[Initial Insight] Resource Development Grows by Learning from Failures

East Sea Oil Field, Urgent Need for Transparent Information Disclosure
National Consensus Needed to Endure Trillions in Losses

"I will support this business with $10 million every year for the next 10 years." Having endured two oil shocks in the 1970s, the late Choi Jong-hyun, the former chairman of SK Group, turned his attention early to resource development. When he ventured into the oil development business in 1982, more than 40 years ago, in a country with not a single drop of oil, his words were more than just encouragement to the employees at the time. Since resource development projects have an extremely low success rate, it is said that employees were relieved from the burden of fearing that responsibility would be shifted to them in case of failure.

However, despite his bold decision not to hold anyone accountable for failure, the following year, the first project in the Karimun Block in Indonesia resulted in a loss of $3.5 million and ended in failure. Upon hearing the report, Chairman Choi reportedly encouraged the employees who were discouraged by the failure, saying, "This is a business with a higher chance of failure than success. Even if we incur losses, we must try."

This is how SK Group’s history in resource development began. Chairman Choi envisioned the integration of the petroleum business, progressing from textiles to petrochemicals, refining, and finally resource development, and laid the foundation by acquiring Korea Petroleum Corporation (Yukong) in 1980. Four years later, in 1984, commercial oil was discovered in the Marib oil field in North Yemen, and three years after that, in 1987, they finally produced 150,000 barrels of crude oil per day.

However, the path was not always smooth. In 1989, SK Group independently developed the promising Myanmar Block C, only to lose a total of $56 million over four years. At the time, that amount was considered enough to buy a decent-sized company in Korea, marking it as a harsh failure.

Ten years after entering the oil development business, in 1993, Chairman Choi met with the project team again and said, "Although the Myanmar project failed, do not be discouraged. We will invest again for the next 10 years," continuing his firm commitment. His vision for resource development is today regarded as a prime example of a corporate owner sincerely pushing a business forward with foresight into the future.

Earlier this month, President Yoon Suk-yeol made a surprising announcement that there is a high possibility of oil fields in the deep waters of the East Sea. However, suspicions and explanations have continued. From whether there is really oil to questions about the consulting firm that interpreted the data, nothing has been clearly resolved.

The Korea National Oil Corporation (KNOC), which is leading this "Great Whale" project, is undoubtedly the organization with the most experience and technology in resource development in Korea. Founded in 1979 as the Korea Petroleum Development Corporation, it has accumulated expertise over more than 40 years by drilling and extracting oil in remote domestic and overseas areas that are difficult for the general public to access. It is hard to doubt their professionalism. The president must have had no choice but to approve the KNOC report, which stated that at least five exploratory drillings are necessary.

At this point, we are prompted to consider whether we can fully accept the failures as much as the importance of resource development. The consensus that success in resource development can only be achieved through accumulated failures still seems insufficient. Many still disagree with pouring astronomical costs into developing oil fields in the decarbonization era. Ultimately, to gain public support, thorough verification and transparent disclosure of information for this purpose must come first. Only then can we challenge again even if we fail.

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