State-owned Korea National Oil Corporation (KNOC) is expected to tap about 500 billion won ($443.5 million) worth funds from major South Korean financial institutions to additionally invest in shale gas development in the United States that has recently started to ramp up the pace.

According to multiple sources from the investment bank industry on Thursday, Korean financial companies, brokerages, and insurance firms including Hana Bank, Samsung Life Insurance Co., and Shinhan Investment Corp. have decided to inject a combined 500 billion won in KNOC’s U.S. subsidiary that was established in 2011 to purchase a 23.67 percent stake in a U.S. oil field of Anadarko Petroleum Corp. managing Eagle Ford mine in Texas. Each institutional investor is expected to spend between tens of billions of won and 100 billion won, and they are awaiting internal approval for the investment.

An unnamed official from the investment bank industry familiar with the matter said local financial institutions will likely purchase either securities backed by redeemable convertible preference (RCP) shares to be issued by KNOC’s U.S. subsidiary or RCPs.

Its investment return is expected to be relatively low - in the high 2 percent range, but local financial institutions have decided to invest in KNOC’s shale gas and oil development because KNOC guarantees repayment, allowing stable income for the local financial institutions that have been seeking alternative investment options in a record-low interest rate environment. The investment is seen safe as it is expected to steadily generate about a 2-percent return like government or municipal bonds, said another unnamed official from a financial institution taking part in the latest shale gas investment.

KNOC plans to use the collected funds in developing shale gas in the U.S. and improving the financial health of its U.S. subsidiary. Industry sources noted that the latest additional investment came amid growing signs of an upturn in shale gas and oil development with improving oil prices. The break-even point for major shale gas developers and producers including Eagle Ford has recently reached with oil prices hovering $50 per barrel.

Another investment bank official who asked to be unnamed also noted that major shareholders of Eagle Ford including KNOC have to inject funds according to each one’s interest in the company when the company embarks on new facility investment to produce shale gas and oil. With the oil prices showing signs of recovery, some shale gas developers have recently resumed their production in full swing, the official added.

By Kang Doo-soon, Song Kwang-sup

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