Seoul (Platts)--29Aug2011/305 am EDT/705 GMT

South Korea's energy ministry said Monday it has allowed local energy developers Daewoo International and STX Energy to drill in two areas off the nation's east coast for crude oil and natural gas.

Daewoo International will hold a 70% stake in a project to explore the southern part of Block 6-1, with the remaining 30% held by state-run oil developer Korea National Oil Corp. Daewoo will be operator of the project.

STX Energy will hold a 30% stake in another project to explore the central part of Block 6-1, with KNOC holding the balance 70%. The two companies will jointly operate the project.

Article continues below...

Sign up for Oilgram News
	Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.

Daewoo International and STX will be permitted to search for gas for eight years until August 31, 2019, and allowed to produce any resources found for 30 years. They plan to start exploration next month.

"Daewoo International and STX Energy have become South Korea's first privately-owned local companies given rights to explore the country's continental shelf," the Ministry of Knowledge Economy, which is responsible for energy, industry and commerce, said in a statement.

Only state-run KNOC has been authorized to explore for oil and gas reserves in Block 6-1 since British oil company Kirkland Resources pulled out in 1994.

"This represents a new chapter in South Korea's efforts to seek natural resources at home," the ministry said in the statement.

The southern part of Block 6-1 has been producing 60 Mcf/day of natural gas since 2004 from the Donghae-1 field that holds a total estimated deposit of 265 Bcf.

Daewoo International is currently involved in 15 energy and mine development projects worldwide, including Myanmar's offshore gas field Block A-1/A-3, which plans to pump 500 Mcf/day of natural gas from May 2013 for China National Petroleum Corp.

STX Energy, an affiliate of South Korean conglomerate STX Group, in December 2010 jointly acquired with KNOC a 46.8% stake in a US oil field for $55 million that has estimated reserves of 12 million barrels and is currently producing 500 b/d. STX Energy in August 2010 acquired a natural gas field in northwestern Canada that is estimated to hold 120 Bcf of natural gas.

The energy ministry also said Monday that KNOC and Australia's Woodside Petroleum will begin exploratory drilling next month for oil and gas reserves in Block 8, just north of Block 6-1.

The drilling will run for two months at a cost of $93.7 million. Woodside has a 50% stake in the project and is the first foreign company to join an oil and gas block exploration project in South Korea since Kirkland's pullout.

If the block is found to have commercially viable reserves, KNOC will start development early next year, the ministry said. The two developers conducted the first phase of preliminary exploration in the block from February 2007 to August 2009 and the second phase from August 2009 to August 2011. "The preliminary seismic examinations showed the area is estimated to hold commercially viable reserves," a ministry official said.

Finding oil or gas in Block 6-1 or Block 8 would make the country less vulnerable to global price and supply issues, the ministry said. South Korea imported 459.31 million barrels of crude oil in H1 2011, up 9% from the same period last year, while its expenditure on imports rose 21.4% over the same period to $13.3 billion due to higher global prices.

The Ulleung Basin, in which both Block 6-1 and Block 8 are located, is estimated to hold 600 million mt of gas hydrates. Gas hydrates, ice-like deposits of water and natural gas, are located deep underwater where cold temperatures and extreme pressure causes natural gas to condense into semi-solid form. They can be used as an alternative to LNG.

--Charles Lee, newsdesk@platts.com