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The future for Japan and South Korea’s NOCs

Both countries, who are big importers in oil and LNG, push ahead

Japan

Japan’s government does not have a national oil company (NOC) to speak of, but as the world’s third-biggest oil importer and the largest importer of liquefied natural gas (LNG) – and without any significant domestic hydrocarbons resources - it supports a string of Japanese companies.

Since the Fukushima-Dai’ichi nuclear disaster in 2011, which prompted the closure of almost all Japan’s nuclear capacity, these Japanese NOCs have been actively pursuing minor stakes in oil and gas assets, especially in nations with stable financial and regulatory regimes.

Japan was the most aggressive of all the Asian nations in its search for overseas oil supplies in the 1970s. Its adventure began in 1965 but accelerated after the birth of the Japan National Oil Corporation (JNOC) in 1978. It built up a portfolio of 119 projects, but didn’t perform as the government wished. In 2002, the state broke it up.

However, renewed supply fears sparked the assembly of Japan Oil, Gas and Metals National Corporation (JOGMEC) from the remains of JNOC; as well as the beginning of Inpex, which is 18.9% owned by the government, and the continuation of Japan Petroleum Exploration Company Limited (Japex), a national firm founded in 1955.

South Korea

South Korea is reviewing its international investments as poor profitability, particularly from deals made in the past five years, could spark asset sales to offset losses.

The nation is the world’s fifth-largest crude importer and second-biggest importer of LNG. But a statement released by the government in July revealed poor profitability from overseas investments by Korea National Oil Corporation (KNOC) and Korea Gas Corporation (Kogas).

KNOC bought US firm Ankor Energy in 2008, Canada’s Harvest Operations in 2009 and the UK’s Dana Petroleum in 2010.

Meanwhile, Kogas picked up stakes in projects from Australia, to Uzbekistan and Iraq, in the past five years. But the government is expected to rationalise the state-backed firms’ portfolios.

Reuters reported a government source saying that the assets would be put up for sale soon, although they would not be publicly named.

Debt to equity ratios have risen sharply since 2007, which in KNOC’s case soared from 64.4% to 167.5%, while for Kogas they jumped from 228% to 385%.

KNOC, which is 100% government-owned, is believed to have lost $1.8bn in oil-reserve development since 2008.

Ratings agency Moody’s noted that KNOC’s reliance on debt to expand its overseas investments has weakened its financial profile.

Moody’s expects KNOC to cut its debt-funded acquisitions over the next two to three years, as it plans to keep its debt from rising further and instead focus on improving the profitability and productivity of its existing fields.

Further investments over $2bn will pressure KNOC’s credit profile over the next year or two. 

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