[Exclusive] Korea National Oil Corporation to Proceed with Sale of Harvest, a '5 Trillion Won Empty Shell'

Petroleum Corp. Begins Harvest Sale Process... Negotiations Start This Month
Acquired in 2009 for About 5 Trillion Won... Plans to Complete Sale Within the Year
Turned into a 'Money Pit'... 1.4 Trillion Won Losses in Last 5 Years
Considering Major Overseas Business Restructuring... Concerns Over Low-Price Sale

An oil field of Harvest, a Canadian oil company whose 100% stake was acquired by Korea National Oil Corporation in 2009.
[Photo by Harvest website capture]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Korea National Oil Corporation (KNOC) is finally selling Harvest, a Canadian oil company considered a representative non-performing asset. This decision comes from the judgment that a large-scale restructuring of overseas businesses is inevitable to improve the financial structure, which has fallen into complete capital erosion. After KNOC acquired Harvest in 2009 for about 5 trillion won, it failed to generate proper profits and is now undergoing liquidation procedures, raising concerns about a fire-sale and controversies over the poor acquisition.

According to Asia Economy's comprehensive coverage on the 23rd, KNOC recently started the process of selling Harvest. Last month, KNOC selected a Canadian private resource development company, Company A, as the preferred negotiation partner and began sales negotiations in mid-month. KNOC plans to complete the sale of Harvest within this year. A KNOC official stated, “The goal is to sell (Harvest) as quickly as possible,” adding, “However, since this is a multi-trillion won transaction, the schedule may be delayed during negotiations.”

Harvest was acquired by KNOC in 2009 as part of the Lee Myung-bak administration’s ‘resource diplomacy.’ Earlier, KNOC established a policy in 2008 to ‘expand KNOC’ and aggressively started acquiring overseas oil development companies. The acquisition of 100% of Harvest’s shares for $4.08 billion (about 5.2 trillion won) was part of this strategy. The amount included not only Harvest’s debt but also the acquisition of its refining subsidiary, NARL.

However, Harvest turned into a ‘money pit.’ Since being acquired by KNOC, Harvest has never generated proper profits in 13 years. The losses incurred in the last five years alone amount to about 1.3848 trillion won. Its debt has steadily increased since 2009, reaching 3.4581 trillion won last year.

KNOC also took a direct hit from Harvest’s business failure. KNOC’s debt ratio surged from 719% in 2017 to 3415% in 2019. Eventually, in 2020, it fell into complete capital erosion. KNOC’s debt increased by nearly 3 trillion won in just five years, from 17.1278 trillion won in 2017 to 19.963 trillion won last year.

Ultimately, KNOC put Harvest on the selling table. Without restructuring overseas resources, it is virtually impossible to resolve the debt, which has reached about 20 trillion won. Accordingly, KNOC is also actively considering selling other overseas businesses besides Harvest.

However, there are concerns that Harvest might be sold at a bargain price. KNOC already sold NARL in 2014 for about one-hundredth of the acquisition price. The loss KNOC incurred from this business alone amounts to about 1.5 trillion won.