Indonesia’s MedcoEnergi Renew Oil & Gas Contracts in Libya

Area 47 in Libya - Photo by MedcoEnergi

JAKARTA (TheInsiderStories) – Indonesia’s energy company PT Medco Energi Internasional Tbk (IDX: MEDC) renew oil and gas contracts with the Libyan Investment Authority (LIA) to extend the previous agreement between the two sides related to the oil exploration in the area 47 exploration block, said the government-managed sovereign wealth fund and holding company on Sunday (10/06).

24.5 percent share in Nafusa Oil Operations, a joint operating company formed in March 2013 with National Oil Company (NOC) and LIA to develop the Area 47 block, near the borders with Tunisia and Algeria. Area 47 yielded by far the largest discovery from the four international licensing rounds held since the 2004.

Canada’s Verenex carried out the exploration phase on Area 47 before its controversial expropriation by the LIA. The block has had consistently strong drilling results, with 18 of 20 exploration wells yielding discoveries. Gross contingent reserves in Area 47 are an estimated 703 million barrels of equivalent.

Its reported the initial exploration of the wells indicated a production capacity of up to 25 thousand barrels per day. The GM of MedcoEnergi Libya Operation, Faisal Shitta, said that the company has started procedures to complete the work of the project as soon as the NOC approves the agreement so the new extension enters into force.

In 2016, MedcoEnergi suffered impairment losses of US$180.2 million on its Area 47 acreage. The firm also reported a 2016 impairment of $92.6 million on its acreage in Tunisia, among total impairments in 2016 of $278.5 million.

To finance the Libyan and other projects, MedcoEnergi has issued 4.40 billion shares or 24.32 percent the company’s issued and paid-up capital and raised Rp2.64 trillion (US$182.93 million). In the same year the company owned by tycoon Arifin Panigoro released global bond of $300 million with final coupon of 8.5 percent per annum.

Aside of the issued global bond, the company also receive two loan facilities of Rp2 trillion in the 1H of 2017. The first loan came from PT Indonesia Infrastructure Finance of Rp157.5 billion while the second loan was obtained from PT Bank OCBC NISP Tbk (IDX: OCBC) of $150 million.

in 2017, MedcoEnergi announced has acquired 77.68 percent of the shares in PT Saratoga Power, from PT Saratoga Investama Sedaya Tbk (IDX: SRTG) and other shareholders. The deal is said worth Rp1.63 trillion.

Through this transaction, the company increases its effective ownership of PT Medco Power Indonesia (MPI), widening from 49 to 88.62 percent. Meanwhile, the 11.38 percent of the shares in MPI held by International Finance Corporation remained unchanged.

MPI, established in 2004, is Indonesia’s leading medium-scale power producer, with a main focus of acquiring its energy from natural gas and geothermal sources.

MPI currently operates over 520 megawatts (MW) of installed gross capacity (as of September 2017), with the Sarulla Unit 2 geothermal power facility expected to go into commercial operation in October 2017, one month ahead of schedule.

MPI’s gross capacity will increase as Sarulla Unit 3 (110MW) starts to operate commercially, in the second quarter of 2018, and Riau CCPP (275MW) by 2021.

MPI Operation & Maintenance (O & M) business has also expanded, currently operating over 2,000 MW of power plants through third parties. The expansion is driven by two new O & M contracts signed at the end of 2016, whereby MPI operates the Sarulla Geothermal and PT Perusahaan Listrik Negara gas turbine units at eight locations throughout Indonesia.

The Company has performed very well in the midst of what remains a volatile environment. The publicly listed firm posted total revenue of $925.64 million in 2017 compared to $590.04 million in 2016 and maintained it’s oil and gas unit cash cost below $10 per BOE, which increased our EBITDA margin from 45.38 percent in 2016 to 46.91 percent in 2017.

The Company recorded a gross profit of $420.73 million in the same year with a 45.45 percent gross margin compared to $249.35 million in 2016 with a 42.26 percent gross margin. The company booked net profit attributable to equity holders of $127.10 million for 2017, compared to 2016 profit attributable to equity holders of $184.76 million.

2017 net profit was lower than 2016 due to several non recurring expenses, particularly in our mining business. During 2017, EBITDA increased by 62.18 percent year on year to $434.21 million.

Excluding the Q4 impact of the acquisition of the controlling interest in Medco Power Indonesia, net debt to EBITDA for the year was 3.65 times, well below the 6.61 times in 2016 and the lowest level since 2014.

In 2017, MedcoEnergi also able to secure and stabilize the capital structure by executing a stock split, a rights issue and re-entering the US dollar global bond market to refinance near term debt.

The president Hilmi Panigoro said his company will also continue to selectively explore for and to develop reserves and resources to extend our operational life. In 2017, the annual and three years average 2P reserve replacement ratio was 1.3 times.

“We will also further integrate our Medco Power Indonesia business with our oil and gas operations to leverage on our portfolio and our multidisciplinary technical skills and capitalize on the continued growth of domestic power demand,” he said.

In 2018, PT Amman Mineral Nusa Tenggara (AMNT), Panigoro continued will continue to work with the government to guarantee investment certainty and operational continuity, including matters related to in-country smelting. In this context the demand for minerals such as copper – the main product of our AMNT affiliate – is expected to increase substantially.

“These are key drivers for our future strategies, which together with an improving commodity price environment and our stronger financial position will enable us to continue to invest for future growth whilst pursuing progressive debt reduction,” he ended.

US$1: Rp13,900