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The Korea Herald
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THE INVESTOR
July 17, 2024

Economy

Doubts persist over oil project despite expert briefing

  • PUBLISHED :June 09, 2024 - 16:57
  • UPDATED :June 09, 2024 - 16:57
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Vitor Abreu, head of US-based Act-Geo, addresses reporters' questions during a briefing on South Korea's East Sea oil and gas reserves project at the Ministry of Trade, Industry and Energy's Sejong Office Building on Friday. (Yonhap)

Doubts persist over the potential of newly identified oil and gas reserves off South Korea’s southeastern coast, despite a press briefing on Friday led by the expert behind the discovery to address public concerns about the drilling project's feasibility and the credentials of the company involved.

Since the announcement a week ago, the claim has triggered a wave of public attention, expressing both excitement and skepticism, with the government providing multiple clarifications for rumors and media reports throughout last week.

Vitor Abreu, a former ExxonMobil executive and head of Act-Geo, the US geoconsulting firm that conducted the survey, has been at the center of the attention, coming to Korea just two days after the initial announcement to defend his firm's findings.

The ExxonMobil veteran detailed the process of analyzing data from the Korea National Oil Corp. during the Friday briefing and asserted that the project is "highly prospective" with a 20 percent success rate, higher than that of the Liza oil project in Guyana in which he also participated, with a 16 percent success rate.

However, Abreu’s explanation during the briefing added to the confusion. Abreu initially said the company’s analysis of existing wells in the Donghae gas field indicated the presence of significant hydrocarbon traps. He explained that one previously drilled well "proved the existence of traps that can hold up to, if not more than, 400 meters of hydrocarbons."

A prospect here refers to a geological feature or formation that has the potential to contain hydrocarbons like oil and gas.

But in a question-and-answer session later discussing risk, he seemingly contradicted himself, saying, "There's no confirmed hydrocarbon accumulation out there so far, and several wells have already been drilled, so it's very uncertain."

This led to media reports questioning the certainty of hydrocarbon presence in the identified prospects. KNOC's stock price plunged 12.59 percent Friday, marking its largest single-day drop in a decade, although that can also be attributed to the initial announcement's inflated expectations.

The Ministry of Trade, Industry and Energy clarified later on Friday afternoon that Abreu's comments referred to the “absence of hydrocarbons in previously drilled wells, with future drilling needed to verify the new prospects.”

There was also ambiguity surrounding the financial feasibility and potential profitability of the drilling project. The cost of drilling five wells is estimated at 500 billion won ($362 million).

“Although financial estimates are highly speculative before the actual drilling and contingent on market conditions, the project could be considered economically feasible if we confirm the presence of at least 1 trillion cubic feet (28 billion cubic meters) of gas," said principal adviser Kwak Won-ju from the KNOC.

The 1 trillion cubic feet Kwak mentioned only increased the perplexity, as he used a different metric of measurement and lacked details on the the specifics of the economic feasibility from that which the government announced. Earlier, the government had claimed that its forecast of 14 billion barrels comprised an oil equivalent of 320 million to 1.29 billion tons of natural gas and 780 million to 4.22 billion barrels of oil. Kwak said that the estimated figure of “1 trillion cubic feet of gas” is based on a different context.

Abreu's Act-Geo has also faced credibility issues after it was revealed that its listed headquarters in Houston is a residential address. During the briefing, he admitted to that, explaining the firm is meant to be small and its experts are globally dispersed for efficiency.

“It’s not uncommon in this industry for smaller consultancies to analyze large projects,” he said.

He also defended Act-Geo's appointment to analyze the project, stating that the KNOC conducted a competitive tender involving four companies and selected Act-Geo fairly based on technical and price evaluations. A government official at the briefing cited “confidentiality” as the reason for choosing Act-Geo to analyze the project instead of multiple companies.

However, some experts have raised concerns. One expert, who asked to remain anonymous, suggested that confidentiality agreements usually include nondisclosure clauses that allow for outsourcing analysis to multiple firms without risking breaches.

“There are some very large global players with extensive resources, so it's questionable whether it's appropriate for a small consulting firm to handle such a significant analysis,” the expert said.

By Moon Joon-hyun (mjh@heraldcorp.com)

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