A major trend the last decade has been state-run firms investing directly in natural resource projects. With big companies from places like China, Japan, India and Korea stepping up to take ownership of resources in copper to coal to natural gas.
But news this week suggests that dynamic may be reversing. Or at least slowing down significantly.
Several of Korea's state-run energy companies have reportedly decided to divest a slate of their overseas projects, according to local media.
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News sources quoted government officials as saying that six of Korea's national firms will sell up to $6 billion dollars worth of energy assets. This includes a broad range of projects--held by Korea National Oil Company (KNOC), Korea Electric Power Corp (KEPCO), Korea Resources Corp, Korea Gas Corp (KOGAS), Korea Hydro and Nuclear Power Corp and Korea Coal Corp.
The stated reason for the sale is: a lack of profitability. With officials citing the Harvest refining project in Canada as an example of project that didn't pass muster--after the facility was recently sold by its Korean owners, at one-tenth of the original purchase price.
The government warned that, "companies will have to be prudent enough to not repeat the mistake."
Given the companies involved, the coming divestments could include assets in oil, natural gas, uranium and coal.
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This could obviously be an opportunity for incoming parties to pick up projects off the block. But it also sounds a warning that investment in new projects from national resource companies like Korea's could be much more selective going forward.
The bottom line appears to be that the world is learning it's simply not easy to build a profitable resource venture. Even with billions of dollars in backing, it takes strong management and a selective eye to find ventures that will succeed.
Look for details on project sales coming up over the next few months. And watch for a perhaps-slowed pace of new investment coming from national resource firms going forward.
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Here's to being picky,
Dave Forest
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