23 June 201023 June 2010

Korea National Oil CorporationKorea National Oil Corporation

International Strategies of Korea National Oil Corporation

International Strategies of Korea National Oil Corporation

Dr. Seong Hoon KimSenior Executive Vice President

ContentsContents

1. Oil/Gas Situation Overview1. Oil/Gas Situation Overview

2. KNOC E&P Status and Strategies2. KNOC E&P Status and Strategies

3. KNOC Oil Stockpiling Status and Strategies3. KNOC Oil Stockpiling Status and Strategies

5. Concluding Remarks5. Concluding Remarks

4. Vision 4. Vision

1. Oil & Gas Situation Overview1. Oil & Gas Situation Overview

Oil Price Trends

Oil prices show gradual recovery after a sudden drop due to global recession

Long term oil price (Dubai)

$75/B('10.5.18)

Annual Average Price of Oil since 2003 ($/b)

fluctuationThe Second

fluctuationThe First

The crash in ‘86

The Gulf Crisis

The crash in ‘98 The 9.11

Sharp Rise since 2007

Influx of Speculative Capital

US Dollar Weakness

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007

38

40

42

44

46

48

50

Internal Growth Limitation Internal Growth Limitation 1

Almost all giants are already being developed or producedSubstitution effect of reserve volume reduced as number of newly found oil fields are decreased

2000~2007, RRR 59% decreased59% decreased2000~2008, 55% decreased55% decreased

※ Source : IHS

No of Giants found over 100mbbl reserveNo of Giants found over 100mbbl reserve Annual Production & Reserve ReplacementAnnual Production & Reserve Replacement

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008

% 100Mbbl

Reserve replacement ratio Annual production increase

World E&P Environment World E&P Environment

Business Opportunities restricted Business Opportunities restricted 2

※ Source : IEEJ

NOC’s possession70%

Available to access 7%NOC’s holding

6%

Russian holding17%

Only 7% of reserves available to develop for IOCs owing to ‘Resource Nationalism’ & Nationalization

※ Worldwide reserve 1.4 Trillion bbl (Including Oil-sand)

World E&P Environment World E&P Environment

Emerging New Consumers’ upsurgeEmerging New Consumers’ upsurge3

Emerging New Consumers such as China & India upsurge in energy development market

CNPC acquired 49% stake of MangistauMunaiGaz,the biggest independent oil company in Kazakhstan (’09.4)

Sinopec acquired Swiss ADDAX for U$9.2 billion (’09. 6)Sinochem acquired British Emerald Energy for U$870 millionAgreement on U$25 billion loan for Russian pipeline construction (’09. 2)Singing MOU with Petrobras for U$10 billion finance support (’09.2)Expand Venezuelan investment fund to U$12 billion

China : 8~10% Economy growth since 1970’s caused consumption increaseAggressive acquisition by resource diplomacy & economic competence

ONGC acquired Imperial Energy, British independent company for U$2.6 billion(’08. 8)Announcement of Resource Security Plan by establishing sovereign wealth fund using foreign exchange reserve

India : Consumption increase by average 7% economy growth for the past 8 yearsAcquiring overseas upstream assets to ensure stable resource management

World E&P Environment World E&P Environment

Dependency on Oil/Gas will remain around 55% in 2030

Oil + Gas = 55%

* Source: EIA, International Energy Outlook(2009.5)

Coal28%

Renewables11%

Nuclear6%

2030

World marketed energy use by fuel type

World Energy Consumption

Liquids(including Biofuel32%

Natural Gas23%

Dependency on Oil & Gas in Korea : 56.4%(2008)

*Source: Korea Energy Economics Institute, Energy Statistics, 2008

Oil

41.6%Natural Gas

14.8%

Coal

27.4%

Nuclear,

Hydraulic, etc.

16.2%

Korea’s Energy Consumption

Korea’s Oil Consumption

Oil Consumption : 10th country in the world

1 USA 22.5% 2 China 9.6%

3 Japan 5.6%4 India 3.4%

5 Russia 3.3%6 Germany 3.0%

7 Brazil 2.7%

9 Canada 2.6%10 Korea 2.6%

8 Saudi 2.7%

* Source : BP『Statistical Review of World Energy(2009)』

Dependency on Middle East Oil Dependency on Middle East Oil

Oil Import : 5th country in the world

2006 2007 2008

40%

60%

80%

20%

82.2% 80.7%86.3%

100%

Middle East Oil

(86.3%)

Other Oil

producingcountries(13.7%)

2008

Korea

*Source: Korea Energy Economics Institute, Energy Statistics, 2008

2. KNOC E&P Status and Strategies2. KNOC E&P Status and Strategies

Role of KNOC

Founded March 1979

ImprovingPetroleum

DistributionInfra-structure

StockpilingPetroleum

DevelopingPetroleum

Financing &Technical Support

Stabilizing Petroleum SupplyStabilizing Petroleum Supply Contributing to the Korean EconomyContributing to the Korean Economy

UK Captain

Libya Elephant

4 Inc. SES

2 Inc. Vietnam 15-1

2 Inc. Nigeria 321

3 Inc. Russia West KamchatkaChina Mahwangsan West

5 Inc. USA ANKOR

2 Inc. Uzeckistan Namangan-Chust

Production : 14Development : 3Exploration : 28

Azerbaijan Inam

Venezuela Onado

3 Inc. Peru SAVIA-PERU(Z-2B)

3 Inc. Columbia CPE7

5 Inc. Iraq Bazian2 Inc. Donghae-1 Gas

2 Inc. Harvest

Central Asia8

Middle East11

Russia3

Asia/Australia7

America14

West Africa2

6 Core Area

5 Inc. Kazakhstan Sumbe

6 Inc. Yemen 70

Overview of KNOC’s Global E&P projects

409

553 524

44.9 43.1

50.0

-

100

200

300

400

500

600

700

800

94 95 96 97 98 99 00 01 02 03 04 05 06 070.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

(mmbbl)

UK Captain

Indonesia SES

Vietnam 15-1

Lybia Elephant

Venezuela Onado

DongHae-1 Gas Field

Vietnam 11-2

Reserve

Production

Canada Blackgold

08

550

46.0

900 60.0

70.0

Yemen Marib

Peru 8Block

Average Growth Rate of Production & Reserves (recent 5years) : 146%, 124%

881

09

M&A or Producing Asset Acquisition

128.8(Mbbl/d)

KNOC’s Achievements

Active M&A to meet government’s self-sufficiency goal - Target: 300,000 boepd & 2 Bn bbls in 2012

Acquiring 100~300 million barrel reserve per year

Acquiring technology skill (operating) & experienced staff in a short time Creating Synergy effect, operating experience, new business opportunities

The merits of M&A

E&P Strategies

M&A strategy for promising oil companiesM&A strategy for promising oil companies1

USA

ANKOR

(Mar 08)

Peru

Petro-Tech

(Feb 09)

Canada

Harvest

(Dec 09)

Kazak

Sumbe

(Dec 09)

20082008 20092009

57 mb/d

128 mb/d

Production 124%

550 mil. B

Reserves 60%

1.9%

4.4%

Energy Self-Sufficiency 132%

Experienced Staffs 1,241

660

KN

OC

M&

A 543

117

568

1333

1,901

First M&AFirst Acquisition of Production Asset

Extend Biz in Central Asia

The Largest- Scale M&A in Korea

880 mil. B

20082008 20092009 20082008 20092009 20082008 20092009

M&A Experiences & Accomplishments

○ Purchase Price : 1.1 billion USD

○ Interest : KNOC 80%, Samsung 20%

○ Asset Summary

- 5 Fields of the gulf of Mexico

· Reserves (2P) : 79 million boe

· Production : 21 MBOEPD

- Experts for E&P : 117

○ Changed name to ANKOR Energy

(July 2008)

[former Taylor Energy]

Success Case # 1 Success Case # 1 –– ANKOR in U.S.A

Purchased asset of Taylor Of U.S.A (Jan. 2008)

○ Acquisition Price : 900 million USD

○ Closure : February 2009

○ Interest(%) : KNOC 50%, Ecopetrol 50%

○ Asset : 1 Production Block

10 Exploration Blocks

○ Reserves(2p) : 153 MMBOE

○ Prospective Resources : 689 MMBOE

○ Production : 18 M BOEPD

○ Experts for E&P : 688

<Future Plan>

○ Production Increase: 45M BOEPD by 2015

Success Case # 2 Success Case # 2 –– Peru SAVIA Peru SAVIA [Former Petro[Former Petro--Tech]Tech]

Production

Exploration

Acquisition of Petro-tech (May. 2009)

○ Acquisition Price : 4.1 billion CAD○ Asset Summary- Oil field in Midwest of Canada

Oilsand, CBM Projects· Reserves(2P): 201 MMBOE· Production: 50 MBOEPD

- Oil Refinery in East of Canada· Refining capacity: 120 MBOPD· Stockpiling: 7 MMBOE· Petrol Station: 64

- Experts·E&P 379, Oil-Refining 570

Purchased Harvest Energy of Canada (Dec. 2009)

Success Case # 3 Success Case # 3 –– Canada HarvestCanada Harvest

○ Acquisition Price : 335million USD

○ Interest : KNOC 85%, Kazakhstan partner 15%

○ Asset Summary

- 2 Development blocks & 1 Exploration block

in Western Kazakhstan

· Reserves(2P): 58MMBOE

· Risked Prospective Resources: 20MMBOE

· Production increase: 20 MBOPD by 2012

- Experts for E&P : 149

Purchased asset of Sumbe of Kazakhstan(Dec. 2009)

Success Case # 4 Success Case # 4 –– Kazakhstan Kazakhstan SumbeSumbe

Oil Projects in Kurdistan Region (Iraq)- Agreement date : 2008.11.17- Basic scheme of contract

KRG KNOC

Five oil Blocks

Infra building Projects

- KRG (Kurdistan Regional Government) grants KNOC participating interests in five oil exploration blocks

- In return, KNOC provides KRG with infrastructure construction in the Kurdistan Region

Korea has Industrial sectors’ strengths attractive to oil producing countries (ex: Electricity, IT, Plant, Construction etc)→improve infrastructure Continue to apply this strategy for the future biddings in other regions

Package deal

Developing new business model in producing countries or oil companiesDeveloping new business model in producing countries or oil companies

2

Calgary

Edmonton

AthabascaPeace River

ColdLake

Fort McMurray

Long-term R&D plans and organization to develop new energy resource

GTL(Gas to liquid): Building GTL plant(10,000b/d) by 2015Oil sand: Commercial production by 2012Gas hydrates: Exploration and R&D stage

100% stake in the Blackgold (oil sand, 250 million barrels) in Alberta, Canada

Construct the full-scale producing facilities from 2010Produce up to 30,000 barrels per day by 2016

Canada oilsand

Blackgoldoilfield

Diversifying

Diversifying business by non-conventional energy sectorsDiversifying business by non-conventional energy sectors3

3. KNOC’s Oil Stockpiling Status and Strategies

3. KNOC’s Oil Stockpiling Status and Strategies

Petroleum-Dependent

Industry Structure

Need Risk Management

Possibility of Oil Shock

Promote Petroleum Stockpilingfor Energy Security

60

0

10

20

30

40

50

69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05

The Secondfluctuation The Gulf Crisis

The 9.11

Sharp rise

Introduction to Petroleum Stockpile

Seoul

Crude 11 Products 3.6Crude 4.6(7.3) Products 0.3(2.4)

(Unit : MMB)

CapacityOperation stocks

Products 1.1Products 0.9

Products 3.0Products 2.9

Crude 19.3Crude 9.7 (10.9)

Crude 47.5Crude 39.3(46.1)

Products 2.5Products 1.9

Crude 49.7Crude 15.1(41.0)

Products 2.1Products 2.0

Products 6.2Products 3.8

Stockpile capacity : 146 MMBOperation stocks : 119 MMB (39MMB of International joint stockpile)

Pyeongtaek

Seosan

Gokseong

Yeosu

Guri

Yongin

Donghae

Ulsan

Geoje

Jeju

Stockpile Facilities

Government’s plan (141million barrels by 2011) will be achieved with

the help of IJS (40million barrels)

Long-term contract with oil companies to minimize the price fluctuations

Providing facilitiesMutualbenefits

Oil-producing countries

Diversifying Markets

Reinforce the ability to cope withoil crisis (Emergency purchasing right)

Improve the economics of the oil storage

Use our facilities as sales hub to increase the market share in Northeast Asia

Use oil market trend(Buy Low & Sell High)

Concept of IJS

Oil Stockpiling Strategies

Expanding International Joint Stockpile (IJS) projectsExpanding International Joint Stockpile (IJS) projects1

Improve marketing capabilities on overseas production oil→ Create new biz opportunities and improve KNOC’s global statusCreate synergy effect by connecting both oil trading and overseas produced oil marketing

Harvest

IndonesiaSESUSA

ANKOR

Expand direct marketing oil fields gradually

3,4232,410530--Black Gold

36,50036,50036,50036,500-Harvest

57,06557,00355,43841,1132,661Total

11,00011,00011,000--YeosuTankage

817851555--Yemen

883883883--ADA

316393425--Indonesia SES

9731,1151,4131,679-UK Captain

3,1533,8504,1322,9342,661US Ankor

20142013201220112010Category

Marketing Amount (thousand barrels)

Reinforce marketing for crude oil produced in overseas by KNOCReinforce marketing for crude oil produced in overseas by KNOC2

The pilot project(4.6million barrels) in Yeosu ready by 2011

The main project(23million barrels) in Ulsan port ready by 2014~2015

Government on-going support necessary on the oil hub project(Benchmark: Singapore took 10 yrs to complete the construction)

Unlike IJS, providing additional Services to meet the required spec of buying countries

Crude OilProducts

Sakhalin

Canada

U.S

South America

ChinaChina

Singapore

Middle East, etc

India

4 countries in NEA (China, Korea, Japan, Taiwan), Future Oil price uncertain→ demand for oil storage increase

Exporters (Canada, SA, ME, Sakhalin)Importers (China, India, US)

Storage facilitiesin Korea

Becoming the oil distribution hub in Northeast AsiaBecoming the oil distribution hub in Northeast Asia3

Collecting and distributing center of petroleum - located in main transportation route

Hub for logistic activities by refinery, trader, tankage companies-- producing, supplying, discharging, storing, value added treatinproducing, supplying, discharging, storing, value added treating, trading g, trading

Supply and Demand: SE Asia, Korea, China, Japan, USA, and etc.

HarborInfra

Oil Exchange Market

Infra for Financing/ Information

Refinery

TradersTank Terminal

Oil Hub

* Overview of Oil Hub

Crude OilProducts

Korea

Singapore Market

Focusing on India, South-East Asia

and West-South Asia

New Market in NEA

Independent Market for the Pacific Rim inclusive of

China, Japan, USA and Canada

Asia’s possibility to divide into two Oil Markets

ARA

Singapore

Gulf

* Prospective of Asian Oil Hub

4. Vision4. Vision

Production :

50-150 M B/DPlan: Exploration Success & Acquire AssetsRanking: around 70th

Production: 300 M B/D

By Increase of

Exploration Success

& M&A

Ranking: around 60th

Production: 500 M B/D

Plan: Integrated big oil

company

Ranking: around 40th

Enhance a competitiveness

Local Major

Global Oil Company

Future of KNOC

38

World Ranking

98th60th

X 5

Production(1000 b/d)

60300

X 3

Asset(Billion U$)

9.430

X 4

Reserves(Billion bbl)

0.62

Become a Regional Oil Major

KNOC’s Targets by 2012

20082008 20122012 20082008 2012201220082008 20122012 20082008 20122012

5. Concluding Remarks5. Concluding Remarks

■ KNOC as a state-owned company responsible for oil/gas supply security in Korea :

- Needs to increase the investment in upstream

- Needs to contribute to improve physical oil distribution system in the Far East

- Needs to develop human resources and technical specialties to

achieve KNOC’s mission

■ KNOC will overcome the challenging situation in upstream by :

- Globalizing its own management

- Mutual cooperation with host countries and IOCs

- Enhanced E&P Activities

- Diversified investment in the lines of business

Korea National Oil CorporationKorea National Oil Corporation