x Abu Dhabi, UAESunday 23 July 2017

South Korea oil deal makes Abu Dhabi history

It might have been just three red polygons on a map of Abu Dhabi but to Young-Won Kang, the chief executive of Knoc, they represented a rare prize: exploration blocks for oil.

Young-Won Kang, the chief executive of Korea National Oil Corporation (Knoc). Fatima Al Marzooqi/ The National
Young-Won Kang, the chief executive of Korea National Oil Corporation (Knoc). Fatima Al Marzooqi/ The National

It might have been just three red polygons on a map of Abu Dhabi but to Young-Won Kang, the chief executive of Korea National Oil Corporation (Knoc), they represented a rare prize.

The odd-looking shapes, which together make up about a tenth of the emirate's land mass, depict exploration blocks for oil.

Joining Mr Kang at Abu Dhabi's InterContinental hotel yesterday was a top presidential adviser, a cabinet minister and a fleet of journalists who had flown all the way from Seoul to witness the historic deal.

Asked about the challenges Knoc might face in drilling in its three newly won blocks, Mr Kang quipped: "Well, maybe the sandstorms."

With Korean the exclusive language and hardly a westerner in sight, the scene at the InterContinental was a telling picture of the oil industry in Abu Dhabi today as the emirate chooses its foreign partners and East Asia eclipses the West in energy demand and economic growth.

It was another story in 1939, when a consortium of western oil prospectors struck the emirate's first oil deal.

"It was a very different sort of balance of powers," said Samuel Ciszuk, an oil consultant at KBC Energy Economics in London.

"It was the supermajors and the host governments calling the shots.

"Today Abu Dhabi is calling the shots. They're choosing whoever they want to, and when the big concessions come up for renewal or renegotiation, it will be based on their definition of what they want."

The oil exploration agreement the emirate signed with South Korea yesterday sets the stage for future negotiations over prize fields in Opec's fourth-largest oil producer.

The biggest concession - a constellation of onshore fields accounting for half the emirate's production now held by ExxonMobil, Shell, BP, Total and Portugal's Partex - remains the ultimate reward.

That deal is due to expire in two years and oil executives are watching to see if Abu Dhabi chooses to renew it as is, split up the fields among competitors or even auction it off. "Everybody is looking for signs of what will happen in 2014," said Christopher Gunson, an oil and gas lawyer at the American group Pillsbury Winthrop in Abu Dhabi.

Western majors, which were the first to prospect in the region, are hoping to hold their ground amid competition from relative newcomers such as the Asian national oil companies and smaller western companies like Wintershall, Statoil and Occidental.

In recent years Abu Dhabi has forged many new economic ties with East Asian nations.

This year Adnoc and a Chinese counterpart signed an agreement to collaborate on upstream oil projects. Last year, Japan renewed an offshore concession and the rights to an extra field.

And South Korea emerged as a contender for the prized onshore concession after signing a memorandum of understanding with Abu Dhabi, also last year, granting it the right to participate in ventures with reserves of 1 billion barrels or more starting in 2014.

"The majors have the technical know-how, but they tend to negotiate tougher deals on the economic fronts," said Mr Gunson.

"Non-majors tend to not have the technologically cutting-edge but they may have support from governments that allows them to be more aggressive on the terms."

Mr Kang was optimistic on the prospects for the blocks Knoc would develop alongside GS Energy, a company based in Seoul, and Adnoc.

Among the 11,560 square kilometres the joint venture would develop is the emirate's geographically biggest undeveloped field, Tafula, and sites just north of Zakum, one of the world's biggest offshore fields.

"There must be a lot of off-site potential," Mr Kang said, before being whisked by staff to his next appointment.

ayee@thenational.ae

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