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KNOC buys into Texas shale play

South Korean firm pays $1.5bn for oil-rich shale asset

ANOTHER Asian company has grabbed acreage in a US shale field. Korea National Oil (KNOC) has entered a joint venture with Anadarko that will give the state-run entity a 24% interest in assets in the Maverick basin of South Texas.

KNOC will receive about 80,000 net acres in the Eagle Ford Shale that produce 75% oil as well as 16,000 acres in the Pearsall Shale, a dry-gas play. KNOC also has the option to acquire a 25% working interest in associated gathering systems and facilities.

Anadarko chief executive James Hackett earlier said his company was evaluating joint-venture structures for the Eagle Ford that are similar to the $1.4bn arrangement it had made early last year with Japan’s Mitsui in the Marcellus. Like the Mitsui deal, the KNOC acquisition requires no cash outlay at closing. Instead, the South Korean’s agreed to pick up the tab for all of Anadarko’s capital costs in the play for one year. Then it would cover 90% of those costs until the total investment reached $1.5bn, or about two years.

The deal would help finance Anadarko’s expansion in the liquids-rich Eagle Ford, where it is already the largest producer. The US independent has identified more than 2,000 well sites and plans to boost the number of rigs it operates in the region to 10 during second-quarter 2011, up from two a year earlier.

South Korea, the 10th-largest energy consumer in the world, has no known domestic energy resources. It is the world’s fifth-largest crude-oil importer and second-largest importer of liquefied natural gas. The country also has some of the world’s largest and most advanced oil refineries, with a combined capacity of more than 2m barrels a day (b/d), and KNOC is pursuing upstream opportunities overseas to provide secure sources of feedstock for those facilities.

Before the Anadarko deal, the company had a production capacity of 200,000 barrels a day (b/d) from its foreign oil and gas assets, and it plans to invest $2bn-3bn to boost that capacity by 100,000 b/d by year-end 2012; it hopes to have a producing capacity of 1m b/d by 2030.

KNOC joins the growing list of Asian oil firms, including India’s Reliance Industries, China’s CNOOC and Mitsui, that have been buying into US shale plays. Although the arrangement with Anadarko represents KNOC’s first foray into unconventional oil, it’s not the company’s first entry into the US energy sector.

In early 2008, it announced plans for a joint venture with another South Korean company, Samsung, to acquire five producing fields on the Gulf of Mexico shelf from Taylor Energy, then one of the largest privately owned operators in the offshore basin. KNOC, which received an 80% stake, serves as operator. Before this acquisition, valued at about $1bn, it had only a small interest in a few prospects being developed by other offshore operators.

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