Bloomberg News

KNOC Plans Acquisitions as Valuations Fall in Industry Slump

October 10, 2011

(Updates with exploration success rate in 11th paragraph.)

Oct. 10 (Bloomberg) -- Korea National Oil Corp., South Korea’s most acquisitive company this year, plans to resume buying overseas assets after a six-month hiatus as a slump in the oil and gas industry makes valuations attractive.

The state-owned energy developer needs to buy more assets to meet the government’s goal of achieving the capability of producing 300,000 barrels of oil a day by 2012, Senior Executive Vice President Kim Seong Hoon said in an interview. The company known as KNOC is 62,000 barrels short of that target.

“The only way to achieve that goal next year is through acquisitions,” Kim, 56, said by telephone Oct. 7 from the company’s headquarters in Anyang, near Seoul.

Goldman Sachs Group Inc. and Sanford C. Bernstein Co. have predicted a surge of oil and gas takeovers after the industry’s worst slump in three years. Crude in New York has declined 10 percent this year amid concern that Europe’s debt crisis and a U.S. economic slowdown will drag the world back into recession. KNOC has spent about $10 billion since 2009 to buy energy assets abroad.

“Crude oil prices are falling, which is good,” Kim said. “Given the uncertainties arising from debt problems in Greece and other countries, we think we need to wait until financial markets stabilize.”

Kim declined to identify assets and regions KNOC plans to target. South Korea imports all the oil and natural gas it needs.

The KNOC official’s comments come after global energy shares fell 21 percent in the third quarter, the worst three months since 2008. Asian buyers may spend $150 billion by 2016 to secure energy resources for their faster-growing economies and targets could include Tullow Oil Plc, Canadian Oil Sands Ltd. and Kosmos Energy Ltd., according to Bernstein.

Acquisitions

KNOC announced four acquisitions this year, valued at $2.7 billion, the most by any company in South Korea, according to data compiled by Bloomberg. The last deal was in March, when it agreed to buy a stake in a Texas shale-oil block from Anadarko Petroleum Corp. for $1.55 billion.

The South Korean company bought 95 percent of Altius Holdings Inc. for $515 million and assets from Petro-Canada in March, following the purchase of Canadian oil and gas assets from Dallas-based Hunt Oil Co. for C$525 million ($505 million).

KNOC has focused on investing in producing fields rather than buying companies, after completing a hostile takeover of Scotland’s Dana Petroleum Plc for 1.8 billion pounds ($2.8 billion) last year. It bought a 50 percent stake in Petro-Tech Peruana SA of Peru, now known as Savia Peru, for $450 million in February 2009 and purchased Canada’s Harvest Energy Trust worth $3.9 billion eight months later.

‘Global Player’

KNOC is involved in 63 production projects, 12 development projects and 135 exploration projects in 23 countries. The company has had an 18 percent success rate in oil exploration in the past five years and aims to increase it to more than 25 percent with the help of the acquired companies, Kim said.

Daily crude output from invested fields totaled 203,000 barrels a day as of August, including 53,000 barrels from Dana and 55,000 barrels from Harvest. The state-run company aims to boost the output to 300,000 barrels by 2012 and to 600,000 barrels by 2019.

“We have also set an aggressive target of becoming a global player by 2019,” Kim said. “We will try to achieve the target by boosting output and efficiency of assets we have invested in, on top of acquisitions.”

--Editors: Amit Prakash, Ryan Woo.

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.


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