As SK Innovation celebrated its 60^th anniversary in 2022, 2023 marks the beginning of a new 60 years of its history, and it is also the second year the company and all subsidiaries execute their Financial Story.

To learn more about the company’s strategies and plans for this year, we’ve met the executives of SK Innovation and its subsidiaries and asked them in detail.

Myeong Seong, CEO of SK Earthon, is the next guest of this series. He shared with us how the company is turning a new page to become a “carbon neutral company” after 40 years leading the Korean resource development industry. “You have to run hard to stay in place, and you have to run twice as fast to move forward,” said CEO Myeong during our talk. Let’s check the full story below.

 
 
Q1. Through an interview at CES 2023, you remarked that this year, SK Earthon is going to bring outcomes through the upstream and the green businesses. Could you please elaborate on that?
 

Before talking about what we’re going to have in 2023, I’d like to mention about what we achieved in 2022 first. Last year, SK Earthon worked around the clock and accomplished the highest record of management performance, both quantitatively and qualitatively, despite uncertainty in internal and external business environments. But I believe such achievements are the beginning of greater results.

Regarding the upstream sector, we are expecting that the crude oil production in Block 17/03 in China, which was the first in the operating rights business to succeed in discovery, will be able to start in the second half of this year. Block 15-1/05 in Vietnam is in the progress of receiving the development approval from Vietnamese government to start producing crude oil in 2025. Besides, in order to maintain our new exploratory drilling and exploration inventory at an appropriate level, we’re doing our best to successfully acquire new blocks in strategic regions, including Vietnam and Malaysia. Though the energy transition has begun, there are still many factors that make the energy supply chain unstable. Resolving this problem is the responsibility of SK Earthon, which has been leading the Korea’s resource development for 40 years.

Regarding the green sector, 2023 will be the year for SK Earthon to concretize our “Carbon to Green” strategy. In the meantime, to discover business opportunities of the Carbon Capture and Storage (CCS) sector, we’ve been attempting to secure suitable sites as a storage in the West Sea and East Sea of Korea. We are also forming various types of cooperation with global companies such as Shell and Petronas, as well as executing plans to participate in the CO₂ storage business in Malaysia and Australia.This year will be a significant year for SK Earthon to solidify its position as a Carbon Solution Provider as our efforts are leading us to more practical results. In other words, we will present in detail what a Carbon Solution Provider in the exploration & production (E&P) field can do.

On the other hand, considering the characteristics of the CCS business that requires much time until its business environment to mature, SK Earthon’s Green Center, which was established newly this year, is going to accelerate the CCS storage business while on discovering new Green Business items that return outcomes in a short period of time.

▲ SK Earthon CEO Myeong Seong watches a video that explains the CCUS (Carbon Capture, Utilization and Storage) technologies shown at SK exhibition hall at CES 2023 held in Las Vegas, the US, in January this year.

 
 
Q2. Experts are having negative views on this year market. Variables such as oil prices and risks in the international situation seem to have direct impact on SK Earthon’s business performances. So what is your plan to response to the increasing uncertainty in business environment?
 

As I mentioned in the new year’s address to SK Earthon’s members earlier this year, external risks surrounding the whole energy industry are getting deteriorated day by day. These include impact from the global pandemic, geopolitical uncertainty, accelerating energy transition due to climate change, etc. And the risk of a global recession is likely to threaten every nation, industry, corporation, and individual greatly.

Along with such threats, SK Earthon has to consider every single risk factor in finance, operation, law, and more aspects, which may appear in the course of respective business operations. Recently, we have been affected by the global recession, including continued inflation and interest rate increase, the uncertainty of energy supply due to the Russo-Ukrainian War situations, and the oil-and-gas price fluctuations depending on climate change measures. By deducing possible scenarios and executing plans to mitigate them, the Risk Management Committee, which was launched last year, will closely handle uncontrollable risks related to market demand, such as the global demand for oil and gas, which we need to watch among these factors from now on.

Looking back on SK Earthon’s history, there actually has never been a time when the company operated business without any risk. Therefore, when uncertainty is high, it’s the most important to identify predictable risks thoroughly, prepare the countermeasures, and build an effective early warning system based on close monitoring and assessment. Creating such a detailed scenario will determine this year’s business performance.

On the other hand, SK Earthon sees risks as opportunity factors at the same time. If we overcome difficulties due to uncertainty by turning them into footholds to growth, we can develop further in the future, I believe. That’s why we should equip ourselves with everyday readiness to discover and capture opportunities in market conditions in crisis. To do so, SK Earthon will consistently strive to create methods that can actively take advantages from changes in market environment.

 
 
Q3. SK Earthon was launched on October 1, 2021, so we could say that last year was the first year after the spin-off from SK Innovation. In other words, the company is very young that 2023 is its second year. Compared to before the spin-off, what has changed the most in your point of view?
 

▲ At SK Earthon’s inauguration ceremony titled “SK On, SK Earthon,” held in SK Seorin Building (located in Jongno-gu, Seoul) on October 1, 2021, (starting from the third person on the left) SK Innovation’s CEO Kim Jun, SK Earthon CEO Myeong Seong, and SK Innovation’s Chairman of the Board Kim Jong-hoon are taking a commemorative photo.

As you said, SK Earthon kicked off last year. More accurately, the beginning of the corporation was also the beginning point of our Financial Story, which expresses our will to design and make our future and growth by ourselves. When we began in 2022, we accomplished the highest record in management performance both in quality and quantity, and proved ourselves as a stand-alone company.

SK Earthon’s history of overseas resource development originates back to 1982. Yukong (Korea Oil Corporation) was privatized, and only three or four staff members were allocated in the General Planning Office to manage the company, where our history started. An exclusive organization was founded in 1983 and made the first challenge at Karimun Block in Indonesia, but the attempt ended up in failure. However, thanks to efforts by our predecessors who continued their challenges without being frustrated, and also thanks to insights from top executives who kept their long-term perspectives and did not blame for the failures, we now stand as a private resource development enterprise with the longest history in Korea and created many successful cases.

Since such a historical background continues with stories of resource development for 40 years, I barely find any critical differences between before and after the spin-off, in the aspect of our works or organizational culture. But, as an independent company promoting the acceleration of Green Transformation, the fundamental differences include the promptness of decision-making, the establishment and advancement of our own system and infrastructure, and above all, our members’ awareness that we must pioneer our own future.

Even for me, our members’ dedication toward being an independent company is really impressive. As I mentioned before, we will make sure of the following three things: preparation for the energy transformation in advance, solution for the imbalance of energy supply, and Green Transformation that will help both Earth and the people. Not only our members but also external stakeholders share a consensus and willingness to execute the three major directions mentioned above, and that is the biggest difference after the spin-off.

 
 
Q4. SK Earthon’s Financial Story can be summarized as the record of a journey to becoming a Carbon Neutral Company in the exploration & production field. A lot of people are wondering about the way the petroleum development company will turn itself into a Carbon Neutral Company. The CCS was reportedly discussed as one of the main topics in SK Earthon’s strategy workshop last fall. What approaches do you have?
 

▲ SK Earthon CEO Myeong Seong is greeting participants at the SK Earthon strategy workshop, held in SK’s Mu-ui Institution in October 2022.

There are mainly two approaches to a Carbon Neutral Company that makes profit from resource development: One is to reduce CO₂ itself generated in crude oil production processes, and the other is to capture the generated CO₂ and store it underground permanently. In 2023, we have already applied a CO₂ reduction design to the Chinese 17/03 Block, where we’re expecting the first crude oil production in our operational business. That design, in order to decrease about 30% of CO₂ generation, raises operational efficiencies in various ways such as recycling waste heat retrieved from power generator emissions. In addition, we will keep discovering technologies to additionally improve the operational efficiencies for crude oil production and expand the applications to other blocks we operate. Our various attempts and efforts will be consistent until we finally accomplish our goal of being a CO₂ free operator.

In addition, I would like to talk about the CCS business, a method that stores CO₂ underground permanently. SK Earthon has experience and know-how in petroleum development accumulated for more than 40 years. Since we know about carbon better than anyone else, we have more confidence to say that we can be a “Carbon Solution Provider.” Upon such belief and assurance, SK Earthon organized a task force (TF) in 2020 and initiated a feasibility assessment for the CCS business. Technological capabilities required to explore and develop CCS storages are almost identical to the ones for the underground structure assessment, which are used in the petroleum development business. Thus, here we can utilize our exploration capabilities and technologies for petroleum development that we have accumulated and developed for a long time. And that’s why we’re planning to expand our business model to the CCS business, which captures and permanently stores CO₂ generated from the uses of fossil fuels.

After taking our first step by securing storages with a capacity of 2 million tons per year in 2030 to process CO₂ generated from SK Group as well as other corporations worldwide, we will become a private enterprise leading the country’s achievement of Net Zero in 2050. To this end, we are actively promoting the overseas storage discovery business in the USA, Australia, and Malaysia as well as domestically. In addition, as a practice of the Green Transformation, we’re conducting studies with leading corporations to specific levels in order to discover new green business items, which include eco-friendly energy source business and secondary-cell material mineral business by utilizing SK Earthon’s Upstream technologies and business management capabilities. With these innovations, I’m confident that the green business will greatly contribute to strengthening our executive ability as an essential axis in SK Earthon’s Financial Story.

▲ As a practice of the CCS business, SK Earthon is participating in the national project of Donghae offshore gas fields of the Korea National Oil Corporation.

 
 
Q5. The technological advance accumulated for 40 years has become a rudder that opens the way for the future. What do you think is SK Earthon’s fundamental competitiveness that enabled the company to write the history of Korea’s energy development industry?
 

I want to emphasize the path of successes and failures that SK Earthon has walked through, and the challenging spirit of each member. We call it “exploration spirit,” and I can say that it is also a corporate culture that SK Earthon is most proud of. For growth and development of a corporation, I think such a unique and common culture of the organization has to be accepted into the members’ minds. I am confident that the DNA of the challenging spirit, bound with our technological competitiveness and advanced expertise, will become SK Earthon’s unique and unrivaled asset that will never change.

Plus, in the aspect of the corporate culture, I think other strengths of SK Earthon include a culture of trust and compliments originated from acknowledging the value of individuals and their work, flexible yet powerful teamwork, and consideration and dedication to colleagues. SK Earthon has begun a campaign named “Ping-Pong-Dang,” which encourages the members to give constant compliments to each other. And I am proud that the campaign has settled down as SK Earthon’s own unique culture and is also creating positive energies among members.

I believe that SK Earthon will grow further through synergy between the culture of acknowledging the value of individuals and the exploration spirit, which is pioneering new paths by boldly facing challenges and failures.

 
 
Q6. To SK Earthon, it seems that 2023 will be a year busier than any other year. In particular, securing global talents will be more important than ever given the nature of SK Earthon’s business, most of which is carried out overseas.
 

Based on the strategy to secure the CCS business in and outside of Korea, SK Earthon intends to cooperate with global partners in Australia, the US, and Malaysia. By exploring and developing the storages with the companies that are not only familiar with local circumstances, but also have rich experiences and top-notch technologies in the CCS sector, SK Earthon expects to strengthen its technological capabilities, exchange manpower if necessary, and form a team with all other companies, governments, and experts who are sharing the same vision of carbon reduction. It is in the same context as SK Group Chairman Chey Tae-won emphasized, “To reduce carbon emissions, we need many friends to be with.” SK also has exhibited its carbon reduction efforts under the theme of “SK and Friends” at CES for the past two years. Besides, discovering and collaborating with small hidden domestic and overseas champions possessing core technologies related to the CCS business will give us the chance to secure global talents.

We will also try our best to actively secure anything that can give us a differentiated competitive advantage. During the last year, we have been intensely contemplating and discussing what core capabilities SK Earthon should possess, to what level, when, and how to secure them. As a result, we determined core capabilities in five main areas of “Upstream Core Tech.,” “CCS Core Tech.,” “Financing,” “Risk Management,” and “Global Operation.” We also established plans to strengthen these capabilities by objectively and closely evaluating the current level of each capability. According to the plans, we will continuously secure our capabilities.

 
 
Q7. While last year was the 40^th anniversary of SK Earthon’s foundation, we could say that this year is the year to start a new 40 years. Please tell us SK Earthon’s resolution for the next 40 years.
 

 

Our destination is to become a Carbon Neutral Company centered on two axes of the Upstream and the Green. It’s clear and simple. But the external environment surrounding us is not clear, and the things we should do are never simple. That is why I ask the members have a higher level of thought and immersion into their respective position. For that reason, though we are planning total support for the Green Transformation, such as securing the global talents we need, I emphasized the “Red Queen hypothesis,” which states you must run twice as fast to move forward because even if you run as fast as possible, you will still be in your place.

In 1983, when SK Earthon was drilling for oil on 8 exploration wells at the Karimun Block in Indonesia, few expected that it would write the history of Korea’s resource development for 40 years. Soon, “Our Story,” which summarizes the history of challenges for the past 40 years, will be published as a book. Over the past 40 years, we achieved ▲world-class expertise in resource development, ▲the great history of making Korea a resource-free oil-producing country, and ▲sufficient capacity and confidence to take on the challenge of becoming a “Carbon Solution Provider.” Not many companies in Korea and around the world have experienced this kind of growth process.

The new 40 years that SK Earthon will create has already begun. If the challenge we have overcome so far has been centered on “the utility of people,” from now on, the resolution is completely different in that we will be taking on “challenges that prioritize both people and the earth.” It is like the days when SK took on challenges of resource development 40 years ago when there was no regarding human resource or experience. Fortunately, we have our members who can clearly understand and lead the business as well as corporate culture that is not afraid of failure, from which our new 40-year challenge starts. I look forward to your support and encouragement for SK Earthon’s challenge.