Korea National to Buy Harvest Energy

October 22, 2009

Korea National to Buy Harvest Energy for $3.9 Billion 

 Korea National Oil Corp. agreed to buy Harvest Energy Trust for C$4.1 billion ($3.9 billion) in South Korea’s biggest overseas energy acquisition as the nation competes with China and India to secure global resources.

The South Korean explorer will pay C$10.00 per unit, or about C$1.8 billion in cash, and assume C$2.3 billion of debt, Harvest, a Calgary-based oil producer and refiner, said in a statement.

That’s a 37 percent premium over yesterday’s close on the Toronto Stock Exchange. “South Korean companies’ entry into overseas resources fields is inevitable amid the ongoing battle to secure more resources worldwide,” said Kim Hyung Chan , a fund manager at KTB Asset Management Co. in Seoul, which handles the equivalent of $8.5 billion in assets.

 “For a resource-poor country such as Korea, it’s definitely a meaningful move.” Chinese companies have spent at least $13 billion on oil assets overseas since December, including purchases in Singapore, Syria and Kazakhstan, while Indian companies have invested about $2.5 billion this year. Korea National Oil plans to raise $1.65 billion at home and abroad to finance the purchase and is in talks with “four or five companies for further acquisitions,” said Kim Jung Gwan, deputy minister for energy.

 The state-owned company may raise funds by issuing bonds and seek investments from pension funds, Kim said by telephone today. Oil Production Korea National Oil and Harvest agreed to complete the purchase by the end of December, South Korea’s Ministry of Knowledge Economy said in a statement today. Harvest is being advised by TD Securities Inc. while Bank of America Merrill Lynch is adviser to Korea National Oil, the Canadian trust said. Acquiring Harvest will increase South Korea’s share of oil and gas production from foreign fields to 241,000 barrels a day, or 8.1 percent of South Korea’s energy needs, from 188,000 barrels a day, the ministry said.

 South Korea imports 97 percent of its energy requirements and Korea National Oil plans to expand its daily oil output more than four fold to 300,000 barrels by 2012. Korea National Oil is paying C$26.58 for each barrel of proved reserves, based on the C$4.1 billion price tag and Harvest’s 154.26 million barrels of oil-equivalent reserves as of Dec. 31, 2008.

Crude oil futures in New York have gained 81 percent this year and the December contract traded at $80.95 a barrel at 3:02 p.m. Seoul time.

‘Further Acquisitions’ Harvest produces 53,400 barrels of oil and gas a day and has reserves in oil and gas blocks and oil sands in Canada. The trust also owns the 115,000 barrel-a-day North Atlantic refinery in Newfoundland and Labrador, Canada’s eastern-most province.

 Acquiring Harvest will speed up South Korea’s energy development in Canada, the ministry said in today’s statement. “We will seek further acquisitions of prominent oil companies to increase the competitiveness of Korea National Oil,” the ministry said. Korea National Oil has said it plans to acquire as many