Korea Gas Corp: Drill Baby Drill

• On 3 June, the shares of Korea Gas jumped limit up 30% to 38,700 won on huge volume (13.4 million), which was 37x higher than the previous day volume traded.

• This was driven by the announcement of the South Korean President Yoon giving the approval to conduct exploratory drilling for potentially vast oil and gas prospects near Pohang.

• The Korean government announced that there is a "very high" possibility the area contains as much as 14 billion barrels of oil and gas.

On 3 June, the shares of Korea Gas (036460 KS) jumped limit up 30% to 38,700 won on huge volume (13.4 million), which was 37x higher than the previous day volume traded. Other gas related stocks in Korea also jumped higher. This was driven by the announcement of the South Korean President Yoon Suk Yeol giving the approval to conduct exploratory drilling for potentially vast oil and gas prospects near the city of Pohang in the east southern coast of South Korea.

The Korean government announced that there is a "very high" possibility the area contains as much as 14 billion barrels of oil and gas. About 75% of the prospects are estimated to contain gas and the rest oil.

This project is initially estimated to cost more than 500 billion won ($363 million). The drilling for oil and gas is expected to start in 4Q 2024 and it is hoped that new energy reserves could be found by 1H 2025. The commercial production is targeted for 2035. According to the Korean government, the new prospects promise enough gas to fuel the country for 29 years and oil equivalent to four years of consumption.

In the past several decades, South Korea's exploration efforts for oil and gas has not amounted to much success. In fact, it is estimated that only about 4.5 million barrels of gas reserves have been tapped near the coast of Korea since 1996.

Given the fact that South Korea is the world's second largest importer of LNG and the fourth largest buyer of crude and gas, if it is able to source significant amount of gas on its own nearby coast, it would greatly reduce the burden of these costly oil and gas imports. Korea National Oil Corporation (KNOC) will lead the drilling, aiming to determine the size of the prospects. Up to 10 wells may be needed to be drilled at a cost of 100 billion won each.

In 2023, the South Korean government commissioned an in-depth analysis of the area for potential oil and gas reserves with US-based research firm ACT-Geo after an earlier study showed a high possibility of gas and oil reserves near the southeastern coast of Korea. If the volume is confirmed through drilling explorations, the value of the reserves, is estimated at US$1.4 trillion, according to the South Korean government. In 2023, Korea imported 1.06 billion barrels of crude oil and 44.15 million tons of natural gas, according to KNOC.

Red Circled area is the potential prospect of gas and oil (Source: kedglobal)

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Is This a One Day Momentum Play or Will the Positive Momentum Last Longer?