Korea National Oil Paying Fines In Peru

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(Business Korea, 16.Jul.2021) — Korea National Oil Corp. (KNOC), POSCO International and SK Innovation paid a fine of billions of won to the Peruvian government in withdrawing from Block 8 for a decline in profitability. The fine is for environmental restoration and the South Korean companies may have to pay more.

The Block 8 oil field is located in the Amazon Rainforest. There, oil production commenced in 1974 and Argentine oil company Pluspetrol and the South Korean consortium purchased the business rights in 1996. Pluspetrol’s stake is 60 percent and those of KNOC, POSCO International and SK Innovation are 20 percent, 11.66 percent and 8.33 percent, respectively. Although the contract is until 2024, the South Korean companies decided late last year to step out.

The Peruvian government has imposed the fines proportional to the stakes since January this year. KNOC paid US$3.21 million in the first half of this year and POSCO International and SK Innovation are estimated to have paid US$1.87 million and US$1.34 million, respectively.

Their fines are likely to increase with time. “The Peruvian government imposes additional fines each time it finds a contaminated place and a complete restoration is still far away,” the consortium explained, adding, “In general, up to 80 percent of the total oil production at an oil field goes to the government of the country where the field is located and the rest goes to the producers, and governments tend to try to maximize their profits by imposing such fines when development projects are scheduled to end.”

The increasing fines are likely to further lower the profitability of the project. In Block 8, KNOC has invested US$1.13 billion and recouped US$1.27 billion since 1996. In other words, its annual profitability there stands at 0.48 percent.

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By Jung Min-hee

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