Harvest Operations Corporation July 2017
Agenda 1. Overview of KNOC 2. Overview of Harvest 2
Key Strengths Strong Government Support and Strategic Importance to Korea’s Energy Security Well-diversified Portfolio Disciplined Financial Management Solid Access to Debt Capital Markets 3
KNOC is Korea’s National Oil Company 100% Owned by Korean Government KNOC at a Glance: • Special entity established under the Korea National Oil Corporation Act • Engages primarily in E&P, Strategic Description Petroleum Reserve (“SPR”) Storage and Fuel Retailing Financial Control Business Control Policy Legislation • Enhance Korea’s energy security Policy Mandate • 100% directly owned by Korean Ownership government “ KNOC is one of the most important GREs in Korea responsible for exploration, • Continued financial support development and production of crude oil and natural gas and other policy Key Government through capital contribution and roles . ” Support / access to policy loans Standard & Poor’s Credit Opinion, November 29, 2016 Control • Close supervision on all KNOC Measures activities • Aa2 (Stable) by Moody’s , AA “ We believe that KNOC’s strategic importance to the economy and critical KNOC policy role will continue in the medium term, thereby upholding the company’s (Stable) by S&P , AA- (Stable) by 2.4 Rating credit strength. ” Fitch Moody’s Credit Opinion, April 13, 2017 4
Evolution of KNOC Key Milestones 1 2 3 4 Establish Build Reserves in Preparation for Secure Overseas Reserve and Enhance Efficiency / footprints Emergencies Resources Rationalize Assets 1980 : Stockpiling Master Plan 2008: KNOC Expansion Program 2014 : 4 th Stockpiling Master Korea’s Plan, 2 nd Energy 1983 : Overseas Resources Development Policy Development Base Plan and Business Act 5 th Overseas Resources Initiatives Development Master Plan released 1970s 1980s - 1990s 2000s – early 2010s Mid 2010s - Present KNOC’s 1979 : 1984 : Constructed 1988 : Discovered 2000 : Discovered large 2008: Acquired Ankor 2017e : Production from Dana’s Western Isles project Doo Sung – semi- Korea’s first natural Establishment of oil reserve in Vietnam Energy Steps KNOC 1 submersible rig gas in its 15-1 2009: Acquired Harvest continental shelf 1985 : Established Energy Geoje stockpiling facility 2004 : Began gas 1998 : Discovered production in Donghae- 2010: Acquired Dana Donghae-1 gas 1 Petroleum (“Dana”) field 2011 : Acquired stake in Eagle Ford assets from Anadarko 2012: Acquired assets from EP Energy Source: Company data 1 Under the name of Korea Petroleum Development Corporation 5
Strong Government Support Securing Stable Oil Supply as Korea’s Top Priority …but is only ranked #145 in …as a result, Korea is one of the Korea is one of the largest consumers of oil in the world… terms of oil production… largest importers of oil Ranking by Consumption 1 Ranking by Production 3 Ranking by Import Volume 1 1 US 1 Saudi Arabia 1 US 2 China 2 China 2 Russia 3 Japan 3 US 3 India 4 India 4 Iraq 4 Japan 5 Russia 5 China 5 Korea 6 Canada 6 Saudi Arabia 6 Germany 7 Brazil 7 Iran 7 Spain 8 UAE 8 Korea 8 Italy … 9 Germany 9 France 10 Canada 145 Korea 10 Netherland Final Energy Consumption Total Energy Consumption 4 by Source 2 Oil Production Forecast 3 (Unit: million toe) (Unit: 000bbl/d) 300 0.8 Renewable 250 0.7 and other 200 City Gas 6% Vulnerable to 11% 0.4 150 Sudden 0.3 0.3 0.3 Import 100 0.2 Oil Disruption Coal 0.1 48% 50 16% - - - 0 12 13 14 15 16E 17E 18E 19E 20E 21E 22E 2001 2003 2005 2007 2009 2011 2013 2015 Import Domestic Production Electricity 19% KNOC is of Strategic Importance to Korea’s Energy Security 1 OPEC Annual Statistical Bulletin 2016; 2 Korea Energy Economic Institute (November 2016); 3 Wood Mackenzie, as of February 27, 2017; 4 Korean Statistical Information Services (KOSIS) database, as of February 27, 2017 6
KNOC’s Significant Role in Mitigating Oil Supply Risks E&P SPR Storage In preparation for: short-term supply disruption prolonged supply disruption stockpile crude oil and petroleum products for KNOC is required to: secure direct ownership in crude oil immediate use reserves / resources utilize SPR (crude oil and petroleum in order to: directly import to Korea crude oil production products) to ensure market stability from its own reserves in need for additional domestically or as a part of international crude oil supply cooperation Sufficient Reserves to Last 108 Days Significant Increase in Daily Production Without Imports (Unit: days) (Unit: mboe/d) 148 201 108 106 105 83 ~5x 43 2006 2016 US Korea Germany Japan France Source: Company data as of December 31, 2016 7
Legal Foundation for Government Support Special Accounts for Energy Lays key foundation for KNOC’s overseas activities Oil stock piling business and Resources E&P business KNOC’s policy role administration Petroleum and Special Overseas Petroleum Accounts for Resources Low Carbon KNOC Act Substitute Energy and Development Green Act Business Act Resources Act Business Act Guarantee for Repayment (Article 14) Capital (Article 4) Subsidy (Article 15) The Government may guarantee the repayment of the (1) The capital of the corporation shall be KRW13trn Within a scope of the budget, the Government may principal and the interest of debentures issued by, and subsidize activities of the Corporation (2) The capital mentioned in above paragraph (1) shall loans made to, the Corporation be contributed by the government 8
Best-in-Class Credit Quality Comparison with Peers Sovereign Gov’t Publicly Rating Nationality Ownership Listed Rating Outlook Rating Outlook (Moody’s/S&P) Korean SOEs AA ROK Aa2 Stbl AA Stbl Aa2/AA Gov't NO 100% AA- ROK Gov't Aa2 Stbl AA- Stbl Aa2/AA Yes Other 26% s 74% ROK A+ A1 Stbl A+ Stbl Aa2/AA No Gov't 100% Chinese NOCs A Other s A1 Stbl AA- Neg A1/AA- Yes 14% Gov't S&P Credit Rating 86% Other s A1 Stbl AA- Neg A1/AA- Yes 29% Gov't A- 71% Other s A1 Stbl A+ Neg A1/AA- Yes 36% Gov't 64% BBB+ Southeast Asian NOCs A1 Stbl A- Stbl A3/A- No Gov't 100% BBB Gov't Baa1 Stbl BBB+ Stbl Baa1/BBB+ Yes Other 45% s 55% BBB- Baa3 Pos BBB- Stbl Baa3/BBB- No Gov't 100% European NOCs BB+ Other s 33% Aa3 Stbl A+ Stbl Aaa/AAA Yes Gov't 0.00 0.20 0.40 0.60 0.80 1.00 67% Gov't 30% Baa1 Stbl BBB+ Stbl Baa2/BBB- Yes Other Government Ownership (%) s 70% Source: Bloomberg, Moody’s, S&P, as of June 1, 2017 9
Evolution of Korea’s and KNOC’s Credit Ratings Strong Fundamentals of the Korean Economy: Nov 2016 FX Reserve Volume: (Unit: US$ tn) = 3,141 1,291 751 5 th Largest FX Reserve 439 372 Korea Sovereign Rating KNOC Rating 189 138 Aa2/AA Moody’s China Japan Euro Region Taiwan Korea Germany UK S&P Fitch Dec 2015 Current Account Balance and Financial Balance Distribution 1 Aa3/AA- 12% balance (% GDP) Kuwait Korea Current account 8% Qatar Abu Dhabi 4% A1/A+ 0% New Zealand Belgium France UK -4% Financial Balance (% GDP) -8% A2/A -5% -4% -3% -2% -1% 0% 1% 2% Oct 2016 Sovereign Debt Comparison: (Gross Debt, $ of GDP) A3/A- Japan U.S France U.K Baa1/BBB+ Germany Korea 38% 0% 50% 100% 150% 200% 250% '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: Bank of Korea, Bloomberg, OECD Economic Outlook, IMF Fiscal Monitor Database, Moody’s, Standard & Poor’s, Fitch 1 Countries with credit ratings of AA selected as peer evaluation 10
KNOC’s Key Business Areas E&P, SPR Storage and Fuel Retailing Strategic Petroleum E&P Fuel Retailing Reserve Storage “Secure Stable Oil and Gas Supply” “Maintain SPR to Mitigate Any Supply “Promote Fair Competition and Stabilize Disruption” Fuel Costs” Reserves of Capacity of 1,168 stations 94.3 mmboe 1 146.0 mmboe 201 mboe/d 1 Production Oil Storage Facilities Number of retail stations As of YE2016 M/S 9.7% 2 5 th in Korea 1,168 1,136 1,145 1,031 Net 2P 1,416 mmboe 1 487 Reserves Refined products Crude 2012 Apr 2013 Dec 2014 Dec 2015 Dec 2016 Dec LPG Source: Company data as of December 31, 2016 1 Company estimate; 2 Based on the number of retail stations 11
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