Risky prospects in Stalinist state

LONDON - British oil company Aminex is taking big risks to invest in North Korea but says the secretive state could be sitting on billions of barrels of oil.

Aminex has signed an exclusive deal with the North Korean Government for onshore and offshore exploration rights.

The company plans to invest up to US$10 million ($14.4 million) over the next 2 1/2 years, shrugging off the risks of uncertain reserves estimates, political worries and the failure of other Western companies to convert agreements to production.

That is a lot of money for a company with a market capitalisation of just US$21 million, but chief executive Brian Hall hopes success in the world's last Stalinist state will transform his firm.

Little hard data has been published about North Korea's oil reserves, but some geologists believe the oilfields of China's Bohai basin, which official Chinese media have said may contain reserves of about 66 billion barrels, could extend into Pyongyang's waters.

North Korea has claimed reserves of up to 10 billion tonnes (73 billion barrels) of high-grade oil, says one pro-Pyongyang website. That would give it some of the largest reserves outside the Middle East.

Hall's estimates are more modest at 4-5 billion barrels - bigger reserves than Britain or Indonesia.

"You're looking at billions of barrels, not hundreds of millions or tens of millions, so you're looking at a serious oil country," he said, sitting in Aminex's London boardroom, where the decor includes a large North Korean flag.

Aminex is working with a North Korean technological institute to identify the best areas for more seismic surveys. It does not expect drilling to begin until 2008.

One of the key uncertainties surrounding the deal is who would get the oil. North Korea faces a desperate energy shortage.

It used to receive subsidised American heavy fuel oil after it agreed in 1994 to freeze certain nuclear research.

But the US stopped the shipments in 2002 after it said North Korea admitted it had retained a nuclear weapons programme.

The International Atomic Energy Agency says the country has produced enough plutonium for several bombs.

Record oil prices this year added to North Korea's chronic economic woes. The Government hopes indigenous supplies might solve the energy problems.

But Aminex, which also has operations in Tanzania and the US, needs to export oil to make money, and Hall said that export right was the single most important issue yet to be agreed with the Government.

- REUTERS