[Exclusive] Gas Corporation Lost 45% of Investment Amount in Overseas Projects

Among the 10 overseas resource development projects in which Korea Gas Corporation (KOGAS) has equity investments, it was found that four projects have a cumulative recovery amount of zero. Last year, KOGAS recorded its worst performance with over 8 trillion won in outstanding receivables, and concerns are rising as the recovery rate from overseas investments falls short of half, increasing management burdens.

According to data obtained by Asia Economy on the 10th through the office of Lee Ju-hwan, a member of the People Power Party, out of a total of 31 overseas resource development projects in which KOGAS held equity as of last year, 14 projects have not recovered a single cent of their investments. This accounts for 45.1% of all projects. The cumulative investment amount executed by KOGAS in these 31 projects reached $12.592 billion, equivalent to 16.62 trillion won. Of this, the total amount recovered through the projects was $5.292 billion (6.98 trillion won), resulting in an overall recovery rate of less than half (42.0%).

During the same period, the total loss from KOGAS’s overseas investments amounted to $3.715 billion, or 4.9 trillion won, representing a 29.5% loss relative to the total investment amount as of last year. Most of these projects have either been terminated or failed to reach production due to insufficient commercial viability during the exploration and development stages. For example, eight projects that have already been terminated, including Myanmar AD-7 and Iraq Mansuriya, involved a total investment of $434 million (573.5 billion won), all of which were lost. A representative failure case is the Canada West Cutbank project, in which KOGAS holds a 50% stake. From 2010 to 2018, KOGAS invested $261 million (approximately 345.1 billion won) over nine years in this project, but as economic recovery became uncertain, it failed to recover any of the investment.

Some projects with poor commercial viability at the exploration stage face even uncertain prospects for sale. In the case of the Krung Mane project located offshore northwest Indonesia, KOGAS attempted to sell its entire 15% stake to a foreign resource development company last year, but the deal fell through due to lack of approval from the Indonesian government. Currently, KOGAS is awaiting approval from the Indonesian government, but experts believe the possibility of recovering the full investment is virtually slim, as the estimated natural gas reserves differ significantly from initial expectations. Some opinions suggest that the current value of KOGAS’s stake in Indonesia’s Krung Mane project is only about 500 million won.

The decline in high-recovery profitable projects is also a problem. The Qatar (RasGas) project, which began in 1999, is a representative overseas project of KOGAS, having earned a total of $1.379 billion (about 1.8244 trillion won) by last year from an investment of $17 million. This is the largest amount earned from a single overseas project by KOGAS up to last year. The Oman (OLNG) project, which started in 1996, also recorded a cumulative recovery rate of 8110%, having recovered a total of $305 million (about 403.5 billion won) from an investment of $2 million by last year. These two projects account for 31.8% of the total earnings from all overseas projects.

However, the end dates for these two projects are only about five years away. Oman is set to end in 2024, and Qatar in 2029, raising concerns that KOGAS’s investment recovery amount will significantly decrease when these profitable projects conclude. This is due to the relatively weakened commercial viability caused by aggressive expansion around 2010 and poor economic evaluations. In fact, excluding Oman and Qatar, only three projects had a cumulative recovery rate exceeding 100% as of last year: Myanmar A1/A3 (161%), Iraq Zubair (108%), and Mozambique Maputo (118%). The Uzbekistan Surgil project, in which KOGAS invested $310 million (409.3 billion won) in 2008, had a recovery rate of 14%, and the Iraq Badra project, with an investment of $895 million (1.1752 trillion won), had a recovery rate of only 65%.

Experts analyzed that the overseas business portfolio should shift its focus from high-risk early exploration projects to less burdensome development projects. Kang Cheon-gu, an invited professor at Inha University’s Department of Energy Resources Engineering, advised, "Unlike minerals, exploration projects for oil and gas have a success rate below 10%, making the risk quite significant. It is necessary to pivot from the high-risk early exploration projects to development projects, which, although more costly, carry less risk, to reorganize commercial viability."