Yoon pushed East Sea oil, gas drilling despite uncertainties, audit finds

An audit has found that the presidential office under the former Yoon Suk Yeol administration intervened excessively in the so-called Great Whale project, a deep-sea oil and gas exploration project in the East Sea.

The project was a major state-led initiative to explore and drill for what was believed to be potentially vast oil and gas reserves in deep waters off Yeongil Bay in Pohang, North Gyeongsang.

The Ministry of Trade, Industry and Resources briefed the presidential office in person in May 2024 on a prospectivity assessment by U.S. consulting firm Act-Geo and recommended against publicizing the findings because “the chances of successful exploration were uncertain,” according to the Board of Audit and Inspection (BAI) Wednesday.

The presidential office, however, unilaterally informed the ministry that the findings would be announced to the public. On June 3 that year, then-President Yoon held a government briefing himself despite objections from his aides and announced that there was a “high possibility of up to 14 billion barrels of oil and gas reserves.”

The figure of “up to 14 billion barrels” cited by Yoon was calculated by simply adding together estimates for all seven prospects under the assumption that exploration at each would succeed under the most optimistic probability scenario, known as P10, the BAI said. However, the probability of successful exploration at all seven prospects was just 0.000218 percent.

Yoon also actively intervened in the drilling schedule. Korea National Oil Corporation (KNOC) initially reported a plan to drill three wells on its own between 2024 and 2026, followed by the remaining two wells in 2028 and 2029. The presidential office, however, demanded that the drilling schedule be moved forward so it could be completed before Yoon’s term would have ended in May 2027.

When then-Trade Minister Ahn Duk-geun presented a revised schedule that moved completion up to the first quarter of 2028 and said a political judgment was needed, Yoon rebuked him, saying, “I make the political judgments,” and ordered officials to draw up another schedule.

The BAI did not determine whether laws or regulations were violated in connection with the ministry’s reports to the presidential office or Yoon’s public announcement.

“There are no relevant regulations, so no separate action will be taken against the presidential office or the ministry,” the BAI said.

The audit also uncovered several problems in the execution of the project.

KNOC identified seven prospects based on Act-Geo’s assessment and decided to drill the Great Whale prospect, which was projected to contain the largest volume of resources.

Act-Geo estimated the geological chance of success — the probability of discovering oil or gas — for the Great Whale prospect at 19.1 percent. That was even lower than the estimated probability for a gas prospect where exploration failed to find gas in 2021. 

The BAI concluded that KNOC proceeded with drilling without sufficient verification, and drew up its basic plan after checking only whether the analytical methodology was appropriate.

The audit also found that KNOC launched bidding for a drilling rig charter without going through required procedures, including review and approval by its investment risk committee and board of directors. As a result, the company lost an opportunity to save about $3.11 million in charter costs.

KNOC also violated the Act on Contracts to Which the State is a Party when selecting a company to conduct the prospectivity assessment, the audit found. Although 20 companies were capable of carrying out the work, KNOC arbitrarily selected four for bidding despite failing to meet the requirements for a selective competitive bidding process, which restricted fair competition. It also failed to disclose the evaluation criteria for the two-stage bidding process and undermined transparency.

The BAI also pointed to conflicts of interest in KNOC’s performance evaluations. The company incorrectly assessed unmet performance indicators as having been achieved, which resulted in a higher evaluation grade for the division overseeing development projects. An executive who had been promoted to head of the division also directly evaluated the performance of a department where the executive had previously worked and received tens of millions of won in performance bonuses.

Still, the East Sea deep-sea gas project, which had been at risk of stalling amid the failure of the first drilling attempt and a change in administration, has recently entered a new phase with plans for a second round of drilling as an energy shock linked to the Strait of Hormuz adds new urgency to the project.

The government selected British energy company BP as its partner for the second drilling campaign in May. BP is said to have assessed the potential of the other prospects more highly than the Great Whale prospect targeted in the first drilling campaign.

The government is moving forward with the second drilling campaign by allowing BP to take a stake of up to 49 percent as part of efforts to attract private investment and share the cost of future drilling.

BY YEO SUNG-KUK [[email protected]]