South Korea wins Kurdistan oil contract

South Korea wins Kurdistan oil contract

By Anna Fifield in Seoul

Published: February 14 2008 09:13 | Last updated: February 14 2008 09:13

South Korea on Thursday signed a deal to explore and develop four oil fields in Kurdistan, an agreement that would give it a foothold in the untapped northern region of Iraq.

The deal comes as Korea, the world’s fourth biggest oil importer, aggressively steps up its resource diplomacy. But it could be a political and legal minefield – the deal is with the Kurdish regional government so is likely to be disputed by the Iraqi national government.

A consortium led by the Korea National Oil Corp signed a memorandum of understanding with Nechirvan Barzani, the Kurdish prime minister, allowing the Korean group to develop energy projects in the Kurdish autonomous region.

Mr Barzani was in Seoul to see president-elect Lee Myung-bak, who will take office on February 25. Korea has troops stationed near Arbil in Kurdistan, overseeing security and development in the area.

According to the deal, the consortium – which also includes SK Energy and Daesung Industrial – will have the right to explore and develop four oil fields in Kurdistan, thought to contain reserves of at least 1bn barrels. That would be a fifth more than Korea’s annual oil consumption of 800m barrels.

“We want to expand our exploration and production projects in the Kurdish area,” said Jun Byung-hyup, an executive at the Korea National Oil Corp. The details of the agreement have still to be finalised.

But the pact also requires Korean construction companies to help develop the infrastructure in Kurdistan, including a $2.1bn highway and “social infrastructure” worth another $10bn.

Mr Jun said there was still some uncertainty surrounding the regional government’s authority to issue such contracts, and said “we know” that the national government was not happy about these deals.

“There are many things that are uncertain but we expect that uncertainty to clear soon,” he said.

Mr Lee, the incoming president, on Thursday asked Mr Barzani for “special support” to allow Korean businesses participate more actively in development projects, including oil development, in Kurdistan, his spokesman said after the meeting.

Mr Lee has specifically charged Han Seung-soo, his nominee for prime minister, with the task of securing resource deals once he takes office at the end of this month.

Korean companies and the ministry of commerce, industry and energy plan to accelerate their quest for new energy supplies this year, launching a “Korean caravan” to move through emerging markets for new oil and gas deals.

“The Korean business community will dispatch a big delegation to emerging markets so we can enter those markets and get access to their resources,” said Park Dae-shik of the Federation of Korean Industry, which is involved with the “caravan”.

The delegation would target Iraq, Central Asia and Russia, and would be looking for both immediate oil supplies and investment opportunities, he said.

“Traditional oil fields have almost been depleted by western oil majors so we are looking for niche markets,” Mr Park said.