■ SK Earthon completed its first shipment of 400,000 barrels of crude oil, which was produced at the offshore block in the South China Sea, to an oil tanker since September

■ Vice Chairman & CEO of SK Innovation Kim Jun, SK Earthon CEO Myeong Seong, and others visited the site to encourage the on-site members.

■ Vice Chairman & CEO of SK Innovation Kim Jun stated, “China’s Block 17/03 is the realization of late SK Group Chairman Chey Jong-hyon’s dream for two generations”

SK Earthon, an explore and production (E&P) subsidiary of SK Innovation, has established itself as a “global operator” (resource development company) by completing its first shipment of crude oil from Block 17/03 in China.

On November 22 (KST), SK Earthon announced that the company successfully shipped the first crude oil produced from the LF (Lufeng) 12-3 oil field within Block 17/03, located in the northeastern offshore area of the South China Sea, where the company signed a block contract and has participated in the oil block business which started production last September. The produced crude oil will be shipped via floating oil production storage facilities (FPSO) that load the oil to tankers on the surface using water or underwater hoses. Then, the oil loaded on tankers will be transported to pre-designated sales destinations. The total shipment of crude oil on this day was 400,000 barrels, which is about 15% of the daily oil consumption in Korea.

On the day of the oil shipment, Vice Chairman & CEO of SK Innovation Kim Jun, SK Earthon CEO Myeong Seong, and others visited the site, reflecting on the meaning of the shipment of the crude oil that was successfully produced from a block and encouraging the efforts of SK Earthon members who have overcome numerous challenges over the past eight years. Afterwards, they visited the crude oil production platform and floating crude oil production and storage facilities in China’s Block 17/03 to inspect the current status of the business.

Vice Chairman & CEO of SK Innovation Kim Jun emphasized, “Block 17/03 is the first successful case where oil was discovered and developed through the company’s independent exploration project and led the entire process from initial exploration to production of this shipment with its own technical prowess.” He added, “This year marked 40 years since SK Innovation began resource development, and 34 years since it participated in the operation. The efforts to develop its potential without giving up despite numerous failures is finally getting results.”

In addition, he said, “I’m glad to see the realization of the late SK Group Chairman Chey Jong-hyon’s dream to leap into a ‘global operator,’ culminating in Chairman Chey Tae-won’s generation. Based on this, SK Earthon will grow into a truly global operator, taking responsibility for national energy security.”

China’s Block 17/03 is the first case in which SK Earthon succeeded in producing crude oil within its operational rights. SK Earthon entered the offshore oil block business in the South China Sea in 2015 by signing a block contract with CNOOC (China National Offshore Oil Corporation), a Chinese state-owned oil company. After securing exclusive operational rights for the block, the company successfully discovered oil in 2018 during the exploratory drilling after the foundational exploration projects. Subsequently, it proceeded with oil field evaluation, production platform construction, and other development stages, and finally commenced oil production last September.

Block 17/03 is approximately 300 km from Shenzhen, China, and covers an area that is 15 times the size of Yeouido in Seoul. The daily production volume is about 29,500 barrels based on peak production. SK Earthon expects to record sales of approximately KRW 500 billion from China’s Block 17/03 next year.

SK Earthon CEO Myeong Seong said, “We need to keep focus on stable crude oil production in Block 17/03 in China,” and he added, “In the resource development business, we will create new milestones by making efforts to reduce carbon dioxide, which is generated during the crude oil production stage.”

[Reference] The history of SK Earthon resource development

In the 1970s, after experiencing two oil shocks, late SK Group Chairman Chey Jong-hyon declared the “turning the country without any resources to become an oil-producing country” project and officially launched the E&P business in 1983, starting with participation in the Karimun block in Indonesia. It was the first case of a Korean private company venturing into an overseas resource development project.

SK Earthon (then Yukong) failed in its first project and the subsequent development in the Mauritania block in Africa, but discovered oil in the Marib block in North Yemen in July 1984. The company then began producing 150,000 barrels of oil per day in December 1987. Considering the nature of the E&P business, which requires trillions of won in costs and takes 10 to 20 years or more to yield profits even after successful exploration, the production in the Marib block held greater significance due to a mere 5-10% chance of the E&P business projects’ success.

Late SK Group Chairman Chey Jong-hyon did not blame members even when they failed in resource development. A notable case is the Myanmar resource development that began in 1989 and had a total investment of USD 74.47 million. Due to the mega-project’s failure, the company withdrew in 1993. Late SK Group Chairman Chey Jong-hyon stated, “We are not traders but businessmen. Resource development projects are not able to complete within 1 to 2 years. Do not speak of this failure.”

Chairman Chey Tae-won also recognized the importance of resource development projects and entrusted full authority to experts who could do it best. In 2000, when the President of Peru invited representatives of each company to the Camisia project, Peru’s largest national project, Chairman Chey Tae-won said, “I will give 100% authority, so please take responsibility and make decisions for the success of the company and the project,” while sending a representative to the site at that time.

For over 40 years, SK Earthon has conducted over 100 oil development projects in 34 countries, accumulating technical expertise and contributing to the energy security of Korea. Korea is an “energy-vulnerable country” with over 90% dependence on the energy supply from overseas and imports all of its oil and mineral resources. Yet, the country is ranked eighth in the world in oil consumption. In particular, Korea’s self-development rate* for resources peaked at 16% in 2015 and has since declined to 11% in 2021.
*Self-development rate: The proportion of mineral resources secured through overseas resource development relative to the total amount of mineral resources imported into the country

In this challenging environment, SK Earthon’s successful oil production in China’s Block 17/03 and the exploration success in Vietnam’s Block 16-2 are recognized as unprecedented achievements in the field of resource development.

[Photos]

(Photo 1) On November 21, SK Earthon loaded the oil to tankers on the surface using water or underwater hoses, which produced from the 17/03 Block in the northeastern offshore area of the South China Sea.

(Photo 2) On November 21, Vice Chairman & CEO of SK Innovation Kim Jun (8^th from the left) took a commemorative photo with members to celebrate the first oil shipment at the oil production platform from the 17/03 Block in the northeastern offshore area of the South China Sea.