South Korea, the world's fifth-largest crude oil importer, said on Sunday that it had secured access to at least a billion barrels of crude oil reserves in an unprecedented oil deal with Abu Dhabi National Oil Company.
Under the memorandum of understanding, Korea National Oil Corp will be guaranteed stakes in technically recoverable reserves of at least 1 billion barrels of oil worth 110 trillion won ($97.68 billion) based upon current oil prices, the South Korean presidential office said in a statement.
South Korea is competing with China and India to secure energy and minerals reserves at a time when oil prices are surging.
KNOC itself, which has a substantial war chest to spend on cutting Asia's fourth-largest economy's almost total dependence on imported oil, recently spent $2.6 billion to buy Dana Petroleum, an oil exploration and production company.
"The partnership for 100 years, which started between the two countries thanks to the nuclear deal, has been strengthened more by today's deal," President Lee Myung-bak said in the statement. Ties between South Korea and the UAE have boomed after the Gulf Arab state in December 2009 awarded a South Korean consortium the contract to build four nuclear power plants worth $20.4 billion.
The deal between KNOC and ADNOC is part of a renegotiation of a series of concessions that start to expire in 2014.
Norway's Statoil, Denmark's Maersk Oil, part of AP Moeller Maersk A/S, Austria's OMV, London-listed oil and gas services firm Petrofac along with KNOC had been named as contenders for the concessions issued by the United Arab Emirates.
While the main partners of ADNOC in the UAE's four largest concessions are US ExxonMobil, Royal Dutch Shell, BP, France's Total and the Japan Oil Development Co., analysts said they must be more competitive if they want to renew the contracts and win more after they begin expiring.
Abu Dhabi-based sources told Reuters on Saturday that South Korea was likely to secure a major oil field development contract in the UAE, and the contract might be signed as soon as Sunday to coincide with President Lee's visit.
Seoul aims to finalise the deal next year. It will raise the share of South Korean-owned oil imports to 15 percent of consumption from 10 percent in 2010, the statement said.
"By the end of next year, I think we can achieve 20 percent of oil self-sufficiency rate," President Lee said in a live broadcast from Abu Dhabi.
The UAE is the world's third-largest crude oil exporter and South Korea's second-largest supplier after Saudi Arabia.
Separately, KNOC signed a contract with ADNOC which will allow it to develop three onshore and offshore oil drilling areas in Abu Dhabi with a combined of 570 million barrels of discovered petroleum initially in place, it said.
For these development projects, South Korea is considering project financing through KNOC itself, or forming a consortium with private firms, the statement said, adding it would have no problems in financing.
Under the heads of terms, South Korea up to 100 percent of the fields and has the right to import 100 percent of oil to be produced in the fields in emergency, the statement added.
The Korean government expects to sign its final contract within this year to produce oil from 2013 at the earliest with the expectation of a maximum of 35,000 barrels per day in the near future.
South Korea and Abu Dhabi also agreed to store 6 million barrels of Abu Dhabi crude oil in South Korea's storage facilities for free and in emergency South Korea will be allowed to use it, it said, adding South Korea would save about 700 billion won in buying oil, Abu Dhabi save the storage costs.
In addition, South Korea secured a purchasing right for up to 300,000 barrels per day over Abu Dhabi's crude production increase in the future, it added.
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