The South Korean government will force the Korea National Oil Corporation (KNOC) and Korea Resources Corporation (KORES) to conduct a combined 2.5 trillion won (US$2.17) worth restructuring this year.
The South Korean government will force state-run energy resource development companies to begin restructuring with an aim to achieve an operating profit this year. The companies will carry out restructuring worth 2.5 trillion won (US$2.17 billion), including an additional sale of non-core assets, by the end of this year.
The Ministry of Trade, Industry and Energy (MOTIE) held the third resource development restructuring review committee on March 7 and decided to expand the scope of restructuring, like the reduction of assets of the Korea National Oil Corporation (KNOC) and Korea Resources Corporation (KORES).
The two state-run firms will increase the size of restructuring from 1.7 trillion won (US$1.48 billion) last year to 2.5 trillion won (US$2.17 billion) – 1.7 trillion won (US$1.48 billion) for the KNOC and 800 billion won (US$695.95 million) for the KORES – this year. The KNOC and KORES completed restructuring works amounting to 1.7 trillion won (US$1.48 billion) last year, which was more than the 1.1 trillion won (US$956.94 million) planned originally.
The KNOC will reduce the total number of production assets of 147 by more than 20 percent by selling its assets. It will also sell its non-core business assets, including the nation’s only drillship “Doosung.”
The KNOC carried out 1.5 trillion won (US$1.3 billion) worth of restructuring last year, which exceeded the initial target of 1 trillion won (US$869.94 million). The company reduced the investment cost by 920 billion won (US$800.35 million) with a minimum investment such as investment postponement and cost cuts. It sold a total of 132.8 billion won (US$115.53 million) of non-core assets – partial assets of Canadian oil company, Harvest Operations Corp., which caused hundreds of billions of won of losses, for 66.5 billion won (US$57.85 million) and U.K. oil exploration company, Dana Petroleum Limited, for 63.8 billion won (US$55.5 million). The KNOC also attracted 452.6 billion won (US$393.74 million) from the Eagle Ford Shale oil play in the U.S.
Oil prices have continuously dropped but the company’s business indicators have rather improved. The KNOC decreased its operating losses by 200 billion won (US$173.99 million) from 445.1 billion won (US$387.21 million) in 2015 to 240.8 billion won (US$209.48 million) in 2016. The company posted an operating surplus of 41.2 billion won (US$35.84 million) in the fourth quarter last year for the first time in two years. In 2016, it continuously posted operating losses of 145 billion won (US$126.14 million) in the first quarter, 69.5 billion won (US$60.46 million) in the second quarter and 67.5 billion won (US$58.72 million) in the third quarter. The KNOC also reduced its net loss by 3.4 trillion won (US$2.96 billion) to 1.12 trillion won (US$973.29 million) last year, while it decreased its production cost from US$17 (19,542 won) per barrel to US$13.60 (15,633 won).
The KORES is selling non-profitable assets and renting out its office building space to the outside as part of its own efforts. The company also plans to increase its profits through a new mineral reserves rental program for private companies. Previously, the KORES had stocked up 60 days’ supply of 10 kinds of rare metals based on domestic demands for 10 years until last year with the goal of stable supply and demand of domestic mineral products.