Yoon administration's push for Blue Whale gas prospect ends in failure

A drillship, the West Capella, conducts a drilling operation in the East Sea to check for oil and gas prospects in the ocean in eastern Pohang, North Gyeongsang Province, Jan. 1. Yonhap

Korea National Oil Corp. (KNOC) on Sunday confirmed Sunday that the Blue Whale prospect is not economically viable, a blow to the deep-sea gas project once championed by ousted former president Yoon Suk Yeol as the nation’s future energy bonanza.

However, the company noted that multiple foreign investors participated in a bid for six other deep-sea gas field prospects in the East Sea, reviving a development project that had seemed like a dead end.

KNOC said in a press release that it concluded an in-depth analysis of data from the first exploratory drilling into the Blue Whale prospect, one of the seven potential oil and gas reserves in the deep sea off the coast of Yeongil Bay in Pohang, and found the prospect is not economically viable.

The prospect was initially expected to yield enough gas to meet Korea’s demand for the next 29 years and oil demand for four years, translating to a financial value of up to 2,200 trillion won ($1.57 trillion).

KNOC conducted exploratory drilling in February and commissioned Core Laboratories, a U.S. provider of core and fluid analysis in the petroleum industry, to carry out a detailed analysis of the collected samples over six months from February to late August.

The analysis confirmed generally favorable geological properties, including a 70-meter sandstone layer, a 270-meter cap rock and a porosity of approximately 31 percent. However, the company said it has not found any recoverable gas, ultimately determining the prospect to be uneconomical for development.

“Accordingly, no further exploration of the Blue Whale structure is planned,” the company said.

“Based on the data accumulated from previous exploration and drilling activities, KNOC intends to establish new business plans, such as prospectivity assessments and further exploration, in partnership with codevelopers, should investment be secured. KNOC reaffirms its commitment to contributing to Korea’s resource security."

The East Sea gas project became mired in political controversy after then-President Yoon, in June last year, publicly promoted it as one of his signature achievements. He held a solo press conference and championed the Blue Whale project as “a chance to become an oil-producing country,” even before exploration drilling had begun.

The project soon hit a major snag as Yoon abruptly declared martial law last December, and was later impeached just before the first exploration drilling was conducted. As its top political supporter was suspended from his official duties, the drilling ended without finding desirable outcomes.

Following the Lee Jae Myung administration’s decision to slash the project’s entire budget for next year, KNOC has turned to attracting foreign investment to cover development costs.

The company confirmed Sunday that multiple overseas companies have submitted bids for the project.

“With the bids now submitted, KNOC plans to evaluate the proposals through its advisor, S&P Global, and conduct a thorough review. If a suitable investor is identified, the company will select a preferred negotiation partner,” the company said in a press release.

Once selected, the parties will proceed with negotiations over detailed terms for the contracts for a joint development agreement. “To ensure a fair evaluation process, we cannot disclose the names or numbers of the participating companies at this stage,” it added.

KNOC currently holds exclusive rights from the government to explore four deep-sea gas field blocks in the East Sea. In March, it launched a bid to find an overseas partner with extensive deep-sea development experience to execute the project, offering to transfer up to 49 percent of its stake in these exploration rights.

The company extended the submission period by three months in response to requests from potential investors.

For the bidding, KNOC set several participation criteria, including a deep-water production volume of over 100,000 barrels per day (or its equivalent) in 2023 or 2024, as well as offshore operational experience. Bidders are also required to have had a cooperative relationship with KNOC over the past three years.