* KNOC also takes on C$2.3 bln in Harvest debt
* South Korea's biggest overseas energy deal
* Purchase gains reserves, Come by Chance refinery
* Korea says likely to buy one more oil firm this year
(Adds Harvest stock reaction, analyst comments; in U.S.
dollars unless noted)
By Cho Mee-young and Michael Erman
SEOUL/NEW YORK, Oct 22 South Korea ended a
losing streak in overseas resource deals with the C$1.8 billion
($1.7 billion) friendly takeover of Canada's Harvest Energy
Trust HTE_u.TO, securing oil and gas reserves as well as a
refinery that Harvest could not afford to expand.
In the latest in a series of acquisitions of Canadian
assets by Asian state companies, Korea National Oil Corp will
pay C$10 a trust unit for Harvest and assume C$2.3 billion of
The bid represented a 37 percent premium over Wednesday's
price for Harvest, which produces 53,400 barrels of oil
equivalent a day in Western Canada and operates the 115,000
barrel a day Come By Chance refinery in Newfoundland and
Labrador on Canada's Atlantic coast.
Harvest had planned a C$2 billion expansion of that plant,
but shelved it last year due to the credit crunch.
Its units have lagged those of its rivals because of its
debt load, undercapitalized assets and volatile cash flow from
the refinery, UBS analyst Travis Wood said.
Harvest units surged C$2.45, or 33 percent, to C$9.75 on
the Toronto Stock Exchange on Thursday morning, a price that
suggests investors see slim odds of a counter bid.
BIG DEAL FOR SOUTH KOREA
It is South Korea's biggest overseas energy deal, and it
will bring the world's No. 5 oil importer a few steps closer to
its goal of producing the equivalent of 18.1 percent of its oil
and gas needs by 2012. More might be on tap.
"KNOC is likely to acquire one more oil company within this
year," Kim Jung-gwan, deputy minister at the Korea Ministry of
Knowledge Economy, said in a press briefing.
Seoul was late to the resource acquisition race but hopes
to capitalize on the recession to pick up assets cheaply.
Analysts said the financials on the Harvest deal looked
positive for KNOC on a per-barrel basis.
"Although we have to take a closer look at reserve quality
and production costs, the price seems reasonable, as Canada has
no political risks in developments and the market usually
considers around $13 a barrel an appropriate average price for
such deals," said Jae-joong Kim, an analyst at Woori Investment
& Securities. "This deal shows KNOC seems quite aggressive."
Based on the total equity plus debt value of the deal and
Harvest's 219.9 million barrels of proved onshore oil and gas
reserves, mostly in the western province of Alberta, the deal
works out to about $18 per barrel equivalent.
KNOC will raise $1.65 billion in domestic and overseas
markets by additional borrowing to finance the deal, while the
remainder would be paid by the company's current capital.
"We expect both buying overseas oil fields and seeking
(mergers and acquisitions) will accelerate as we have secured
the base in Calgary, Canada, the center of North American oil
development business," the Korean government statement said.
KNOC, which will be able to produce 120,000 bpd of oil
after the deal, is set to reach its capacity target of 300,000
barrels earlier than planned in 2012, industry experts said, as
the company is in talks with another four to five companies.
ALWAYS THE BRIDESMAID
The deal is subject to court and regulatory approvals, and
the support of Harvest unitholders. Harvest's board said it
will vote the 7 million units it holds in favor of the deal.
Harvest has 180.6 million units outstanding, according to
KNOC had narrowly lost out to Chinese oil giant Sinopec
(600028.SS) in a bid for Swiss-based oil explorer Addax
Petroleum Corp this summer. [ID:nBNG477261] [ID:nHKG50314]
The company made an earlier foray into Canada in 2006,
buying an oil sands property from U.S. gold producer Newmont
Mining Corp (NEM.N) for $270 million.
In February, KNOC paid half of the $900 million price tag
for a 50 percent stake in Petro-Tech, owned by private U.S.
firm Offshore International Group. [ID:nN10308942]
(Additional reporting by Jeffrey Jones; editing by Jonathan
Leff and Rob Wilson)