Medco to move into offshore and geothermal sectors: CEO<\/p>\n
Established by businessman-turned-politician Arifin Panigoro
\nin the 1980s, PT Medco Energi Internasional Tbk has become the
\nlargest privately owned national energy firm, with an oil output
\nof 80,000 to 90,000 barrels per day. Today, the firm is
\ncontrolled by New Links Energy Resources, a joint venture between
\nthe Panigoros, Thai firm PTT Exploration & Production and Credit
\nSuisse First Boston. The Jakarta Post's Johannes Simbolon
\nrecently interviewed the firm's CEO Hilmi Panigoro, Arifin's
\nyounger brother, on the firm's plans.<\/p>\n
Question: What is the focus of Medco's attention in the next year
\nor the medium term?<\/p>\n
Answer: The oil business is a nonrenewable one. Thus, in the
\nshort and long term, we shall strive to strengthen our capability
\nto replace the reserves that have been exploited and add new
\nconcessions for growth. We can do this in two ways: by boosting
\nexploration and by acquiring new fields.<\/p>\n
Q: How much has been prepared for the acquisitions?
\nA: Early this year, we issued bonds and raised US$250 million.
\nAll the proceeds are dedicated to the acquisitions.<\/p>\n
Q: Where are you going to carry out the acquisitions?
\nA: In Indonesia. We see a lot of opportunities in Indonesia.<\/p>\n
Q: Which areas are ready for acquisitions?
\nA: Changes in the ownership of assets in the oil and gas industry
\nare common. Companies divest a certain area, not necessarily
\nbecause they don't like it. It's a matter of strategy. It may not
\nfit their geographical or operational strategies. They may shift
\nfocus from offshore to onshore. In such a case, they would then
\ndivest their offshore operations.<\/p>\n
Q: What is Medco's focus?
\nA: Geographically, our focus is Indonesia. With regard to type of
\noperation, in the past we focused on onshore operations, because
\nwe did not have the skills to carry out offshore operations. Yet
\ntoday, we have embarked on offshore operations as well because
\nour new partner, PTT, is strong in these. We have made orders,
\nincluding for an offshore area in Central Sulawesi. We hope to
\nstart production (there) in 2004.<\/p>\n
Q: Why have you focused only on Indonesia, while your partner is
\nfrom Thailand?
\nA: Because we see a lot of opportunities in Indonesia. This is
\nprobably because the investment climate in Indonesia is still in
\na poor state, compared with other countries. The interest of
\nforeign investors in Indonesia is still at a low level. But for
\nus, this has provided an opportunity. There isn't any strong
\ncompetition in the country for oil and gas investors. American
\nfirms are not as aggressive as they once were. Amid the weakened
\ncompetition, we have a chance to become a host in our own
\ncountry.<\/p>\n
Q: How about potential reserves?
\nA: They're still enormous.<\/p>\n
Q: If the potential reserves are still large, why do companies
\nfrom America and elsewhere not want to come?
\nA: The problem is not related to potential reserves. People are
\nreluctant to invest here because the political and legal
\nconditions are not reliable -- very bad. There have been many
\ncases in which foreign creditors could not obtain the repayment
\nof their loans from local companies because the court said the
\nloan agreement was illegal. Furthermore, the autonomy law is
\nstill unclear. The division of authority between the central,
\nprovincial and regency administrations is still unclear. If we,
\nlocal people, are confused, foreigners will be even more
\nconfused. All of these factors have scared away foreign
\ninvestors. For businesspeople like us, this is a chance, because
\nthe competition has decreased, relatively. Of course, the risks
\nare high. But, if not us, who else is willing to take the risk?<\/p>\n
Q: Apart from focusing on Indonesia and starting to embark on
\noffshore operations, is Medco also giving attention to products
\nother than oil and gas?
\nA: Our focus is still on oil and gas, but we haven't confined our
\nattention to these. We are an energy company, and energy is not
\nonly oil and gas. We are also looking for other types of energy
\nwhich we can develop commercially. We are seriously thinking
\nabout going into the geothermal sector.<\/p>\n
Q: Why are you interested in the geothermal sector?
\nA: First, because it (geothermal steam) is clean. Second, it is
\nrenewable. Third, because Java lacks gas. If (state electricity
\nfirm) PLN cannot get enough gas in the next three to four years,
\nJava will face a power crisis; thus market demand for power in
\nJava will be very high. Geothermal plants could become a
\nsubstitute (for gas-fired power plants). Power produced by
\ngeothermal plants might be not as great as that generated by gas-
\nfired power plants. But geothermal steam could become an
\nimportant substitute in the energy mix in Java.<\/p>\n
Q: Do you think Java will still lack gas even if (state gas firm)
\nPGN realizes its plans for building pipelines to deliver gas from
\nSouth Sumatra to Cilegon (Banten)?
\nA: There will still not be enough. If the plan were realized, the
\nnew gas supplies could only feed two or three power plants along
\nthe northern coast of Java.<\/p>\n
Q: But PGN is also planning to build gas pipelines from East
\nKalimantan to Java.
\nA: I think the plan to build a gas pipeline from East Kalimantan
\nto Java is unrealistic. Why? Because the gas price in Java is not
\ncompetitive compared with the LNG (liquefied natural gas) price.
\nThe LNG price in Japan is still above $3 (per million British
\nthermal unit), while PLN will not buy gas above $3. We have yet
\nto take into account the costs of transporting the gas from East
\nKalimantan or Sumatra. So, if I were a gas producer in East
\nKalimantan, I would rather sell my gas for LNG production in
\nBontang than send it to Java via a pipeline.<\/p>\n
Q: From a technology point of view, is Medco prepared to enter
\nthe geothermal business?
\nA: One of the main activities in the geothermal industry is
\ndrilling. For your information, apart from oil and gas
\noperations, Medco has a drilling unit, Apexindo. This company has
\ndrilled many geothermal wells owned by (American energy firm)
\nUnocal. Thus, we have already mastered drilling skills. What we
\nneed now are (geothermal) processing skills.<\/p>\n
Q: The geothermal division will surely become an important source
\nof revenue for Medco?.
\nA: Certainly.<\/p>\n
Q: Will it produce a larger revenue than oil or gas?
\nA: I don't think so. At present, 70 percent to 80 percent of our
\nrevenue is from oil, but I expect a larger revenue from gas in
\nthe future because our gas supplies to PLN have been steadily
\nincreasing. We hope our gas output will increase in 2004, with
\ngas supplies from Senoro (Senoro-Toili JOB in Central Sulawesi,
\nwhich is jointly owned by Medco and Pertamina).<\/p>\n
Q: What are your plans for gas from Senoro?
\nA: We are making parallel negotiations (with potential investors
\nand buyers) on several options. The first is to turn the gas into
\nLNG. The fact is that the gas reserves found in the area are
\nstill not enough for LNG. We are continuing exploration for more
\ngas reserves. The second option is to use the gas for
\npetrochemical products. The third is to convert the gas into
\nliquid. The fourth is to use the gas to generate power for mining
\ncompanies in the area, such as Aneka Tambang and Inco.<\/p>\n
Q:It seems that the area will thus become extensively
\nindustrialized.
\nA: Yes. Central Sulawesi will become a huge industrial area.<\/p>\n
Q: How great are the gas reserves in the area? Are they as large
\nas East Kalimantan's?
\nA: I think they are not that great. Maybe about 20 trillion cubic
\nfeet, or half of East Kalimantan's gas reserves.<\/p>",
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