▲Kim Tae-won, President of SK Innovation E&P Business

Q1. SK Innovation’s E&P Biz. has recently executed a divestiture of assets, what is the background of this?

In the past few years, E&P Biz. has been placed in the epicenter of fast changing environment, including the ‘Shale Revolution’. Even this turmoil of uncertainty, I believe we have accomplished meaningful achievements through proactive measures and actions against the change and uncertainty.

Especially, 2019 was a meaningful year for E&P Biz. as we have executed the divestiture of Peru 88/56 and acquired projects in China & Vietnam for deep change of the business model.

Yet, uncertainty still lies in the market. Decarbonization, energy transition, high volatility of oil/gas price, geopolitical risks and digital transformation are the main drivers of the fast changing environment. To cope with this very environment, SK Innovation’s E&P Biz. has been focusing on restructuring the business portfolio to the ‘operatorship-based’ and ‘target area-focused’ projects. For successful implementation, we are planning to establish sustainable ‘New E&P’ through three key values that are required to cope with the deep change: Transformation, Innovation and Happiness.

Q2. Can you elaborate more on the concept of ‘Transformation’ and its role in establishing the ‘New E&P’?

I’d like to offer three types of ‘Transformation’ that must be factored into our business model.

First, transformation of the business model in conventional assets. SK Innovation’s E&P Biz. is in the progress of transforming its conventional business model from non-operatorship-based to operatorship-based assets, and we are planning to take a further step towards this movement. Recently, SK Innovation’s E&P Biz. has acquired the operatorship and successfully discovered oil in PRMB block 17/03 in South China sea as a Korean company. With successful development & production of the discovered oil, we will sequentially apply the acquired know-how to future projects. In alignment with this strategic direction, SK Innovation’s E&P Biz. plans to acquire operatorships in nearby projects, where we can apply the technology and the experience that we have accumulated in the past.

Second, transformation of the business model in unconventional assets. Regarding the production assets in Oklahoma, we are in the progress of reviewing the value-up plans and growth strategies based on integrated technical studies. Should this analysis and conclusions find to be valid, it will lead us to the bigger games in the unconventional market.

Lastly, the pursuit of the social value. Globally, E&P businesses take an inextricable role as a supplier of the energy resources, and at the same time, they are asked to fulfill the needs of preventing the climate change and global warming. Hence, we aim to transform our business model in a way that the oil can be discovered and produced in environment-friendly manner. This will eventually allow us to co-exist with every stakeholders rather than merely seeking for higher oil price.

▲ SK Innovation discovered additional oil in Vietnam 15-1/05, a solid producer since 2003, through exploration in March 2019.

Q3. Are there any other core areas besides U.S., China and Vietnam that E&P Biz. is interested in?

U.S., China and Vietnam are our starting point of “Choice & Focus”, where we can most efficiently utilize our resources and maximize the success rate. Acquired expertise and know-hows from these areas combined with bigger resources will allow us to expand our theme of “Choice & Focus”.

▲On-site drilling, North America

However, these preparations cannot be arranged at once. Since 2017, E&P Biz. has been looking into new promising opportunities by short-listing the potential areas. Furthermore, we have newly established “E&P Portfolio Transformation Office” through restructuring of organization last December. As PTO will continue their search for unconventional resources in potential areas other than the United States, we believe that their efforts will come to the fruition in foreseeable future. As we establish longstanding excellence in the market and continue to accumulate successful experiences, our energy influence in the market will start to grow.

Q4. What will be the “Innovation” in E&P Biz.?

The most important driver of our business transformation and successful operations is our ‘people’. E&P Biz. will continue to innovate with the purpose of strengthening our technical capabilities that we’ve built over the last several years and systemized into ‘E&P technology roadmap’ in 2019. SK Innovation is a leading E&P company in South Korea but there are still more to improve in order to catch-up the gap with the industry forerunners like Exxon and BP. That being said, we are currently focusing on strengthening our key technologies that have greater impact on our projects. Improving the imaging of the seismic data and adopting the quantitative interpretation will increase the success rate of exploration.

In addition, E&P Biz. is already expanding its application of Digital Transformation (DT) and Artificial Intelligence (AI) in every process of the exploration, development, operation and etc. We are carrying out DT projects that have practical use in onsite operations, and development of cloud-based database system for North America is in their last phase for the completion. In 2020, we expect to see more tangible achievements in theses DT tasks.

Nonetheless, our innovation should not be limited to the technical aspect of the business. An operator in E&P Biz. does not simply mean that we have the majority share or the deciding votes. An operatorship should develop management system that allows timely decision and establishment of strategies in many different business environments around the world. Efficiencies must be improved through standardization of formal and repetitive course of work, and expertise must be strengthened through secured time and acquired resources.

Q5. As you have mentioned Digital Transformation (DT) as a key driver in innovation, could you elaborate more on your thoughts in this matter?

Finding something invisible from the ground is the biggest advantage in E&P industry, and therefore advanced digital technology became a must to develop a comparative advantage over other competitors. Digital technology will increase the chance of successful development and production of the resources buried underground, and it will eventually become our key advantage over other players.

Seismic survey is the technology that enables us to interpret the data acquired through the seismic waves, and allows us to determine the location of the source rock. It has been a technology that SK Innovation’s E&P Biz. have developed through decades of businesses in the conventional sector, and it is what other similar-sized shale gas companies fail to possess. Having advantage in E&P business can be boiled it down to producing more oil and gas with the lesser costs. Therefore SK Innovation’s E&P Biz. aims to utilize our optimization know-hows combined with the cutting edge data science to prepare for the upcoming new era.

This year’s focusing point on the digital transformation is to accomplish the tasks in geological analysis, engineering and data management. In geological analysis, we have newly established projects in machine learning, mineral fraction and lithofacies analysis. For engineering, we plan to utilize video analysis through drones, ESP optimization and rod-pump optimization.

In essence, E&P Biz. will strive to turn Digital Transformation into our core competitiveness through recruiting high-caliber talents and further developing the expertise of the E&P members.

Q6. What is your opinion and commitment on ‘Happiness’?

Franklin D. Roosevelt, in his presidential inauguration speech in 1933, said that “Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort”. I am convinced that we will make and share more happiness through our collective efforts and achievements, and more importantly, through the joyous process of working together.

Happiness is the ultimate goal of our company. Transformation and Innovation tasks mentioned above can play important roles in the happiness our company employees and other stakeholders. 2019 was the year of dialogue (“Happiness Talk”), understanding and commitment to set the stage for the change from “money world” to “happiness world”. In 2020, we will invite even more participation of our co-workers to foster happiness of our people by identifying and removing pain points, by introducing and revising company processes or by encouraging leaders to lead the change in the company culture.

In regards to the ‘Happiness Commitment’, I wish to derive tangible changes through accomplishing three personal commitments: ‘Health’, ‘Family’, and ‘Communication with the members of SK Innovation’s E&P’

For ‘Health’, I plan to take more than 50 thousand steps a week on a regular basis and maintain a healthy diet. Through these activities, I wish to share the positivity that I have gained with the members of the E&P.

For ‘Family’, I plan to take Tango lesson with my wife once in a week. I wish to enjoy the meaningful moments in my life with my family to share happiness & emotions.

Last commitment would be the ‘Communication with the members of SK Innovation’s E&P’. To raise our understandings on each other, I plan to host “ONUC” talks more than 50 times in this year. “ONUC” is an abbreviation for “Open-minded, Non-bureaucratic, Understanding and being communicative, and Colleagues and I”. Throughout the year, I would like to communicate with the leaders and members of the SK Innovation’s E&P Biz. in all corners of the world with open-minded and non-bureaucratic manner.

Q7. “ONUC” seems like an interesting title. Are there any examples that you can provide?

E&P Biz. has high portion of global staffs within the business. There are more global staffs than Korean expats in Houston headquarter in particular, and it is important to share and understand the culture. In order to do so, we chose “Sauna (Korean hot spa)” as our very first step. The first Sauna opened their business in Houston last year, and we decided to take a visit with 10 random members including global staffs. Although Sauna was an unfamiliar place for some global staffs, we had a “Hot Naked Talk” in an open-minded and joyous mood as ONUC. In the end, we all enjoyed the experience and become closer to each other.

The second event was watching the movie “Parasite.” Celebrating for winning four Oscars, we watched the movie at a theater in Houston together. It was truthfully a meaningful time since we shared our opinions and discussed the social issues in the world that the film implies.

This “Fun, Communication, and Understanding” gained through these activities creates certain intimacy and common factors between people regardless of their position, age, race and nationality. It is also a great appetizer before the heavy business meeting, which leads to smoother discussion, stronger teamwork, and ultimately enhancement of the level of happiness for all E&P members. If we choose continue on these events with sincerity, I am confident that it would become an another intangible competitiveness for our company rather than a one-time event.

Q8. People are interested in SK Innovation’s Social Value (SV) activities. What can we expect from the E&P Biz.?

Social Value (SV) is another important component of our business transformation. In every aspect of our operations, we should find ways to explore, develop and produce oil and gas in a more safe, environment-friendly and socially-responsible manner. If the entire process of business can be proceeded in such manners, we will be able to produce social value along our way to strengthen the competitiveness. Furthermore, I am convinced that businesses that are agile enough to adapt to these environments will survive and maintain their sustainable growth in the market.

Last year, we came up with a formula that measures the level of social value created, and now is the time that we apply this formula to solve the equation. We will focus on finding environment-friendly methods for operation such as reduction of carbon-emission, protection of the water resources and preventing the soil pollutions.

One of key characteristics in SK Innovation’s global business is that we always engage in social activities. In Vietnam, we are participating in the restoration of Mangrove forest with our local partners. In September 2018, we took a further step and signed MOU with PetroVietnam Exploration Production Corporation (PVEP) to take part in the ‘Mangrove Reforestation Project’. In Peru, we have established and supported the local social enterprises such as Yachawashi (Agricultural Technology Center) for a decade. In Houston, we have sponsored the Korean studies program in Rice University for 2 years.

▲ (Left) Rice University students visit Korea and social enterprise “Morethan” on June, 2019. / (Right) SK Innovation members participated in Mangrove Reforestation Project in Vietnam in April, 2019.

Pursuing sustainable and environment-friendly developments in global businesses will eventually become a natural aspect of business just like breathing in air.

Q9. Any last comments for the readers or the members of the SK Innovation’s E&P Biz.?

One of the very first things that Sun-Kyung (SK) did after the acquisition of Yu-kong (NOC) in 1980 was the establishment of the Resource Planning Office. From that moment, SK has begun their journey of resource development as a Korean company. I am confident that SK Innovation’s E&P Biz. is the history of South Korea’s upstream industry. In April 1983, we took our first exploration in Karimun Block, Indonesia. Albeit the unsatisfying result, we built the foundation for our next step and became the first in Korea to secure an overseas oilfield through the successful exploration of the Marib oil blocks in North Yemen. Three years after the exploration, we have succeeded in bringing the crude oil that we have produced by ourselves, to the harbor in South Korea. This became our first fruition in the project of ’Oil production in a country with no resources buried underground’.

Since I joined the SK Innovation’s E&P Biz. in 1988, there always have been series of challenge and failures. We once hopped into the Amazon jungle with a mission of resource development but returned with our empty hands. I also vividly remember the joyous moments when we successfully connected the gas pipelines from the Andes Mountain to the export ports. But most of all, I will not forget the moment when the former chairman once told me, “If you earn a dollar, make 30 cents of investment and do not blame yourself on the decision you made”. This keen insight, which puts the emphasis on the importance of risk-taking and making bold investment in E&P business, has always been my motivation for making challenges over and over again. With more than 40 years of accumulated experiences through many different projects, SK Innovation’s E&P Biz. now possesses the core technology like shale gas mining. At the moment, SK Innovation is the one and only Asian company that produces shale oil in the United States.

But we must move on. We must take bold actions, and if necessary, we must proceed and make divestiture of the core assets in order to keep our business growing. SK Innovation’s E&P Biz. must continue to further develop our expertise in the field and adopt the new technologies. Internalization of the social value and efforts for the deep change is a must.

For my last comment, I would like to convey my sincere gratitude for every members of the SK Innovation’s E&P Biz. who are still making their efforts to cope with the fast-changing environment. I would also like to thank readers of the SKinno News for all the support and interest in SK Innovation’s E&P Biz.