Making Money Still Matters

I wrote yesterday about Asian hunger for foreign mining acquisitions.

The energy market provides a study in contrasts for Asia. Where firms once seen as aggressive buyers of oil and gas assets appear to be tempering their enthusiasm in the face of market reality.

News emerged this month that Korea National Oil Corp (KNOC) is in talks to sell its Canadian petroleum holdings. Including oil sands land purchased in 2006 for $270 million. As well as conventional natural gas projects, which KNOC bought for $4.6 billion just a few years ago in 2009 and 2010.

The problem with the projects is reportedly profit. Or a lack of it.

KNOC reported a loss of $840 million for fiscal 2012. A loss that the Korean government blamed largely on one factor: poor-performing overseas assets like the ones in Canada.

Amid such pressure to profit, KNOC is planning to right-size its Canadian portfolio. Throwing a wrench into the traditional view that Asian firms are interested in securing commodities supplies at all costs.

It instead appears that Asia's producers--even deep-pocketed state firms--are in the end driven by the same thing as everyone else: making money. If projects can't turn a profit, they're not worth it. Even if they provide a potential supply line of crude or natural gas.

This being the case, it will be interesting to see where firms like KNOC go next. In spite of this project pullback, the Korean government has recently affirmed it would like to see its refining companies involved in upstream development of oil.

That means the country's firms will still be on the look-out for projects. But will likely need to prove economic viability on targeted acquisitions. A potential challenge in today's high-cost, competitive petro-space.

We'll see what they come up with as a solution to this rock and hard place.

Here's to the almighty dollar (or won),

By. Dave Forest