The Korea National Oil Corporation is seeking to acquire a foreign oil company that can produce 200,000 barrels of crude oil per day. The state-run oil company is reviewing 7 to 8 companies and is said to be aiming to pay less than W10 trillion (US$1=W1,313) for the acquisition.

At present, KNOC produces around 50,000 barrels of crude per day as part of joint development projects overseas. If KNOC succeeds in acquiring a foreign oil company, its crude production capacity will increase five-fold.

In order to come up with the money, KNOC is rumoured to receive investment from domestic petrochemical companies, the National Pension Service and foreign investors. KNOC is also supposedly considering turning to spot exchange, where it would receive crude oil or stakes in overseas oil fields in return for providing production facilities, such as drilling ships and floating production storage and offloading (FPSO) facilities. This will limit the need to borrow foreign currency or tap into Korea’s foreign exchange reserves in order to come up with acquisition funds.

Global crude oil prices, which soared to US$145 a barrel in July of last year, have fallen to the $40 level, due to the global economic slowdown. Prices of promising oil fields overseas have also gone down a lot. For example, the market capitalization of one oil company in Canada tumbled recently to US$7.9 billion from $22.3 billion early last year. The situation is the same for natural gas, coal and iron ore. Prices of key natural resources and the share prices of related companies have fallen by a third or a quarter compared to the height of their market values. This is a terrific opportunity to take part in energy development projects overseas at low costs.

Korea’s status as the world’s largest shipbuilder could be a useful weapon in investing in overseas energy projects. The Brazilian government is said to have contacted the Korean government recently over a request to build 40 drilling ships. If we utilize this type of spot exchange, we can acquire stakes in oil fields in South America and other regions without depleting our foreign exchange reserves.

Taking advantage of the fall in global oil prices, the United States, China and Japan have begun aggressively seeking to expand their strategic oil reserves and acquire foreign oil fields. There are even rumors that China, armed with foreign exchange reserves of $2 trillion, has secured an inventory of more than one billion barrels of oil, including those owned by private petrochemical firms and oil distributors.

From 1997, shortly after the outbreak of the Asian financial crisis, until 2002, Korea sold stakes in 26 oil fields abroad that were owned by state-run companies and major business conglomerates. While pursuing restructuring measures, we ended up throwing away our strength to develop foreign oil fields. This is the time to make up for that painful mistake.