Pertamina Eyes Stake in Rival Medco

By webadmin on 10:28 pm Sep 29, 2010
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Jakarta Globe & Bloomberg

State oil and gas company Pertamina is hoping to acquire a majority stake in or merge with Medco Energi Internasional, the country’s biggest listed energy company, in an effort to boost its core business as it struggles to offset declining production, Pertamina officials said on Wednesday.

Frederick Siahaan, Pertamina’s director of business and risk management, confirmed that the company was in talks with Medco, and said that Pertamina was considering buying a stake in Encore Energy, Medco’s parent company.

“Pertamina wants Medco to spin off its non-oil and gas units before proceeding with an acquisition,” he said, adding that Pertamina was also considering a merger or project partnerships with Medco.

Mochamad Harun, a Pertamina spokesman, said the proposed acquisition was aimed at expanding Pertamina’s core business in upstream and downstream oil and gas production.

“We chose Medco because it had the same core business as Pertamina, so why not synergize both companies?” he said. “We want Medco to spin-off its non-oil and gas units because we’re only interested in the core business.”

Medco, 46 percent owned by Encore, has a market value of Rp 11 trillion ($1.2 billion).

Analysts said both Pertamina and Medco would benefit from a deal. But Cece Ridwanulloh, from Ekokapital Sekuritas, said Medco stood to gain more from any deal than Pertamina.

“For Medco, the benefit is that the company would gain funding for its expansion plan and also increase its assets,” Cece said.

He added that Medco’s stock price rose immediately on the news that Pertamina was looking to acquire it. Medco’s shares rose 6.45 percent on Wednesday to close at Rp 3,300.

Cece said Medco was seeking funds to finance expansion plans in Libya and domestically.

Medco has said that it plans to invest $1.7 billion between 2010 and 2014 in several major projects. Its Area 47 oil project in Libya is expected to produce between 50,000 and 100,000 barrels per day and is due to start production in 2014.

According to Cece, Medco has more expertise in oil drilling technology than Pertamina, which gives it an advantage in negotiations.

“Pertamina usually cooperates with foreign firms in oil drilling. If Pertamina could acquire Medco, the state company could cut costs in drilling and exploration,” he said.

“Pertamina would also be able to ensure better supply of oil and gas with Medco’s oil and gas fields.”

Harun said Pertamina had been preparing to work with Medco for the past three months, and that the two companies had already cooperated on a few projects.

Medco and Pertamina, along with Japan’s Mitsubishi, previously agreed to build the Donggi-Senoro LNG plant in Sulawesi, with a capacity of two million metric tons per year.

Medco has also managed a Pertamina oil field in Tarakan, East Kalimantan, and a Pertamina methanol project in Bunyu, also in East Kalimantan.

Pertamina is boosting investment to increase oil production and make up for falling output from aging fields, which led Indonesia, Southeast Asia’s biggest crude producer, to leave the Organization of Petroleum Exporting Countries in 2008.

In June, Frederick said Pertamina was planning to sell $1.5 billion in bonds this year and to proceed with a plan to sell a 20 percent stake in its Pertamina Hulu Energy unit to raise money for acquisitions intended to boost oil production to 1.5 million barrels a day by 2015.