Canadian oil on Knoc's $6.5bn M&A menu

Korea National Oil Corp (Knoc), sitting on a multi-billion-dollar warchest, is setting its sights on Canada as the state-owned company aims to ramp up production and catch up to Asian rivals.

Seoul said this month that cashed-up Knoc will spend $6.5 billion (Dh23.86bn) on M&A in 2010 in an effort to cut South Korea's almost total dependence on imported oil. That goal will put the company in direct competition with Asian energy giants such as PetroChina, Malaysia's Petronas, and India's ONGC.

Knoc may be eyeing assets offered by such Canadian companies as its top oil firm Suncor Energy, No2 independent petroleum producer EnCana Corp and No3 independent oil explorer Talisman Energy, UBS said in a recent report.

In addition, Canadian oil sands company Opti Canada and its peer Nexen are seen as potential acquisition targets. Their shares moved up as recently as late last year on speculation of bids from Chinese energy giants. So far, no public offers have emerged.

"Knoc, Sinopec – they are all here and they are all looking at Canadian oil and gas," an investment banker at a major Canadian bank said. "I guarantee you will see some M&A activity in Canada this year. The government is being very welcoming."

Alberta's oil sands are the largest deposits of crude outside the Middle East, although extraction can be difficult and expensive.

Knoc needs to seal a deal with a sizeable oil firm within six months to boost production to 300,000 barrels of oil per day by the end of this year, bringing forward its target by two years, Chief Executive Kang Young-won said. Knoc's current production is about 129,000 bpd.

Canada is not unknown turf for Knoc, having sealed a $1.7bn takeover of Canada's Harvest Energy in October.

According to investment bankers familiar with the company and its plans, Knoc is eyeing more opportunities in Canada. "Canada is very friendly to acquisitions by foreign investors – it would be the country to look at, especially with lots of oil sands projects now being valued very cheaply," said Gordon Kwan, head of regional energy research at Mirae Asset Securities.

In November, Opti said it was looking at a possible sale of the company, which is heavily indebted. It needs cash for planned future phases in the development of its Long Lake oil sands project.

 

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