The market was unnerved Thursday with the report by a management consultancy firm that proposed restructuring state-run Korea National Oil Corp.’s money-losing overseas crude oil development business.
The report by Deloitte Anjin -- Korean member firm of Deloitte Touche Tohmatsu -- on reforms in the overseas businesses of state-run energy companies was commissioned by the Ministry of Trade, Industry and Energy.
The offshore oil drilling facility of Dana Petroleum, the U.K. explorer focusing on the North Sea and Africa, that KNOC acquired a 90 percent stake for $2.9 billion in 2010 (Bloomberg)
The full details of the report will be discussed at a public hearing in Seoul on Friday.
According to the available information, the report has suggested four options for restructuring, including the sale of KNOC’s overseas energy development business unit to a private energy company, a business spin-off, merger with a similar unit of state-run Korea Gas Corp., and merger between KNOC and KOGAS.
“The ministry is open to all the options before finalizing the policy direction by the end of June,’’ Kim Jung-il from the ministry said, claiming that the Deloitte report would be a reference.
MOTIE has pushed for business restructuring of state-run energy companies under its roof together with the Finance Ministry, the control tower for reform of public companies.
The ministry, in particular, has targeted the three debt-ridden energy giants -- KNOC, KOGAS and Korea Resources Corp. -- for restructuring.
According to the All Public Information In-One -- a portal for information on public companies run by the Finance Ministry -- the debt of the three companies that has to be repaid by this year-end reaches 8 trillion won ($6.8 billion).
“The mounting debt of energy firms is partly attributed to the overheated investments in overseas energy assets during an era of high oil prices,’’ said Kim Tae-hum from the Korea Energy Economics Institute.
As the oil prices have been falling over the past few years, the oil and gas businesses and related-companies are suffering from low profitability. Oil prices, which reached a record high of $145 a barrel in 2008, and $100 in 2014, have nosedived to about $40 in 2016.
As a case in point, Dana Petroleum, the U.K. oil explorer that the KNOC bought in 2010 for $2.9 billion has been a heavy financial burden.
In January this year, KNOC’s board decided to double its loan guarantee for Dana facing worsening liquidity conditions to $600 million.
Regarding the sell-off of money-losing overseas energy assets or restructuring of energy development business, industry experts, however, called for a cautious approach as it is related to the nation’s energy security.
“As an energy poor nation, the government needs to give more emphasis on stable energy supply when it comes to bringing changes in its energy-related policies,’’ Kim said.
By Seo Jee-yeon (jyseo@heraldcorp.com)