South Korea's state oil company is buying Harvest Energy for nearly $4 billion, the two enterprises said Thursday.

The move by Korean National Oil Corp. would be South Korea's biggest acquisition of a foreign oil firm as it seeks to secure new sources of energy. Coming on the heels of PetroChina's purchase of a stake in Athabasca Oil Sands Corp., it would also be the second major purchase of a Canadian energy firm by an Asian power in the last few months.

Pumpjacks extract crude oil near Stettler, Alta., in 2007. In recent months, the state oil companies of South Korea and China have made large bids for Canadian energy assets. (Larry MacDougal/Canadian Press)

Among other holdings, the South Korean firm would take over the oil refinery in Come By Chance, on Newfoundland's east coast, about 150 kilometres from St. John's. About 600 people work at that refinery.

Harvest CEO John Zahary said the future of the refinery is looking better because of the deal. A year ago, Harvest shelved a $2-billion expansion to the refinery.

The odds of that project going ahead now are greater, Zahary told The Canadian Press. "Certainly it doesn't hurt. Having an organization that can make an offer of $4.1 billion means that they're pretty financially capable," he said.

South Korea's Ministry of Knowledge Economy valued the deal at $4.1 billion. In a separate release, Calgary-based Harvest Energy said the deal consists of a cash payment of $1.8 billion and Korean National Oil assuming $2.3 billion in debt.

The deal is a 47 per cent premium over Harvest's average stock price during the past month.

In Toronto, Harvest's units closed up $2.49, or 34 per cent, to $9.79.

Harvest's board of directors has approved the deal, contingent on Canadian court and regulatory approvals. The deal is expected to be closed before the end of 2009. Industrially strong but resource-poor South Korea imports almost all its oil and gas, and is moving to secure new sources of energy.

3-month stock chart for Harvest Energy on the TSX. (CBC)

The company is involved in oil exploration as part of a consortium with other South Korean companies in the Kurdish region of Iraq. It is also active in energy projects in Indonesia, China, Uzbekistan, Nigeria, Peru and other countries.

Kang Young-won, CEO of Korean National Oil Corp., said the deal fits the South Korean company's expansion strategy.

"KNOC has ambitious plans for future growth and is committed to a long-term investment strategy in Canada," he said in the Harvest Energy release.

Patricia Mohr, vice-president of economics at Scotia Economics, agreed there are more deals to come.

The takeover "probably indicates a growing interest in Canadian oil and gas assets from oil and gas refiners and the oil and gas industry in Asia," she told CBC News. "They may feel the need to cement greater security of supply for energy and this is one way of doing it."

Mohr said it may not be just petroleum up for bid, given state-owned Korean Electrical Power Corp's long-term deal four months ago to take a $68-million US stake in Toronto-based Denison Mines in order to guarantee a supply of uranium to 2015.

Energy security a priority

Southeast Asian economies "probably view the Canadian energy patch as a very secure supply source for energy and that probably accounts for their interest," she said.

PetroChina in September bought positions in two projects run by Athabasca Oil Sands Corporation. Given that and the Harvest Energy deal, Mohr expects support to grow for Enbridge's proposed Northern Gateway crude oil pipeline from north of Edmonton to Kitmat in northern B.C. in order to reach Asian markets.

Mohr said it would be a good idea "to diversify our exports away from the U.S. market which is maturing in terms of petroleum demand growth to some of the faster growing markets in Asia."

Rene Rosales, vice-president of strategic development for AJM Petroleum Consultants in Calgary, didn't agree that the deal increases support for a pipeline.

Given the large volumes of oil required to support the pipeline, construction may still be a long time off, he said.

Rosales said he expects KNOC will enter swap agreements with other companies, selling its output from Harvest to refiners in North America and in return buying their crude closer to home.

Harvest Energy both explores for and produces oil and natural gas. The company can produce 53,000 barrels a day of oil and gas.

Harvest production is weighted at approximately 70 per cent crude oil and liquids and 30 per cent natural gas.