Korea National Oil Corporation Faces Complete Capital Erosion After 41 Years Since Establishment... Annual Interest Costs Reach 400 Billion Won

Sale of Overseas Assets and Internal Cost Reduction... Overseas Resource Development 2nd TF to Recommend as Early as This Month

[Asia Economy Reporter Kwon Haeyoung] Last year, Korea National Oil Corporation's debt exceeded its asset size, marking the first time since its establishment in 1979 that it fell into a state of complete capital erosion. In particular, its reliance on external borrowings reached 83%, with annual interest expenses exceeding 400 billion KRW.

According to the public institution management information disclosure system (Alio) on the 20th, the total debt of the Oil Corporation last year was 18.6449 trillion KRW, an increase of 513.9 billion KRW compared to the previous year. On the other hand, assets decreased by 1.1578 trillion KRW during this period, from 18.6618 trillion KRW to 17.5040 trillion KRW.

The Oil Corporation's debt was around 3.5 trillion KRW in 2006 but exceeded 20 trillion KRW in 2011. It remained in the 17 trillion KRW range in 2017-2018, increased to 18.1 trillion KRW in 2019, and last year, its debt finally surpassed its asset size.

The Oil Corporation's borrowing dependency ratio (interest-bearing debt/total assets) reached 83%. Interest-bearing debt amounted to 14.6685 trillion KRW, with annual interest expenses exceeding 400 billion KRW.

The Oil Corporation fell into the debt trap due to failed overseas resource development projects that were aggressively expanded relying on borrowings during the Lee Myung-bak administration, including the acquisition of the Canadian Harvest oil field with an investment of 4.8 trillion KRW and the Iraq Kurdistan oil field-social overhead capital (SOC) linked project with an investment of about 1 trillion KRW.

In addition, last year, it was hit hard by the drop in oil prices due to COVID-19. The average annual price of Dubai crude oil last year was 42.29 USD per barrel, a 33% decrease compared to the previous year (63.53 USD). As a result, the asset value of overseas oil fields purchased by the Oil Corporation in the past at 80 to 100 USD per barrel also declined.

The Oil Corporation is seeking improvement measures through the sale of overseas subsidiaries and internal cost reductions. Earlier this year, it sold all of its 50% stake in the Peruvian oil company Savia Peru's holding company (OIG). It is also promoting the sale of non-core assets such as the Canadian Harvest oil field. Additionally, it is considering repurchasing its Ulsan headquarters building to reduce personnel and rental costs.

Meanwhile, the 'Overseas Resource Development Innovation 2nd Task Force (TF),' which began activities in July last year, is expected to release recommendations related to the financial status of resource public enterprises including the Oil Corporation and overseas resource projects as early as this month. The recommendations are known to comprehensively include directions for restructuring and functional reorganization of public enterprises, as well as principles for government support.

This content was produced with the assistance of AI translation services.