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Korean oil firm gears up for oilsands partnership
Calgary Herald
Ashok Dutta
May-16-2007
The Korea National Oil Corp. has completed a 23-square-kilometre 3-D seismic survey, drilled 18 core wells and tested two water holes at its BlackGold Athabasca oilsands concession, a top company official said in Calgary on Tuesday.
"The next stage will be data interpretation and analysis and seeking approval from the regulatory authorities for further project development," said Doo-Yul Hwang, KNOC's president and chairman of the board of directors of the South Korean state-owned upstream operator.
Starting off with 10,000 barrels a per day by 2010, KNOC aims to ramp up production capacity to 30,000 bpd thereafter.
The drilling of new wells has also raised hopes of a 20 per cent increase in the bitumen resources to 300 million barrels.
"Evaluation of drilling data is ongoing and that (the increase) is our expectation," said Jin Hyun Song, chief representative of KNOC Canada.
In July 2006, KNOC bought out the BlackGold concession from Newmont Mining Corp. for $270 million.
At present, KNOC is the operator and has 100 per cent interest in the acreage, which is located adjacent to EnCana Corp.'s Christina Lake project. "Our initial interest was to participate as an investor rather than an operator, but that did not work out. We paid a heavy price when we acquired the lease," Hwang said.
KNOC's lack of an innovative technology for developing the oilsands resources and its inexperience in handling sufficient volumes of heavy oil came in the way of it offering a competitive price.
"We did not feel confident in the early stages, but our long-term plan is to save on costs and develop innovative technology. In 10 years, we will have the expertise to handle oilsands projects," he added.
In the short term, Hwang said KNOC would "seek help" of Canadian or international companies to offset rising costs of manpower and materials, besides learning the ropes of oilsands projects.
"We would like to enter into a win-win relationship," Hwang said, clarifying that KNOC would not relinquish operatorship of BlackGold. He hinted the partnership would help in mitigating development costs and spreading risk.
Conor Bint, an analyst with Edinburgh-based Wood Mackenzie said tackling the availability of workers and resources will be major challenges.
"You will need anything up to 5,000 people on-site and added to it will be the availability and cost of natural gas for the SAGD (steam-assisted gravity drainage) projects," Bint said.
Despite the existing conditions, Hwang said investment in the Canadian oilsands is of strategic importance to KNOC and the BlackGold project is the first step in that direction.
"They (Asian states) are looking for a long-term alternative and will do their bit to gain a foothold in the oilsands patch," Bint said.
Hwang indicated it was primarily the urgency to secure energy supplies -- in the post-1970 oil crisis period -- that drove KNOC to look globally.
"At 2.149 million bpd, we are the world's fifth largest consumer of oil and the second largest of gas at 24 million tonnes per year of LNG (liquefied natural gas). Domestic output is insufficient and covers only four per cent of our total consumption," he said.
With a domestic economy that is growing at a healthy annual rate of about five per cent, those demands will only increase.
"Our asset in Canada is part of a global strategy to secure 380,000 bpd of oil by 2013. The BlackGold project may be small, but something is better than nothing," Hwang said.
He said output from Athabasca will be sold to buyers in the U.S. using pipelines serving the Edmonton hub.
"If the dual Fort McMurray-to-Kitimat (in B.C.) loop pipeline that Enbridge plans to build gets completed, that will help Asian states," Bint said.
Masayuki Yokoyama, deputy general manager at the Washington office of Japan Oil, Gas and Metals Corp. said an export outlet on the western Canadian coast will add a new dimension to oilsands producers.
"If that happens (the Enbridge pipeline), three large markets (Japan, China and Korea) will be opened up for Alberta," he said.