SK to look for oil with CNOOCSK Innovation, the energy business affiliate of SK Group, announced Wednesday that it has signed a deal with China National Offshore Oil Corporation (CNOOC) to search for oil and gas in the South China Sea, which will make it the first Korean company to extract in the region.
The holding company of Korea’s No. 1 refiner SK Energy said that Kim Ki-tae, president of SK Innovation’s E&P (exploration and production) business, inked two production-sharing contracts on Tuesday with CNOOC for two blocks in the Pearl River Mouth Basin in the South China Sea.
According to the company, Block 04/20 covers a total area of 5,138 square kilometers (1.26 million acres), while Block 17/03 covers a total area of 7,686 square kilometers. In both blocks, the water is between 50 and 100 meters (165 to 330 feet) deep.
Under the contract, SK will operate the two blocks and will cover 80 percent of exploration costs. In the development phase, CNOOC will have the right to as much as 60 percent of the working interest in any commercial discoveries in the blocks. Industry insiders said that this is a common condition between a government and a firm working together in resource development. Under Chinese law, a local firm must own a more than 50 percent stake in a business that is operating in the country.
The size of the investment, contract period and production schedule were not released.
SK said that it has been monitoring the blocks for a long time because the location, about 200 kilometers (124 miles) east of Hong Kong, means they are free from political conflicts. The company said that its chairman, Chey Tae-won, played big role in securing the deal.
“Chey has developed a relationship with executives from CNOOC, and this is why we got a good deal to develop the oil and gas field in the South China Sea,” an official from SK Innovation said. “We will conduct 2-D seismic surveys and drill exploration wells because we expect that the oil fields in this area will bring more benefit than any other project.”
The company said that it will establish a branch in Shenzhen, China, to work on the project. CNOOC will dispatch some of its technical engineers to the branch.
Although SK saw big losses in 2014 due to a slump in its refining business, its E&P business was the top performer and helped reduce the group’s operating loss. SK’s E&P business last year had an operating profit of 428.6 billion won ($386 million).
SK Innovation conducts oil exploration and development in 24 blocks in 16 nations.
BY JOO KYUNG-DON, LEE SOO-KI [firstname.lastname@example.org]