Korea National Oil Corporation (KNOC) acquired Canadian oil and natural gas producer Harvest and has invested a total of more than 8 trillion won to date, but the money recovered so far amounts to 50.5 billion won, less than 1% of the investment, according to findings. KNOC has been in a capital impairment state since 2020 as liability and interest burdens have increased.
On the 1st, data obtained by Democratic Party of Korea lawmaker Gwon Hyang-yeop from KNOC showed that from 2009 through June this year, total investment in Harvest was $6,295 million (about 882.9367 billion won), and recoveries totaled $36 million (about 50.4936 billion won). The recovery rate is 0.57%.
Harvest is a Canadian energy corporations that holds oil and natural gas production blocks. KNOC acquired Harvest in Dec. 2009 for 4.07 billion Canadian dollars (about 4 trillion won at the time). KNOC spent 1.8 billion Canadian dollars (about $1.6 billion at the time) to acquire 100% equity in Harvest and 2.27 billion Canadian dollars to take on Harvest liability. It also made an additional capital injection of $524 million that year. In 2009 alone, it invested $2.124 billion through equity acquisition and additional capital injection. Harvest holds the "Black Gold" block, which produces oil sands.
Unlike conventional oil fields, oil sands are mixed with sand and clay, so a method is used in which high-temperature, high-pressure steam is injected into the oil-bearing sand layer to extract crude. It costs more than conventional crude production. The structure requires high oil prices to be profitable; international oil prices exceeded $100 per barrel (1 barrel is 158.9 liters) from March to July 2022, but have traded in the $60–$70 range over the past year.
Liability increased due to the Harvest investment, pushing up interest expense as well. Interest expense, which was 417.7 billion won in 2021, rose to 566 billion won last year, and reached 331.1 billion won in just the first half of this year. KNOC said, "We expanded mergers and acquisitions (M&A) of overseas oil development corporations and asset acquisitions to secure overseas oil reserves. Due to increased external borrowing for this, interest-burden liability has increased since 2008."
KNOC returned to the black in 2022 for the first time in 12 years and has posted profits for three consecutive years. Last year, it recorded 3.5244 trillion won in revenue and 1.2734 trillion won in operating profit. However, as liability surged, it has been in a state of complete capital impairment (when the amount obtained by subtracting liability from asset is negative) from 2020 through last year.
Lawmaker Gwon Hyang-yeop said, "The cumulative recovery rate of the Canada Harvest project is 0.57%, which is no exaggeration to call it a 'bottomless pit,'" and added, "Nevertheless, it is hard to understand, as a matter of common sense, the additional investment of more than 3 trillion won over the past three years."