Korea’s Overseas Resource Development

Policy
-KNOC’s Growth Strategy

Korea National Oil Corporation

Koo, Cha-Kwon
Head of Global Oil Research
Team
Oil Research & Information
Center
 Table of Contents

Ⅰ. Korea’s Global E&P Policy

1. Global E&P Industry & Korea
2. Korea’s Overseas Resource Development Policy
3. Korea’s Supporting System for Resource Development
- Government Loans & Guarantees
- Overseas Resource Development Fund
- Tax Credits

Ⅱ. KNOC’s Growth Strategy

1. Present Status of KNOC’s Overseas Projects

2. KNOC’s Global Expansion Strategy
3. KNOC’s Vision – Great KNOC 3020!
2010-07-20 2
 Ⅰ
Ⅰ.. Korea ’s Global E&P Policy
Korea’s

2010-07-20 3
I-1. Global E&P Industry
Easy, Cheap Oil → Tough/Expensive Oil

No more decent reserves in ‘Easy-to-Access’ area

- Industry turns to untapped resources (ex. deepwater, frontier, etc,.)
Challenges such as natural production decline in mature fields, number of new
big discoveries reducing

Spiraling E&P Costs!

New E&P Spots : Deepwater, Frontier, Unconventional

Limited Access promotes E&P cost escalation : More than doubled since 2000

Prolonged E&P activities in Frontier areas will underscore rising costs

Resource Nationalism – ‘Above –ground Risk’

Sufficient Oil & Gas Resources underground

However, Reserve Access is limited due to Neo-Resource Nationalism &
Heightening Geopolitical Risk in producing countries

2010-07-20 4
I-1. Korea’s Current Status
<As of December 2009>
Korea’s Current Status
LNG
- The World’s 9th Largest Consumer
13%
y 2,327 thousand b/d(2009*)
- 6th Largest Importer
Coal
- Low Self-Sufficiency ratio
26.0%
y Equity Oil/Total Import : 9%(2009)
Oil
43.0% - Heavily dependent on ME for Oil
Nuclear y Dependency on ME : 86.3%
Hydro Others 13.0% - Needs for Securing Stable Supply of Oil
electric 2.0%
0.3% ) Needs for More Global E&P Investment

Sources : KOSIS “ Energy Statistics 2009 ” * BP ‘Statistical Review of World Energy 2010’

Korea still heavily depends on oil rather than other resources

2010-07-20 5
 I-1. Korea’s Current Status – Global E&P Projects
석유개발사업 현황
184 Businesses involved
38 countries 142
35
2008. 6월말 기준

Sosnogorsk
Chedty 러시아
남그랴죠베쯔 러시아
러시아

미 국 Wabamun
캐나다
FEL2/94,2/05 캡 틴 Karpovsky 캐나다
아일랜드 영 국 노르웨 이 핀란드 러 시 아 Blackgold
카자흐스탄 캐나다
Enchant
3/27a 13/22d 스웨덴 ADA Harley 캐나다
라브닌노예 Vinca
영 국 영 국 L007 카자흐스탄 러시아 바르구진스크 캐나다 Carson Creek
카자흐스탄 러시아
8/25a 덴마크 West Bozoba Sarkramabas 샬바-좔가노이 Tigil 캐나다
Egizkara 러시아
영 국 영국
카자흐스탄 카자흐스탄 카자흐스탄 카자흐스탄 내몽고유전
Border OBED
폴란드 Icha
9/11c 중국 캐나다 FSG-08 Higgins 1
독일 Block 8 Block-36 고 33 캐나다
잠빌 러시아 미 국
영 국 중국 미 국
우크라 이나 카자흐스탄 카자흐스탄 카자흐스탄 Williston Austin
9/2b 서캄차카 미국 미 국 Maddox West Cameron 601
프랑스
블리디미르스카야 아랄해
수르길 미 국
영 국 아랄해 우즈벡 러시아 Wembco 오일샌드 Reeder
Grant&Mathews 미 국
카자흐스탄
흑 해 우즈벡 미국 미 국
포르투 칼
이탈리 아 미 국 미 국 오클라호마 West Cameron 230 East Cameron 281
카스피비나바위
해 우즈베 키스탄 마황산서 미국 미 국 미 국
이사우에네 이남터 키
그리스 투르크 메니스탄 Aiyrshagyl
이라크 중국 사할린Uglegorsk
유타주 오일샌드 Miscellaneous
아제르바이잔 카자흐스탄 러시아 South Clayton Canyon359,OCS-G26246
알제리 지 해 KRG 바지안
이란 미 국 미 국 미국
중 이라크 이라크
아프카 니스탄 중 국 미 국
모로코 자파라나 Diamond P. S. Silk
이집트 Ras Laffan 35&36 A-3 Bellevue Barnett Shale 텍사스 Wharton외
미 국 미국
알제리 카타르 우즈벡 미얀마 15-1 122 미 국 미국
리비아 이집트
사우디
부 카 인도 A-1
베트남 베트남 Emerald S/Muncaster Iberia North
홍 LNG 오만 미 국 미국 ANKOR 해상 Broussard Field
모리타 니 Elephant 해 미얀마 미국
오만 오만 11-2 15-1/05 멕시코 미국 미국
말리 AD-7 Platinum Sour Lake
리비아 베트남 베트남 미 국 Taylor Leases Offshore 오나도 Galveston
니제르 차드
수단 미얀마 육 상 NEM 2 미국 미국 미 국 베네수엘라 미 국
16 태 국 인도네시아 Gold CH 0307 텍사스C aliente
BMC-30
CI-11 베냉
예멘 필리핀 미 국 미국 브라질
나이지 리아 AREA C 해상 NEM 1 미 국
코트디브아르 마리브가스 인도네시아 콜롬비 아 BMC-32
적도기니 캄보디아 Theriot OCS G24880 115
CI-01 예 멘 미 국 브라질
AREA D Krueng Mane 미 국 페루 에콰돌
코트디브아르 70 워캄
적도기니 인도네시아 8 BMC-8
예멘 인도네 시아 인도네시아
방코 56 페루 브라질 브라질
탄자니 아 39
앙골라 인도네시아 페루
Z-46
321 예멘 페루
SES A,B,C,E,H Camisea
4 개발 동티모르/호주 페루
나이지리아 모잠비 크 인도네시아 동티모르 페루
예멘 JPDA 06-102
323 나미비 아 마다가 스카르 폴랭 WA278P Malvalay
4 탐사 호 주 팔마
나이지리아 인도네시아 서 마두라 볼리비아 아르헨티나
Area 4 예멘 PEL103
모잠비크 인도네시아 호 주 호주
LDP 라 브레아
남아프 리카공화 국 Majunga 아르헨티나 아르헨티나
마다가스카르 PEP38451
뉴질랜드 엘 비날라르
아르헨티나

Production
생산사업 (52)
(36) AAB 칠레
아르헨티나
아르헨 티나

개발사업
Develop (16)(15)
RMO
아르헨티나

Exploration
탐사사업 (116)
(88)
2010-07-20 6
I-2. Korea’s Overseas E&P Policy - History

1970~80s : Focusing on Stable Supply of Oil, Start-up of Small Oil & Gas fields
After the Oil Crises in 1970s, resource diplomacy to ME regions for securing Oil
First Overseas E&P Project in 1981 : West Madura in Indonesia

1990s : Low Oil Prices & Asian Financial Crisis, Sharp drop in Overseas E&P Investment
Lack of Investment on E&P Projects → ‘Diversification of Import Source ’
After the IMF crisis, 26 blocks sold, E&P Investment dropped ($800Mil. → $500Mil.)

2000s : High Oil Prices, More Active Investment in Global E&P Projects
Active ‘Resource Diplomacy for Strategic Partnership with Resource Holding Countries’
Paradigm Shift : Aiming for stable supply of oil →Securing More Equity Oils

Overseas
2010-07-20
Resource Development as National Priority Agenda
7
 I-2. Korea’s Overseas E&P Policy – Plans (2009)

Overseas Resource Development Plans

Opportunities Challenges

• Drop in Global Oil & Gas Asset Prices • Credit Crisis negatively affecting Financing
• Government Support • Competition from Asian NOCs

Boosting self-sufficiency considerably

by securing more prospective E&P projects

Preemptive & Active Investment in Overseas Resource Development

Larger Scale & Producing Projects Government’s Financial Support

Strategic ties with resource holding countries Investment on E&P HR & Technology
2010-07-20 8
I-2. Korea’s Overseas E&P Policy – Equity Oils

The National Energy Plans include boosting

Equity Oil Ratios (Equity Oils/Total Import) Significantly.

<Target Self-Sufficiency Oil Ratios>

2009 2011 2013 2016 2030

Equity Oil
9.0 18.0 20.0 30.0 40.0
Ratio(%)

2010-07-20 9
I-2. Korea’s Overseas E&P Policy – Strategy
(1) Expansion of KNOC to be a regional oil major
Expanding KNOC to lead & support Korean E&P industry
- Production Target of 300,000b/d by 2012(currently 133,000b/d)
(2) Strengthening Strategic Ties with Resource Holding Countries
Top Level Resource Diplomacy to Strategic countries
- Package deals along with infras like power plants, etc,.
(3) Financial Support such as Overseas Resource Development Fund
Enhancing Financial Support Mechanism for Overseas E&P
-Government Loans, Guarantees, Establishment of the Fund
(4) Improving Infrastructure for Overseas Resource Development
Strengthening Overseas Resource Development Capabilities
- Improving E&P HR, Technology, Services like Legals & Accountants
2010-07-20 10
I-3. Korea’s Supporting System for Resource Development
• Government Loans and Tax Credits available
• More investment induced on Overseas E&P projects from Pension Funds, etc,.

Loans & Guarantees Tax Credits & Incentives

• Government Loans (SAER) • Exemption of Corporate Tax on

• Loans & Loan Guarantees from
Korea Exim Bank, Korea Export
Insurance Corporation (KEIC)
• Overseas Resource Development
Fund (One trillion won)
dividend from Overseas E&P Business
• Tax Credits for investment on
equipment or facilities for Overseas
E&P Projects
• Exemption of Income Tax on
dividend from Overseas Resource
Development Fund
• Double Taxation Relief

2010-07-20 11
I-3. Korea’s Supporting System for Resource Development

Government Loans
-SAER (Special Account for Energy & Resources)
▪ Loans from SAER
General Loans Special Loans
Projects Exploration· Development· Production Exploration
Amount 60~80% of Project Expenses
Interest Floating Rates (3-yr Government Bonds Interest Rate - 2.25%)
Payback Period Exploration : Max 15yrs, Development· Production: Max 10yrs
Note - If it fails, principal payment exempted
In case of success, special royalty applied

▪ Government Loans for E&P projects

Unit : 100Milllion won
2006 2007 2008 2009 2010*
E&P Projects 2,185 3,576 3,576 2,898 2,409
(Special Loans) (2,185) (3,172) (3,576) (2,898) (2,409)
* : planned
2010-07-20 12
I-3. Korea’s Supporting System for Resource Development

Loans from Korea Ex-Im Bank

- Loans, Loan Guarantees, Bid Bonds, Advance Payment Bonds, etc,.
▪ Loans
Loans
Projects Exploration· Development· Production
Borrower Korean Companies, Local Companies, Foreign Governments & Companies
Amount Maximum of 100% of Project Expenses (70~90% in Exploration)
Payback Period 30 yrs
Note Preferential rates applied

▪ Loans for E&P sector

Unit : 100Milllion won
2008 2009 2010* May 2010
Loans 13,742 9,806 17,000 5,813
Loan Guarantees 3,523 4,267 5,000 3,427
Total 17,264 14,073 22,000 9,240
2010-07-20 13
* : planned
I-3. Korea’s Supporting System for Resource Development

Guarantee from Korean Export Insurance Corporation (KEIC)

-Insurance, Loan Guarantees, Indirect Financial Support
▪ Difference btw Exim Bank & KEIC
Exim Bank KEIC
Financial services Loans, Guarantees Insurance, Guarantees
Difference Direct Financing Indirect Support

▪ Major Cases (KEIC’s role)

Cases Financing KEIC

Financing from int’l
Acquisition of stakes in gas fields in
U$90 Million commercial bank with
Yemen (development projects )
low interest rate
Acquisition of stakes in producing
U$100 Million Loan Guarantee
fields in US
Equity investment on oil fields in Overseas Resource
U$7 Million
Kazakhstan Development Fund
2010-07-20 14
I-3. Korea’s Supporting System for Resource Development

Overseas Resource Development Fund

▪ Objective : To promote private investment on overseas resource
development businesses
▪ MKE (Ministry of Knowledge & Economy) announced a plan to
establish the fund worth 1 trillion Korean won (Feb, 2009)

1st Fund 2nd Fund

Fund Private Equity Fund Private Equity Fund

Established December, 2009 June, 2010(planned)

Amount 515 billion won 165 billion won

Operating Korea Development Bank
TrueFriend Consortium
Company Consortium
Investment planned during Investment planned during
Investment
June~July, 2010 second half of 2010

2010-07-20 15
 Ⅱ. KNOC’s Growth Strategy

2010-07-20 16
II-1. Present Status of KNOC’s Overseas Projects
E&P Project status
(As of Dec 2009)
Overall
KNOC
by Korean Industry
Classification
Number of Number of Number of Number of
Countries Projects Countries Projects

Total 38 184 18 50

Self – Sufficiency Ratio contributed by KNOC

(As of Dec 2009)

Crude+Gas

Secured Recoverable Reserves 881 MMbbls

Self – Sufficiency
128.8 Mbbls
amount per day
4.25%
Self –Sufficiency Ratio
(9%)
2010-07-20 17
 II-1. The Present Status of E&P (KNOC)
As of Dec 2009
Kazakhstan Sumbe
Production : 13
Kazakhstan Zhambyl
Kazakhstan S.Karvovsky Development : 4
UK Captain Kazakhstan Egizkara Exploration : 33
UK North Sea 13/22d Kazakhstan ADA Operation : 22
Canada Black Gold
Uzbekistan Namangan-Chust Co-Operation : 7
Canada Harvest
Uzbekistan Aral Sea Russia Tigil
Russia Icha
China Mahwangsan West
Russia West Kamchatka
Azerbaijan Inam
Iraq KRG Bazian Donghae-1 Gas
Libya Elephant Iraq Qush Tappa Korea Offshore U.S.A. Diamond
Iraq Sangaw South
U.S.A. Emerald U.S.A. ANKOR
Iraq Sangaw North
Iraq Hawler Area Vietnam 15-1 U.S.A. Platinum
Vietnam 11-2 U.S.A. Gold Venezuela Onado
Yemen 70 Indonesia SES Colombia CPE-7
Yemen 16
Indonesia Wokam Colombia CPO-2
Yemen 39
Indonesia NEM Ⅰ Colombia CPO-3
Yemen LNG
Indonesia NEM Ⅱ
Yemen 4 Development Peru 115
Yemen 4 Exploration Peru Petro-Tech
(Z-2B)

Nigeria 323
Peru 8
Nigeria 321
 KNOC Achievements-accumulated

Average Growth Rate of Production & Reserves(recent 5years) : 138%, 124%

128.8
(Mbbl/d)
M&A or Producing Asset Acquisition
(mmbbl) 881 70.0
900 Vietnam 11-2 56.9 60.0
Canada Blackgold 50.0
800 Reserve 50.0
DongHae-1 Gas Field 44.9 43.1
Production 45.0
700 Venezuela Onado
Lybia Elephant 553 524 551 40.0
600
35.0
Vietnam 15-1
500 30.0
Indonesia SES 409
400 25.0

UK Captain 20.0
300
15.0
Peru 8Block
200
10.0
100 Yemen Marib 5.0
2010-07-20
- 19 0.0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
KNOC’s Achievements during 2007(1)
Achievements of KNOC : 9 Exp, 1 Dev.

Total
KNOC KNOC’s
Name of Blocks Oil/gas Resources Resources
Interest
(Oil Equivalent)
Yemen 4 Development 30% Oil 36 mmbbl 11 mmbbl

Yemen 4 Exploration 30% Oil 217 mmbbl 65 mmbbl

Yemen 39 45.125% Oil 494 mmbbl 223 mmbbl

Azerbaijan Inam 8% Oil 750 mmbbl 60 mmbbl

Peru 115 30% Oil 18 mmbbl 5 mmbbl

Gulf of Mexico Diamond 10.5% Gas 156 mmbbl 16.3 mmbbl

Gulf of Mexico Emerald 10.5% Gas 64 mmbbl 6.7 mmbbl

Gulf of Mexico Platinum 10.5% Gas 9 mmbbl 1mmbbl

Gulf of Mexico Gold 10.5% Gas 1 mmbbl 0.1 mmbbl

Iraq Bazian 38% Oil 513 mmbbl 195 mmbbl

2010-07-20 Total 2,245 mmbbl 583 mmbbl

20
KNOC’s Achievements during 2008(2)
Achievements of KNOC : 9 Exp, 2 producing.

Total
KNOC Resources KNOC’s
Name of Blocks Oil/gas Resources
Interest (Oil
Equivalent)
US Taylor Producing 80% Oil 61 mmbbl 48.8 mmbbl

Kazahgstan Zhambyl 9.45% Oil 1,600 mmbbl 151.2 mmbbl

Iraq KRG Qush Tappa 80% Oil 1,008 mmbbl 806 mmbbl

Iraq KRG Sangaw South 60% Oil 320 mmbbl 192 mmbbl

Iraq KRG Sangaw North 20% Oil 786 mmbbl 157 mmbbl

Iraq KRG Khabat 15% Oil 1,094 mmbbl 164 mmbbl

Iraq KRG Dimir Dagh 15% Oil 630 mmbbl 95 mmbbl

Iraq KRG ZAB 15% Oil 1,496 mmbbl 224 mmbbl

Iraq KRG Hawler 15% Oil 617 mmbbl 93 mmbbl

Iraq Bazian 20% Oil 1,272 mmbbl 254 mmbbl

Columbia exploration 30% Oil 333 mmbbl 100 mmbbl

2010-07-20
Total 9,454 mmbbl 21
2,285 mmbbl
KNOC’s Achievements during 2009(3)
Achievements of KNOC : 2 Exp, 3 producing.

Total
KNOC Resources KNOC’s
Name of Blocks Oil/gas Resources
Interest (Oil
Equivalent)
Colombia CPO 2 30% Oil 23 mmbbl 6.9 mmbbl

Colombia CPO 3 30% Oil 22 mmbbl 6.6 mmbbl

Peru Petro-Tech(M&A) 50% Oil/Gas 150.2 mmbbl 75.1 mmbbl

Canada Harvest(M&A) 100% Oil/Unc. 219.9 mmbbl 219.9 mmbbl

Kazakhstan Sumbe(M&A) 100% Oil 77.6 mmbbl 77.6 mmbbl

Total 492.7 mmbbl 386.1 mmbbl

2010-07-20 22
 KNOC’s Main Achievements

Acquired large promising blocks through Resource Diplomacy

Iraq Kurdistan Blocks

Aral Sea Block Uzebekistan : 8 Tcf(Gas) Khazagh Zhambyl : 1,657 MMbbl

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 II-2. KNOC’s Global Expansion Strategy
¾ Expansion in reserves
Continuous Participation in
Exploration Activities
- Expanding exploration operations
in Strategic Areas
-Discovering new resources and
reserves by increasing exploration
success
- Ensuring medium and long-term
growth potential
2010-07-20
M&A or Producing Asset
Acquisition
-Enhancing short-term cash flows and
achieving reserves goals in a short
period
-Moving onto a Regional Oil Major to
successfully cope with Neo-resource
nationalism
24
 KNOC’s Investment on E&P Activities (As of ’09.
06)
Overseas E&P Activities
<$ Million>
Korea Total KNOC
Category
Investment Recovery Investment Recovery
Total 13,795 7,165(52%) 6,548 4,414(67%)

Domestic E&P Activities

<$ Million>

Korea Total Donghae-1

Category
Investment Recovery Investment Recovery
Total 1,097 710(65%) 612 710(116%)

2010-07-20 25
II-2. KNOC’s Global Expansion Strategy
- Pursuing M&A and Producing Asset acquisition
The most viable strategic implementation for KNOC’s reserves
goal achievement

¾ Ensuring 2 billion BOE of Reserves by 2012

Fruitful achievements ensued : 3 M&A successes in 2009 only

¾ 1st and largest upstream M&A cases in Korea

ƒ Petro-Tech : 1st M&A success

ƒ Harvest Energy Trust : Largest M&A deal
ƒ Sumbe JSC: Expected to be Kazakhstan-based regional base-
camp

2010-07-20 26
 Success Case # 1 – Peru Petro-Tech

< General Information>

- Closure : February 5 2009

- Interest(%) : KNOC 50%
Ecopetrol 50%
- Asset : Production Block 1
Exploration Block 10
- Reserves(2p) : 200 MMBOE
- Prospective Resources : 689 MMBOE
- Production : 13M BOPD

<Future Plan>
Production
- Production Increase: 45M BOPD by Exploration

2015

2010-07-20 27
 Success Case # 2 - Canada Harvest Energy Trust
< General Information>
- December 22 2009
- Interest(%) : KNOC 100%
- Asset
▶vast and numerous conventional and
nonconventional hydro-carbon properties
across British Columbia, Alberta and
Saskastchewan
▶ Newfoundland oil refinery assets
- Reserves(2p) : 220 MMBOE
- Production : 53 M BOPD
- Refinery : 115 M BOPD
2010-07-20
<Overall M&A Synergy Expected>
- Drastic Increase in Reserves and
Production
▶600 MMBOE 820 MMBOE in reserves
▶72 BOPD 125M BOPE in production
- Enhancement in E&P competences
through the acquisition of advanced E&P
expertise and techniques of North America
- Synergy in developing oil sand and other
nonconventional resources
28
Success Case # 2 - Canada Harvest Energy Map

2010-07-20 29
 II-2. KNOC’s Global Expansion Strategy
- Co-investment through consortium
Consortium with KNOC leading & supporting other companies
Risk Management by pooling limited financial resources
Increase synergy effects through participating companies’ technique
and local expertise

▶ Networking among Government, State-owned companies & Private Energy companies

(EMRD, Energy & Mineral Resources Development Association of Korea
Established in Feb ’06)
▶ Share Current information of E&P industries
▶ Expand investment on E&P sector by finding out opportunities of participating
new Projects and Acquisitions

2010-07-20 30
II-2. KNOC’s Global Expansion Strategy
- Expanding Strategic Areas

N.E
Asia

Caspian
Sea

America
M. E
Africa Asia
S.E
Asia

2010-07-20 31
 II-3. KNOC’s Vision

Growing up of KNOC
KNOC’s role has evolved from oil stockpile to a major • Established
player in upstream in and outside the country 2012 World Class
TODAY National Oil
• Achieve the Company
1999 GREAT KNOC
2010
3020
1989 • The concept • Industry
for stockpile • 300 thousands
1979 Opportunities
• Discovered changed barrels of the
and National
natural gas in from “Static" daily Production
Interests
domestic to “Dynamic". Support • 2 Billion barrels
• KNOC
continental shelf Case for a of the Oil & Gas
founded • invested in
• Participated in twenty E&P new KNOC in Reserves
• to secure oil overseas E&P ventures in Mission
supplies for • Proved and
ventures domestic Experienced
the nation and public energy
overseas enterprise

E&P Ventures Growth Strategy

Stockpiling Acquisition focused on Upstream32
2010-07-20
 II-3. KNOC’s Vision (2008~2012)
Establishment of A competitive Regional Oil Major by 2012

Reserves Asset
(100Million barrel) (Trillion Won

19 30
X

X
4

3
5 9.4

World Regional Oil Major Production

Ranking ( Ten Thousand B/D)

Technical
60 Experts
30

X
38

6
(Hundred Personnels)
98 5

25
X
5

2010-07-20 33
5
II-3. KNOC’s Vision (Long-Term Goal)

World-class
National
Oil
Company

2010-07-20 34
 Thank you very much

감사합니다
2010-07-20 35