Projects in 39 Countries (Including Korea) (as of Aug. 31, 2009)

S.Grazobezt

ChedtyRUSSIA

Sosnogorsk
RUSSIARUSSIA
WabamunFEL2/94,2/05
Ireland
Captain
3/27aUK
UK
13/22d
8/25a
UK
UK

CANADA

Karpovsky

KAZAK
NorwayRUSSIA

HarleyCANADA

Vinca
Lavninoye KAZAK
Barguzinsk
RUSSIAADAKAZAK- 바좔가노이
RUSSIA샬Egizkara
KAZAK
Vinca
Inner
Mongol
KAZAK
KAZAK
UK
Tigil
West Bozoba Sarkramabas
9/11c
RUSSIA33
China
Block-36
Block 8RUSSIA- 바좔가노이샬
RUSSIAKAZAKUK
Zambyl KAZAK KAZAK
China
Poland
KAZAK
Icha
KAZAK
KAZAK
9/2b
Germany
W.KamchatkaRUSSIA
아랄해
Surgil
UkraineVlidimirskaya
UK
RUSSIA
Uzbek
Uzbek
KAZAKFrance아랄해
Bianvawi
카스피해Uglegorsk
MahuangshanW.
SakhalinVI-1
Aiyrshagyl흑해Iraq
Portugal
Inam
China이사우에네Italy
RUSSIA우즈베키스탄KAZAK아제르바이잔KRG Bazian알제리투르크메니스탄터키그리스
China
비나바위
Iraq
자파라나
Aiyrshagyl
지
Iraq
Inam해
이란
35&36 A-3
아프카니스탄
이집트중
IraqRas Laffan
KAZAK아제르바이잔
Algeria
KRGUzbek카타르바지안 Myanmar
122
Morocco15-1
A-1
Vietnam
부카
Iraq
Libya
Vietnam
Egypt
홍 LNG
Oman
Myanmar해
15-1/05
Elephant
11-2
AD-7 인도Oman
사우디Vietnam Vietnam122
Libya
Myanmar
Mauritania
VietnamOnshoreNEM 2MaliLNGOman
16
15-1/05
11-2
Indonesia
Thailand
SudanOman
Niger
ChadCI-11
Vietnam Vietnam
예멘NEM 1
Offshore
AREA
C
Ivory Coast
Marib Gas
Benin
Indonesia
Cambodia
Phillipines
Eq.Guinea
NigeriaCI-01
예 멘
KruengMane
AREA
DWakamIvory Coast70
워캄Indonesia
Eq.Guinea
Indonesia
Indonesia
39
Indonesia
Krueng Mane예멘Yemen
방코
A,B,C,E,H
Tanzania
Indonesia
SES
4 Dev.
/E.TimorAustralia
E.TimorAngolaIndonesia
YemenIndonesia
321
JPDA 06-102
WA278P
4 Exp.
Nigeria
폴랭Mozambique
Yemen
Indonesia
PEL103
Namibia
W.Madura
Area 4Madagascar
323
Indonesia
Australia
Mozambique
Nigeria
Australia
FinlandSweden L007
DenmakrSouth Africa

Majunga
Area 4Madagascar
Mozambique

CANADAUSBlackgold
CANADACANADA
Border
CANADA
WillistonUS
WembcoOilsands Reeder
USUS오클라호마
US
Utah Oilsands Miscellaneous
ReederUSUSUS
P. S. Silk
DiamondUSUS

Emerald
S/MuncasterDiamond US
US
PlatinumUS
Sour Lake
US
Emerald
USGold USUS

Platinum
US
Theriot
GoldUSUSCH 0307
미국Enchant
CANADA
Carson CreekCANADAOBEDCANADA
AustinUS
Grant&Mathews

FSG-08USMaddox
US

OCS G24880
US
Petro-Tech
Peru
Petro-Tech 10
Peru56Peru

US
Caliente
텍사스115
USColombia
Peru
8에콰돌
115
Peru

Brazil

BMC-32
BMC-8
BrazilBrazil

Z-46

BrazilCamisea
Peru

Peru
Peru

Malvalay
Argentina

LabreaArgentina

LDP
Argentina
El Vinalar LDP
Argentina
Argentina

Producing (47)AAB
Argentina Chile

Developing (17)RMO
Argentina

Exploration (110)BMC-30PalmarBolivia

PEP38451
NewZealand

Higgins 1
US

West Cameron 601
USUS 281
East Cameron
USUS
West Cameron 230
US
USWest Cameron 601
USSouth Clayton Canyon359,OCS-G26246
USWest Cameron 230
USUSWharton
Bellevue Barnett Shale텍사스외Canyon359,OCS-G26246
USUSUSBroussard Field
ANKOROffshore
Bellevue Barnett ShaleTexasWharton
USIberia North USUS
USGalveston
US
Mexico Taylor
Onado
Broussard Field
US
Venezuela
US US
Leases Offshore

Argentina

IEEJ: November 2009

E&P Policy of Korea
 Policy for Supporting E&P Business– Supporting KNOC to be Regional Major Company and Leads theKorean E&P Sector– Active Support of Private E&P Companies– Use of Private Sector Funds in Producing Projects• Low Risk, but Large Amount of Funds Required• Oil Development Fund, Pensions– National Oil Company Lead with Government Support in
Exploration and Developing Projects• High Risk, but Small Amount of Funds Required• Inducing Investment for Private E&P Companies

IEEJ: November 2009

E&P Policy of Korea

Green Growth

Stable Energy
Demand/Supply

Resources
Development
Projects

Energy Welfare& Safety

Raising Global Competency in E&P
Reinforcing Diplomatic Relationship with Producing Countries
Expanding E&P Infrastructure
Concentrating on Non-Conventional and Domestic E&P
IEEJ: November 2009

E&P Policy of Korea
Raising Global Competency E&P• Enlarging Size and Capability of KNOC
• World’s 60th Company by 2012
• Acquiring Producing Assets• Adding Producing Blocks to Secure Stable Oil Supply

Reinforcing Diplomatic Relationship with Producing Countries• Strengthening Official Development Aid (ODA) for Developing
Countries• Interactive Multi-dimensional Cooperation with Producing
Countries
IEEJ: November 2009

E&P Policy of Korea
Expanding E&P Infrastructure• Financing for E&P• Establishing Oil Development Funds : KNOC invest100 bil.Won($84mil.) toinduce Private Sector• State-controlled Financial Institutes to Support Loans and Guarantees• Nurturing Experts• Establishing ‘School of Petroleum Engineering’• Improving Core Technical Skills• Strengthening Support for Research & Development

Concentrating on Non-Conventional and Domestic E&P• Non-Conventional Oil• Participating in Extra-Heavy Oil Projects• Korean Continental Shelf

IEEJ: November 2009

Strategy of KNOC
Overview
Introduction

Exploration &Production
Production 72 thou.B/dReserves 622 MMBbl•Founded March 1979•

To Provide Hope and Comfort thePeople through Stable Oil SupplyStockpiling
PetroleumImproving
Petroleum

Storage 115 MMB
Capacity 138 MMBDistribution
Infra-structure

Stabilizing Petroleum Supply

Financing &TechnicalSupport

Contributing to the Korean Economy
IEEJ: November 2009

Strategy of KNOC
Overview

IEEJ: November 2009

Reserves : 140 mil.Bbl(2000) ⇒ 622 mil.Bbl (Jun 2009)
Production : 12 thou.B/D(2000) ⇒ 72 thou.B/D (Jun 2009)
81(Mil.bbl)
900(thou.b/d)

80

Ankor, Petro-tech

800

Vietnam 11-2
Canada Blackgold

Reserves
Production700

725050

DongHae-1 Gas Field
Libya Elephant

60062745622553 524

35500
Vietnam 15-1
Indonesia SES

40030409

2520UK Captain30015Peru 820040

10100

Yemen Marib59495969798

9900

01020304050607

09.2 09.60

Strategy of KNOC
Overview
Producing:11
Developing:3
Exploration:33
Operatorship:18
Joint Op. : 747 On-Going Projects in 18 Countries (Inc. Korea)
As of Aug. 31, 2009
Kazakhstan Zhambyl
Kazakhstan Egizkara
Kazakhstan ADA

Captain UK
North Sea 13/22d

Kazak. S.Karpovsky

Uzbekistan Aral Sea
Uzbek.Namangan&Chust

China
China Mahuangsansu
MahuangshanW
Azerbaizan Inam

Lybia Elephant
KRG Qush Tappa
KRG Sangaw NorthKRG Sangaw SouthKRG Hawler AreaKRG Bazian
Yemen LNG
Yemen 70
Yemen 16
Yemen 39
Yemen 4 Dev.
Yemen 4 Exp.

Russia Tigil
Russia Icha
Russia W.Kamchatka

Canada Black Gold

Korea 6-1
US GoM ANKOR
Vietnam 15-1 US GoM Diamond
Colombia CPO 2
US GoM Emerald
Vietnam 11-2 US GoM Platinum
Colombia CPO 3
US GoM Gold
Colombia CPE7
Indonesia SES
Peru Petro-Tech
Indonesia Wakam

Indonesia NEM Ⅰ
Indonesia NEM Ⅱ

Peru Petro-Tech

Peru 115
Peru 8Venezuela Onado

Nigeria 323
Nigeria 321

IEEJ: November 2009

Strategy of KNOCIEEJ: November 2009

Achievements during 20089 Exploration Blocks, 2 Producing Blocks
Name of Blocks

KNOC
Interest

Oil/gasTotal
Resources(Oil Equivalent)

KNOC’sResources

US Taylor Producing

80%

Oil

61 mmbbl

48.8 mmbbl

Kazahgstan Zhambyl

9.45%

Oil

1,600 mmbbl

151.2 mmbbl

Iraq KRG Qush Tappa

80%

Oil

1,008 mmbbl

806 mmbbl

Iraq KRG Sangaw South60%

Oil

320 mmbbl

192 mmbbl

Iraq KRG Sangaw North

20%

Oil

786 mmbbl

157 mmbbl

Iraq KRG Khabat

15%

Oil

1,094 mmbbl

164 mmbbl

Iraq KRG Dimir Dagh

15%

Oil

630 mmbbl

95 mmbbl

Iraq KRG ZAB

15%

Oil

1,496 mmbbl

224 mmbbl

Iraq KRG Hawler

15%

Oil617 mmbbl

93 mmbbl

Iraq Bazian

20%

Oil

1,272 mmbbl

254 mmbbl

Columbia exploration

30%

Oil

333 mmbbl

100 mmbbl

9,454 mmbbl

2,285 mmbbl

Total

Strategy of KNOC
Successful E&P Activities
Donghae-1 Gas Field(South Korea)

BlockBlock Map
Map

KNOC discovered the firstcommercial natural gas field
Donghae-1 in East Sea ofSouth Korea- Share (%)* KNOC 100%-Reserves : 169 bil.cf-Production Start : Jul. 2004

-Current Prod. Rate : 50 mil.cf/d

IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
Block 15-1(Vietnam)

BlockBlock Map
Map15-1

A milestone in a 20-year history ofoverseas oilfield development- Participated in 1998
- Share (%)* Korea : KNOC 14.25%, SK 9.0%
* Vietnam : PV 50%* USA : ConocoPhillips 23.25%

FPSO
FPSO

* France: Geopetrol 3.5%
- Reserves : 568 mil.Bbl- Production Start : Oct. 2003
* Current Prod. Rate : 103,000 b/d

IEEJ: November 2009

Strategy of KNOCIEEJ: November 2009

Successful E&P ActivitiesBlock 11-2 (Vietnam)

Block
Block Map
Map

KNOC
KNOC operates
operates thethe producing
producing block
blockusingusing Korean
Korean technology
technology andandcapital
capital11-2-- ParticipatedParticipated inin 1992
1992-- ShareShare (%)(%)** Korea[KNOC 39.75%,39.75%,
Korea :: 75%
75% [KNOC
LG11.25%,
LG11.25%, Daesung
Daesung 6.9375%,6.9375%,
DaewooDaewoo etc.
etc. 7%]7%]** Vietnam
Vietnam :: PVEP
PVEP (25%)(25%)-- Reserves
Reserves :: 163
163 mil.BOE
mil.BOE-- Production
Production Start
Start :: Nov.
Nov. 2006
2006** Current
Current Prod.
Prod. Rate
Rate :: 30,000boe/d
30,000boe/d-- OilOil discovered
discovered inin RONG
RONG TRE
TRE
prospect
prospect inin 2005
2005

FlatFlat formformStrategy of KNOC
Successful E&P Activities
Zhambyl (Kazakhstan)

Block
Block Map
Map

Operating large exploration block in CIS
region with Kazakhstan’s National Oil
Company- Participated in Jan 2009
- Share (%)* KC Kazakh B.V. (Korea) : 27%(KNOC 9.45%, SK etc. 17.55)* KMG (Kazakhstan): 73%- Operator : KC Kazakh B.V. & KMG(Joint Operation)- Exploration Period : 6 years- Prospected Resources : 1.6 billion bbl

IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
BlackGold Oilsands
Block
Block Map
Map
(Canada)Acquisition of BlackGold Oil
Sand in 2006

- Participated in 2006(Jul.)- Share (%)* Korea : KNOC 100%

- Reserves : 234 million barrel- Current Stage : Development- Production Schedule*10,000b/d(’12), 30,000b/d(’18)
IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
ANKOR (USA)Block
Block Map
Map

KNOC’s successful M&A deal
(Taylor Energy)- Acquired in Mar. 2008
- 5 production blocks- Share (%)* KNOC80%,* Samsung 20%- Reserves : 76 mil.Bbl- Current Prod. Rate : 18,000boe/d

IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
Petro-Tech (Peru)

BlockBlock Map
Map

KNOC’s successful M&A deal

- Acquired in Feb 2009
- Share (%)* Korea : KNOC 50%,
* Columbia : Ecopetrol 50%- Reserves(2P) : 158 million barrel- Production : 14,900boe/d

IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
Block Elephant (Libya)

BlockBlock Map
Map

The biggest oil discovery since
mid 1980s in Libya- Participated in 1991
- Share (%)* Korea :4% [ KNOC 2%, SK etc. 2%)* Italy : ENI (8%)* NOC : Libya [ 88%]
- Reserves : 488 mil.Bbl- Production Start : May 2004
* Current Prod. Rate : 121,000 b/d
IEEJ: November 2009

Strategy of KNOC
Successful E&P Activities
Block OPL321,323 (Nigeria)
Upstream

Downstream- OPL 321 & OPL323- Electronic Power Business- Co-Biz Structure- Building 2 Power Station[2,250MW] and Gas Pipeline[1,200km]- Korea 60%, Equator 30%,
Nigeria Local 10%

Kaduna (Electric Power station)
Abuja (Electric Power station)

IEEJ: November 2009

Strategy of KNOC
Tasks
Regional Major Company

Production of 300 thou.B/D by 2012

Enlarging
Enlarging
Organizational
Organizational
Scale
Scale

Focusing
Focusing ononKey
Key Projects
Projects

GlobalGlobalCompetency
Competency

Organic Growth thru M&A

Focusing on Core Areas

Improving Operating(Producing Assets)

Expanding Support for R&D

Techniques

Strengthening Int’l Network

Nurturing Talented Experts

Financing Ability
Operator Capability

IEEJ: November 2009Strategy of KNOC
Target by 2012

Regional
Oil Major

Reserves(Billion bbl)x4x5

Establishment
as a Competitive Oil Major

1.9

TechnicalExperts(100 personnel)

0.6

538x3
Assetx5(Billion $)25World
Ranking

Production30(1000 b/d)

9.4

300
60

60th
98th
IEEJ: November 2009

Strategy of KNOC
Target by 2012
Growing up of KNOC
KNOC’s role has evolved from oil stockpile to amajor player in upstream in and outside the country

2012

TODAY
1999
1989
1979

•
•KNOC
foundedto secureoil suppliesfor thenation• Discovered
natural gas indomesticcontinental
shelf• Participated inoverseas E&P
ventures

Stockpiling• The
concept for
stockpilechangedfrom“Static" to“Dynamic".
• invested intwenty E&P
ventures indomestic
andoverseas• 6X Growth inProduction

2008
Industry
Opportunities andNationalInterests
SupportCase for a
new KNOC
MissionE&P Ventures
Acquisition• EstablishedWorld Class
National
Petroleum
Company• 4X Growth in
E&P
Reserves• 3XGrowth inasset• Proved andExperienced
energycompany

Growth Strategy
focused on Upstream
IEEJ: November 2009

Strategy of KNOC
Core Strategic Area

Russia/East Siberia

Central AsiaMiddle East
West Africa

Latin America
Australia /South EastAsia

IEEJ: November 2009

Strategy of KNOC
Technical Advancing
Advanced Technical Skills

Deepwater
Deepwater
Exploration
Exploration

Enhanced
EnhancedOil
Oil Recovery
Recovery

Non-Conventional
Non-Conventional(Heavy(Heavy Oil)
Oil)

Improving Offshore

Increasing Reserves in

Stable Producing base ;Exploration Tech in ;Producing Area ;Canadian Black Gold

Korean Continental Shelf

US Gulf of Mexico

Venezuelan, Colombian

Nigeria Deepwater

Extra-Heavy Oil
IEEJ: November 2009

Concluding Remarks
Suggestion for Cooperation
 Recognize and Take common View : North East Asia isWorld’s Largest Demand Center– Needs to co-operate among the North East Asian Countries– Seek Mutual interest together

 Joint Development projects in ;– High Risk Area nearby• East Siberia, Arctic– Non-conventional Oil and Gas Resources• Technical Research & Development• Joint Survey

IEEJ: November 2009

Concluding Remarks
Suggestion for Cooperation
 Healthy Competition and Cooperation– Avoid Excessive Competition in Overseas E&P projects– Seeking Synergy Effect in Securing Energy Supply ‘Win-Win’ Model for State-owned/State-controlled
companies/organizations– Effective Way to Detour Resources Nationalism in ProducingCountries– Mutual Interest for NEA Countries– Synergy Effect for the benefits of North East Asian Countries andProducing Countries

IEEJ: November 2009IEEJ: November 2009

Thank youfor your Attention
Contact : report@tky.ieej.or.jp