The Korea National Oil Corporation (KNOC) will close down overseas resources development projects that fueled controversies over their business outcomes. Last year, the Board of Audit said that the KNOC projects in Canada, the UK and Iraq gave rise to huge amounts of losses. For example, the company chalked up two trillion won in losses out of the takeover Harvest, an energy company in Canada. Dana, a UK oil company that the KNOC acquired brought the KNOC 1.2 trillion won in losses. An oil field in Iraq that the KNOC purchased for an exorbitant price was found to have a little crude oil but the oil field does not have any commercial feasibility.
The KNOC announced on February 4 that the company will seek to restructure assets worth 400 billion won by taking into account oil prices, priorities by assets and sell-off effects by 2018. “With regard to overseas resources development projects, the KNOC will overseas sell off overseas mines,” said a representative at the KNOC.”
The company is planning to start to sell off its assets in accordance with an asset assessment model based on profitability and strategic value. They will take into consideration possibilities of additional reserves, contribution to the development of technology via the ownership of operation rights, business environments, connection with current business, rights to sell crude oil and effects of connections with domestic industries in Korea as strategic value.
Its organization will be downsized and massive layoffs will be enforced. The company will cut down on the number of its employees and employees’ salaries. All executives and senior managers resigned before its reorganization that will start this month. In addition, the KNOC will reduce its business cost by 2.1 trillion won by slashing capital expenditures (CAPEX) and operational expenditures (OPEX) by ten percent, respectively and removing unnecessary business cost. To make an improvement to its financial structure, its headquarters building in Ulsan will be put on the market. The building is valued at 200 billion won.
Low oil prices drove its losses, prompting the KNOC to come up with the big restructuring plan. Last year, the government-run oil company posted US$3,977 million in net income. Last year, Kim Jung-rae who worked for private companies assumed the presidency of the KNOC. This change also contributed to the revamping plan.
“Recent continuing low prices have brought the KNOC the biggest crisis such as business losses and damages to assets in its corporate history,” said the representative. “We will use every method available to surmount the crisis and put the management of the company back on track.”