Episode 164
“Please give him my best regards,” I said, and Director Lee of Daehoo Energy’s Middle East branch, who was also acting as my interpreter, relayed my message to the used car buyer in front of us.
“He sends his best regards as well,” the buyer replied with a smile.
Finding a buyer hadn’t been difficult. I had arranged a meeting with this man, Hamdan, a prominent used car wholesaler in Dammam, Saudi Arabia, using the contact information I had obtained from the used car dealers I had threatened. He frequently traded with Korea, so he was aware of Chunha Group’s dominance of the used car market. He had been eager to meet and had even offered to come to Korea, which I had dissuaded him from.
“He’s asking when we can make the first transaction,” Director Lee translated.
“The first transaction… I don’t have many used cars to send right now.”
I had been focused on meeting the demands of Korean customers and hadn’t bothered acquiring older used cars. We were starting to accumulate some, but not enough to send to Saudi Arabia, which was over ten hours away by plane.
“Tell him he’ll have to wait. We need enough to fill a bulk carrier. It’s not cost-effective to send a half-empty ship.”
Hamdan looked disappointed. “He understands, but he’s asking us to expedite the process.”
“Ask him if he’s in a hurry.”
Hamdan nodded at Director Lee’s translation. “He says there’s always a shortage of used cars. He’ll buy as many as we can provide.”
“Tell him I understand.”
“Good! That takes care of the used car buyers.”
I had flown all the way to Saudi Arabia because there was a slight difference between used cars and other used goods.
For ordinary used goods, China was the best market. There might be countries that offered higher prices, but China had cheap labor costs and was geographically closer, resulting in lower processing and transportation costs. The profit margin for used goods was only about 10%, so it wasn’t worth the risk of sending a ship halfway across the world, incurring higher transportation costs and facing potential losses from exchange rate or price fluctuations.
Used cars, on the other hand, had a much higher profit margin per unit, at least 1 million won, and the price was relatively stable, so the best option was to find a buyer who offered the highest price.
And the Middle East and Africa were the best markets for used cars.
Why were the prices higher there?
“It’s not my business what they do with the cars. I just care about the price.”
It was because of the wars and conflicts in those regions.
Countries like Yemen and Iraq, Saudi Arabia’s neighbors, were in chaos, and cheap, reliable used cars were in high demand.
Hamdan was probably going to resell the cars to those conflict zones at a higher price.
I didn’t care if they ended up in the hands of terrorists or rebels. A knife seller wasn’t responsible for a murder committed with their knife.
“Of course, I could get a higher price if I sold them directly to Iraq, but…”
My life was more important.
I wasn’t going to risk it.
“Director Lee, thank you for your hard work.”
He bowed deeply. “It was my pleasure to be of service, Chairman!”
“You were a great help. It’s convenient having a local branch. By the way…” I looked at my watch. “It’s 1 PM now. Is it a four-hour drive to Riyadh? We should arrive by 5 PM.”
“That’s about right.”
“Just in time for dinner. Tell the branch manager and the employees to gather for a company dinner. I should treat them after all their hard work. But before that…”
I smiled. “I’d like a brief overview of the branch’s operations. Not a formal presentation, just a simple meeting before dinner. Please inform the branch manager.”
He said, sweating, “R-right now, sir? You must be tired after the long journey. Shouldn’t we have dinner first and rest, and then have the meeting tomorrow?”
“Hahaha, it’s fine, it’s fine.” I smirked. “It’s better to get it over with quickly. Or do you want to have the meeting during dinner? You won’t be able to enjoy your meal.”
“Welcome, Chairman!”
About 100 employees, including the branch manager, were lined up in front of Daehoo Energy’s Middle East branch office, greeting me in unison.
“So this is the Middle East branch.”
The branch manager shouted again, “I greeted you at the airport, but I’d like to greet you again. I’m Gong Ji-hoon, the branch manager!”
“Nice to meet you, Manager Gong. I apologize for going straight to Dammam with Director Lee. I had an appointment.”
“Not at all, sir! It was our pleasure!”
“I’m glad to hear that.”
I looked at the employees.
About half of them were locals, but they all had one thing in common: they were looking at me nervously.
“Please lead the way to the meeting room, Manager Gong.”
“Our branch has been focusing on oil field development in the Middle East to contribute to Korea’s energy independence. Our most significant achievement is the successful acquisition of the Al-Sufa oil field development contract in southern Saudi Arabia. The estimated reserves are 500 million barrels, enough to meet Korea’s annual consumption. Even at the current low oil price of just over $10 per barrel, it’s worth at least 10 trillion won. And its value will increase as the oil price rises.”
“Wow, that’s impressive,” I said. “What are the terms of the contract?”
Encouraged by my positive reaction, he continued excitedly,
“That’s the best part! We’re covering the development and equipment costs, and the ownership is split 50/50 with Aramco, the Saudi Arabian national oil company. And we have management control. You won’t find a better deal anywhere in Saudi Arabia.”
“Wow, that’s amazing! Half of 10 trillion won is ours. That’s 5 trillion won! And if the oil price rises to $20, it’ll be 10 trillion won. $30, 15 trillion won? This is incredible!”
“Thank you, sir.”
I smiled. “Then why is Daehoo Energy’s performance so abysmal?”
He froze, his excitement vanishing instantly. “Th-that’s…”
I looked at the documents. “Let’s see, a 70 billion won loss in 1996, your first year of operation. That’s understandable. But a 150 billion won loss in 1997. And 350 billion won in 1998! Wow! And even after I acquired the company and halted all new ventures, you’re still projecting a 200 billion won loss this year?”
“…”
I looked at him, speechless. “How can you be losing so much money? Did Daehoo Group collapse because it was trying to cover Daehoo Energy’s losses?”
He said in alarm, “Absolutely not! Energy development takes time! We need time for exploration and development. Initial losses are inevitable. But once we start production at Al-Sufa or any of our other oil fields, we can recover everything! Even with the latest technology, the success rate for oil drilling is less than 30%. Just give us some time…”
“How much time? Next year? The year after that?”
“That’s… that’s difficult to say…”
I looked at him with a dubious expression. “Let’s talk about the Al-Sufa oil field. You said it was a great deal. How’s the development progressing? We need to start production to make a profit. What’s the current status?”
“…We’re still in the preparation phase.”
I sighed. “Manager Gong, let’s be honest. I’ve seen my share of disasters. You’re telling me that you secured a 50/50 partnership with management control for an oil field that could be worth tens of trillions of won? And you got this deal in 1996, as a newly established company? Does that even make sense? The conditions are too good to be true.”
I looked him in the eye. “I came here prepared for the worst, so don’t try to sugarcoat it. Just tell me the truth. I’m Park Sol. I saved Daehoo Electronics without any restructuring. I can do the same for Daehoo Energy. I’m asking these questions to find solutions, not to fire people.”
It was a lie.
Daehoo Electronics had been my target from the beginning, but Daehoo Energy was just an afterthought.
I was willing to abandon it if necessary, but I had to appease Manager Gong, who was the most knowledgeable about the situation.
“To understand the problems, I need to know the truth.”
He lowered his head. “I apologize, sir. I was trying to present a positive picture, worried that our efforts would be wasted. Please forgive me.”
I waved my hand dismissively. “It’s okay. Just tell me the truth.”
He sighed in relief and began explaining.
“I wasn’t lying about the contract terms or the reserves. It’s a good oil field.”
“Then why is the development being delayed?”
“…We lack the necessary technology.”
“Technology?”
He nodded. “The oil is located 3,500 meters underground, and the geological formations are too complex and too hard to penetrate with our current technology…”
I interrupted him. “I’m not here for a geology lesson. Just tell me if it’s possible or not. Can we extract the oil with our current technology or not?”
“…No, sir.”
“Are you saying we lack the technology? Then outsource it or sell the shares. We have to extract the oil.”
He shook his head. “If that were possible, we would have done it already. No company in the world has the technology to extract oil from such a challenging oil field at a profitable cost.”
I said with a hollow expression, “So it’s a dead asset?”
“Not necessarily! Our analysis shows that it’ll be profitable if the oil price reaches $150 per barrel!”
“It’s $10 now. How long are we supposed to wait? And why did you sign the contract in the first place? How much did we pay?”
He said, glancing at me nervously, “We paid an initial 30 billion won, and we have to pay another 70 billion won by March of next year.”
I said incredulously, “We have to spend more money on this dead asset? What’s the penalty for breaching the contract?”
“…Ten times the initial payment.”
I clutched the back of my neck. “So it’ll cost us 300 billion won to cancel the contract? This is insane.”
“But there are no penalties for delaying the development. The contract is valid for 18 years, so we can just wait for the oil price to rise or for new technology to be developed. We just have to invest another 70 billion won and wait. It’s a valuable asset, sir.”
“Wait for 18 years? This is a nightmare.”
It was clear that the Saudi government had tricked Daehoo Energy, a naive newcomer, into acquiring a worthless oil field.
It was a beautifully wrapped piece of trash, locked in a diamond box, impossible to open.
And a 20-year contract?
The Saudi government, experts in the oil industry, had offered such a long contract because they knew it was practically impossible to extract the oil within that timeframe. They were just collecting rent, hoping for a technological breakthrough within 20 years.
“This is troublesome.”
Manager Gong was claiming there was potential, but I saw it as a dead asset.
I looked at the fidgeting Manager Gong and thought, ‘You’re basing your hopes on an uncertain future? That’s why you signed a contract for a worthless oil field. And if this is your best asset, what about the others? This branch manager is definitely getting fired. Should I just abandon Daehoo Energy altogether?’