South Korea has signed its first oil deals with Abu Dhabi, taking a stake in a concession with reserves of at least 1 billion barrels to strengthen ties between the emirate and one of its closest economic allies.
Lee Myung-bak, the president of South Korea, said the state-owned Korea National Oil Corporation (Knoc) had signed an "unprecedented" memorandum of understanding yesterday on oilfield development following summit talks in Abu Dhabi.
Knoc would take a stake in an oil concession with reserves of at least 1 billion barrels, he said.
The deal, if finalised next year as Mr Lee expects, would be the largest ever for South Korea, which lacks domestic crude production.
"South Korea has become able to participate in large oil production projects worth over at least 1 billion barrels by the size of oil reserves that can be exploited," the president said during a visit to the UAE capital.
Mr Lee said Knoc had signed a separate deal to participate in developing three untapped Abu Dhabi oilfields with an estimated 200 million barrels of combined reserves.
Both deals were signed by the heads of Knoc and Abu Dhabi National Oil Company (Adnoc).
Sheikh Khalifa, President of the UAE and Ruler of Abu Dhabi, Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, and Mr Lee were in attendance.
The South Korean president did not identify the oilfields covered by the agreements and did not say whether they were located onshore or in the Gulf. Details of the proposed contracts, including the exact concession sites and the amount of royalty payments, had yet to be negotiated, Mr Lee said.
Yesterday's agreements, however, marked South Korea's entry into a "dream area" for oil production that until now had been the preserve of large oil companies based in the US, the UK, France and Japan.
The UAE has recently pumped about 2.3 million barrels per day of crude from 98 billion barrels of proved reserves. Most of those exports go to Asian-Pacific markets, with South Korea currently ranked as the UAE's second-biggest oil customer after Japan.
By giving South Korea direct access to large foreign crude reserves, the agreements would boost the country's "self-sufficiency ratio" for oil and gas to 15 per cent from 10.9 per cent, Mr Lee predicted. The figure measures the amount of oil and gas developed by Korean companies relative to the country's demands.
Knoc was expected to form a consortium with other Korean companies to pursue the oil projects in Abu Dhabi under 30-year contracts, a South Korean official said.
Adnoc officials could not be reached yesterday for comment.
The UAE has taken active steps in recent years to strengthen political and business relations with South Korea and Japan, especially in the field of energy.
Yesterday, the UAE-Korea Business Council held an inaugural meeting in Abu Dhabi to foster commercial ties that would boost economic growth.
In 2009, the UAE awarded a US$20 billion (Dh73.46bn) contract for the nation's first nuclear plants to a South Korean consortium. Adnoc, meanwhile, has recently awarded contracts for oil and gas infrastructure development to Korean companies.
Abu Dhabi's International Petroleum Investment Company, however, last year agreed to sell a $2.2bn stake in an oil refinery in South Korea after losing a legal battle with Hyundai Heavy Industries.
This year, Adnoc awarded a new oil concession to a Japanese group. Until yesterday, Japan was the only Asian country represented in the joint ventures that exploit Abu Dhabi's oil and gas reserves.
Adnoc also signed a strategic deal with South Korea yesterday to store up to 6 million barrels of Abu Dhabi crude in the Asian country's storage facilities free of charge. It has a similar deal with Japan.