Medco Energi basks in optimism despite crisis

By Johannes Simbolon

JAKARTA (JP): The country's biggest private oil and gas company, Medco Energi Corporation, is optimistic about 1998 after making some impressive achievements last year amid the monetary crisis.

The company's subsidiary, PT Exspan Sumatra, surprised the country's oil industry when it announced in December that it had discovered oil reserves of approximately 350 million barrels in its Kaji and Semoga fields of South Sumatra. The discovery was the largest oil find in the country in the past 15 years.

According to independent oil consultant De Golyer & MacNaughton, 32.2 percent, or 114 million barrels, of the reserve is categorized as proven and probable.

"Drilling activities are going on. The reserve could be larger," said Medco Energy's finance and administration director, Sugiharto, recently.

Noted oil analyst Fiona Nicol of Dresdner Kleinwort Benson Research expressed optimism over the company's outlook, noting that it had doubled its profits to Rp 75.2 billion last year from Rp 40.2 billion in 1996.

Nicol projected Medco would increase its profit four times to Rp 299 billion this year, following the company's growing activities and the continued depreciation of rupiah.

"Medco sells crude oil and natural gas in U.S. dollars ...Day rates for drilling rigs (of the company) are also U.S. denominated. (Its) methanol is sold in U.S. dollars as well," she said.

"Thus, for all practical purposes, Medco is a U.S. dollar company," she added.

Medco Energi, which is 63 percent owned by its founder Arifin Panigoro, has five subsidiaries: oil and gas producers PT Exspan Sumatra and PT Exspan Kalimantan, onshore drilling contractor PT Meta Epsi Antareja, offshore drilling contractor PT Apexindo Pratama Duta, and methanol producer PT Medco Methanol Bunyu.

Medco Energi is part of Arifin's widely diversified Medco group, which is also active in banking, hotels, agribusiness, food and cement.

Expansion

A graduate of the prestigious Institute Technology of Bandung, Arifin started Medco Energi with Meta Epsi in the 1980s with only one oil rig. It was the first Indonesian drilling contractor in a sector dominated by foreign companies.

Today, Meta Epsi is the country's largest onshore drilling company with 11 rigs, two of which are being used by Medco while the other nine are on lease.

Arifin subsequently formed Apexindo in the 1990s to expand to offshore drilling. Today, Apexindo has three offshore rigs, making it the single biggest operator in Indonesia.

After having gaining experience in drilling activities, Arifin entered the field of oil and gas exploration and production in 1992 with the purchase all of the United States company Tesoro's interests in East Kalimantan. He formed Exspan Kalimantan to operate two production sharing contract (PSC) areas and one technical sharing contract (TSC) area.

Sugiharto said after taking some efficiency measures, including reducing the number of the highly paid foreign workers from nine to two, Exspan was able to raise the ex-Tesoro contract areas's oil output to 6,000 barrels per day (bpd), compared with Tesoro's oil output of 4,700 bpd.

Tesoro also produced gas, which was used for oil lifting. Exspan increased gas output and sold it on the market.

Sugiharto said Exspan currently supplied 24 million cubic feet (MMCF) of gas per day from its gas field on Tarakan Island to the state oil and gas company Pertamina's methanol plant on the island of Bunyu, East Kalimantan. Medco Methanol has negotiated to operate the methanol plant for 20 years on the profit-sharing basis with Pertamina.

Since mid-December of last year, Exspan also has been supplying 10 MMCF of gas per day from the Sanga-Sanga Semboja gas field, also in East Kalimantan, to the coal-fired power plant owned by the state electricity company PLN in Tanjung Batu.

In 1994, Arifin sold 22 percent of the company's shares to the public to raise $36.7 million in proceeds and until now it is the only oil and gas company quoted on the bourse.

Medco, listed on the Jakarta Stock Exchange, used some of the proceeds to buy PT Stanvac Indonesia -- a joint venture of Exxon and Mobil Oil -- with operations in the central and southern areas of Sumatra. The ex-Stanvac areas were put under Exspan Sumatra.

The ex-Stanvac area produced 11,000 million barrels of oil from two production contract areas of Kampar in Riau and Rimau in South Sumatra and had an exploration contract area called South Sumatra Extension.

"Market sentiments toward Medco was very negative then. People asked 'Can a small company like Medco do better than an international company like Mobil?'" Sugiharto recalled.

Medco proved its luck by discovering the oil bonanza at the Kaji and Semoga fields in the Rimau Block.

As part of its expansion, Medco has set up a joint venture with Britain's Lasmo Oil and Premier Oil to search for gas at the Cumi-Cumi field in West Natuna, but no gas has yet to be found. Lasmo has 50 percent of the shares, while the remaining 50 percent is equally shared by Medco and Premier.

Medco has also bought the rights for three exploration blocks in Myanmar, but Sugiharto said it was still carrying out geological and geophysical surveys.

Projection

Sugiharto projected the company's profit would substantially rise this year for several reasons, but refused to give detailed figures.

In the first place, he said, Medco would increase its profit from its drilling rig contracts. Last year's average contract prices rose to $16,000 from $12,500 per day for its onshore drilling rigs and $70,000 from $46,000 per day for its offshore drilling rig.

He said rig contract prices had risen lately due to the increase in world demand following a fever to hunt for oil in the central Asian countries formerly under the Soviet Union.

Second, Medco, which currently produced 89 MMCF of gas per day, also expected an increase in gas sales, he said.

The sale of gas to the Tanjung Batu power plant, which was done only one month last year, will be made full year this year, while the sale of gas to the Methanol plant on Bunyu will be made full year this year, compared with only nine month of sales last year.

Medco also supplies gas from the ex-Stanvac fields to the state fertilizer plant Pusri in Palembang, South Sumatra. The supply to the fertilizer plant will be increased to 65 MMCF per day this year from 50 MMCF last year.

Medco sells its gas at $1.33 per million British thermal unit (MMBTU) for Pusri, $1.42 per MMBTU for the Bunyu methanol plant, and $3 per MMBTU for the Tanjung Batu power plant.

Third, Medco would get more revenues from methanol, which would be sold for a full 12 months this year, compared with only nine months last year, said Sugiharto.

The Bunyu methanol plant currently produced about 900 tons of methanol a day or 90 percent of its capacity. The methanol is sold domestically to plywood producers in dollars.

Finally, the company also expected more revenue from oil as it would increase its oil output from the Kaji and Semoga oil fields.

Medco's oil output now stood at 26,000 bpd, including between 10,000 bpd and 11,000 bpd from the Kaji and Semoga oil fields.

The wells at both fields were still producing below capacity but Medco at present could not raise the production because Pertamina's pipeline to its oil refinery in Musi could not accommodate a larger supply, he said.

Medco plans to build a 60-kilometer spur to another Pertamina pipeline leading to the Musi refinery at a cost of $10.25 million.

Sugiharto said when the pipeline was completed in June this year, the Kaji-Semoga output would rise to 28,000 bpd and 30,000 bpd in 1999.

"Today, our revenues are 61 percent from oil and gas, 15 percent from oil drilling, 10 percent from onshore drilling, and the rest from methanol. In the future, 70 percent of our revenues will be from oil and gas," Sugiharto said.