South Korea takes oilsands step
Pays $310-million for Newmont Mining leases
Jon Harding, Financial Post
Published: Tuesday, July 25, 2006
CALGARY - South Korea, long-rumoured to be interested in acquiring a stake in Alberta's oilsands, took a tentative step into the sector yesterday by paying $310-million for leases owned by U.S. gold mining giant Newmont Mining Corp.
The investment by the world's fourth-largest oil importer, while relatively small, mirrors the arrival last year of several state-controlled Chinese companies, which made a handful of deals viewed to be as much about learning as about securing large volumes of oil.
At a signing ceremony in Seoul, state-controlled Korea National Oil Corp. said it's buying 100% of Newmont's BlackGold project -- roughly 9,600 acres of property about 200 kilometres south of Fort McMurray in northeastern Alberta, where a cluster of companies produce oilsands crude using thermal recovery methods.
"It's difficult to assess truly what these state-controlled companies from China and Asia are interested in," said Andrew Boland, research director at Peters & Co. in Calgary.
"Japan, through Japan National Oil Company, has been involved in the oilsands for more than 20 years and never done anything with it," he said.
"China, for all of its large investments going on around the world, what they've done so far in Canada is pretty Mickey Mouse.
"Our understanding for the Chinese is they just like to be on top of any technology being developed -- so maybe that's what South Korea wants, and maybe it's all Japan will ever want."
A comparable transaction was the deal in April, 2005, between Chinese National Offshore Oil Company Ltd. (CNOOC Ltd.) and oilsands startup MEG Energy Inc., in which the state-controlled Chinese company acquired a 17% interest in MEG's thermal oilsands project for $150-million.
While CNOOC Ltd. paid about 45 cents per resource barrel, Korea National Oil Corp. is paying a little more than double that, or $1.10 per resource barrel, according to Peters & Co.
A statement from South Korea's Ministry of Commerce, Industry and Energy said the BlackGold property will produce about 35,000 barrels of oil a day after startup in 2010. Project construction would begin in 2008.
On its Web site, Scotia Waterous, which advised on the sale, said the property holds an estimated 305 million barrels of recoverable bitumen.
Oilsands in that part of Athabasca are buried hundreds of metres beneath the surface. Companies produce it using steam-assisted gravity drainage technology, where steam is pumped underground to soften the oilsands, which are then drawn through wells to the surface.
Natural gas is burned to make the steam, which makes the SAGD recovery method more expensive than mining oilsands with trucks and shovels.
"We don't think global oil prices are likely to fall below US$40 per barrel so the oilsands projects will be successful," a South Korean energy ministry official told Reuters.
Denver-based Newmont inherited the BlackGold leases through its 2002 merger with Franco-Nevada Mining Corp. The contiguous property is located just south of the Long Lake project now being built by partners Nexen Inc. and OPTI Canada Inc.
Newmont is a major shareholder in Canadian Oil Sands Trust, investing about US$650 million in Canada's largest energy trust as of April.
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