Korea National Oil Corporation Moves to Sell Overseas Assets... Will It Also Sell 'Prime North Sea Oil Fields'?

President Kim Dong-seop Recently Visited the UK to Oversee Sale Process
In Effort to Improve Financial Structure After Falling into 'Complete Capital Erosion'

The UK subsidiary of Korea National Oil Corporation, 'Dana Petroleum,' operates the 'Drauter' offshore oil field in the North Sea.
[Photo by Dana Petroleum website capture]

[Asia Economy Sejong=Reporter Lee Jun-hyung] As Korea National Oil Corporation (KNOC) accelerates the asset liquidation of its UK subsidiary 'Dana Petroleum,' attention is also focused on the potential sale of the North Sea Tolmount field, considered a 'prime oil field.' KNOC has stated that restructuring domestic and overseas assets is inevitable as it has been designated a financially distressed institution due to complete capital erosion. However, concerns have been raised that KNOC's overseas asset restructuring, if it leads to the sale of high-quality assets, could exacerbate energy supply chain instability.

According to a compilation of reports on the 4th, KNOC is currently negotiating with a provisional buyer for the sale of Danish and Dutch assets held by its UK subsidiary Dana. Dana is a resource development company acquired by KNOC in 2011 for ?2.21 billion (approximately 3.46 trillion KRW). It is reported that KNOC President Kim Dong-seop personally visited Dana in mid-last month to oversee the sale process.

There is also speculation that KNOC may sell its stake in the North Sea Tolmount project. Initially, KNOC began procedures to sell a 10% stake in Tolmount in early last year. However, considering the high oil price environment, KNOC recently put the Tolmount stake sale on hold. A KNOC official stated, "We understand that the sale of the Tolmount stake has been suspended," adding, "Currently, there are no plans for future sales."

Tolmount is an oil and gas field development project located 50 km off the central coast of the UK in the North Sea, with an estimated resource reserve of 89 million tons. KNOC entered the Tolmount project through its acquisition of Dana. At that time, the Tolmount stake was equally divided between Dana and the UK oil development company Harbor Energy (formerly Premier Oil), each holding 50%.

KNOC also attempted to sell its stake in Tolmount in 2020. At that time, KNOC planned to sell a 25% stake in Tolmount to Harbor Energy. This was due to the rapid increase in debt following a series of large-scale overseas projects during the Lee Myung-bak administration as part of resource diplomacy. KNOC's debt ratio surged from 719% in 2017 to 3415% in 2019, eventually leading to complete capital erosion in 2020. However, Harbor Energy later notified a contract cancellation, causing KNOC's plan to secure approximately $300 million (about 390 billion KRW) through the sale of the Tolmount stake to fall through.

Location map of the North Sea 'Tolmount' offshore block by Korea National Oil Corporation.
[Photo by Korea National Oil Corporation]

Given this situation, there is growing speculation that KNOC may take a bold step by selling prime overseas assets. KNOC's debt increased by more than 1.3 trillion KRW in just one year, from 18.6449 trillion KRW in 2020 to 19.963 trillion KRW last year. This is also why KNOC pursued the sale of its Tolmount stake twice, in 2020 and last year.

The problem lies in supply chain instability. Selling prime resources amid soaring energy prices such as crude oil and natural gas could cause more harm than good. In fact, the trade balance recorded a deficit for three consecutive months for the first time in 14 years since the 2008 financial crisis, due to the surge in energy import costs.