Sovereign Ventures Pte. Ltd., Singapore, is seeking experienced partners to explore and develop the first onshore oil and natural gas concession in communist North Korea to be granted to a foreign company.
The concession, awarded by the Korean Oil Exploration Corp. in September, covers some 6,000 sq miles, or about 5% of North Korea´s landmass. Known as PSCA Techon-Rajin, it is on the Chinese border across the Tumin River in the northeastern part of the Korean Peninsula and southwest of Vladivostok, Russia.
The concession provides for an initial 3-year testing period for geophysical exploration, a 2-year exploration drilling stage, and, if successful, 20 years for development and production. Sovereign Ventures is to invest at least $10 million in the total project, including at least $2 million in the seismic testing and exploratory drilling stages, officials said.
Extensions of the concession agreement can be negotiated on mutually agreeable terms, said Ben Tan, executive vice-president of Sovereign, which was formed in 1993 as the upstream subsidiary of the Korasia group. Korasia is a consortium, majority-owned and managed by Singapore interests, that deals primarily in shipping and commodities trading.
Sovereign Ventures hopes to farm out much of the exploration and development to experienced oil and gas operators. "As this is such a large concession, we want to share the risk as well as the rewards," Tan said. "Based on the size of our concession agreement, recoverable reserves should be well in excess of 150 million bbl of oil or its equivalent in gas."
The company anticipates a 30% success rate in exploration drilling and up to 70% success with development drilling.
Exploration history
Using Russian technology, North Koreans drilled 14 shallow wells in the basin. None went below 1,000 m, and none penetrated the Cretaceous.
"Hydrocarbon shows are said to have been found in some of the wells, a positive sign of potential discovery," said Sovereign Ventures officials.
The area is often called the Dumungang basin. It extends from Tanchon in the south to Tumen in the north and covers about 1,000 sq km. New wells should go to 2,000-3,000 m, the company indicated.
Tan said, "Our concession agreement is very attractive," with tax breaks that "compare favorably" with those offered by members of the Association of South East Asian Nations, which includes Indonesia, Malaysia, Viet Nam, Brunei, the Philippines, Thailand, Singapore, Myanmar, Cambodia, and Laos.
"We expect to be able to recover five times our exploratory and three times our development drilling costs before the production-sharing clause applies," he said.
No corporate tax will be applicable during the first 5 years of operations, said Tan. During the following 2 years, he said, company profits are to be taxed at 5%, escalating to 10% after that.
