'Overseas energy initiatives failed'

By Choi Kyong-ae

Resource-deficient Korea went on a spending spree over the past five years in a broad drive to secure energy supplies for the country’s growing economy.

Major investments in overseas assets under the former Lee Myung-bak government ended up reporting lower-than-expected profits or losses, data from the government showed.

Analysts criticized the Lee government, saying it was “too pushy” by setting a goal first without conducting a proper study and then making an investment. Moreover, they say public officials who were less experienced in energy development led the investment projects.

Among public organizations, the state-owned Korea National Oil Corporation (KNOC) took the brunt of criticism due to its blind investments and snowballing debts in the five years through 2012.

KNOC spent 17.8 trillion won ($15.9 billion) during five years of overseas oil and gas exploration and development, according to the Ministry of Trade, Industry and Energy (MOTIE).

KNOC swung to a net loss of 904 billion won in 2012 from a net profit of 200 billion won in 2008, while its debts more than tripled to 17.98 trillion won from 5.51 trillion won during the same period, MOTIE said.

In a report, the trade ministry said that the main culprit of the KNOC’s losses is the investment made to acquire Canadian oil producer Harvest Operation Corps in 2009.

“Those who led investment projects were presidents of public organizations (such as KNOC and Korea Gas Corporation) sent from the government. They didn’t know the ABC’s of energy development,” an industry source with direct knowledge of the matter told The Korea Times. He asked not to be named.

He went on to say Harvest imports Dubai crude oil, cheaper than West Texas Intermediate (WTI), and sell the processed products in its main business model. But with the beginning of production of shale gas, a new fossil fuel, “the price gap between Dubai crude and WTI narrowed sharply, dealing a blow to the company’s refining margins,” said the source.

MOTIE said in the report the government needs to have KNOC sell off money-losing overseas assets to avoid additional losses. And it also pointed out there should be limitations to government loans for energy-related projects.

Back in 2008, the trade ministry announced it will inject a total 19 trillion won, including 4.1 trillion won from the government’s coffers, to transform KNOC into a global oil major which is capable of producing 300,000 barrels a day by 2012 from 50,000 barrels in 2008.

KOGAS, another state company, suffered a falling profitability from its investment in a Canadian gas field in 2010. “The operations of the field have been suspended as it failed to reach the breakeven point,” said a KOGAS official.

KOGAS’s investment gains from overseas assets plunged to $96 million for the five years ended in 2012, compared to an accumulated $2.01 billion before 1999, National Assembly Budget Office said in a statement early this month.

During the cited period, KONC shifted to a loss of $1.8 billion from a profit of $760 million.

Still, KNOC spokesman Han Kwang-yeol said it is not that most of the projects went nowhere.

He said KNOC acquired Dana Petroleum in 2010 and the U.K.-based oil company posted $179 million in net profit in 2012. KNOC also reflected $100 million in shareholding gains from Dana last year in its bottom line.

“Investors need to wait as it takes time for an energy company to make a profit,” said Han.