Thai firm to buy stake in Medco

Thai firm to buy stake in Medco

Dominic Whiting, Reuters, Bangkok

Thai upstream oil and gas firm PTT Exploration and Production (PTTEP) said on Monday it would buy a 34.17-percent stake in Indonesia's largest energy firm PT Medco Energi for US$225 million.

In a statement to the Stock Exchange of Thailand, PTTEP said it was buying the stake from Credit Suisse First Boston (CSFB), a unit of the Credit Suisse Group.

Analysts said the deal was expensive, but that cash-rich PTTEP was looking to tap into Medco's potential to expand its oil base.

They said Medco was likely to build on its proven reserves of 315 million barrels of oil equivalent (boe), 70 percent of which was oil.

"It's not cheap, but PTTEP should benefit long-term," said Visit Ongpipattanakul, an analyst at SG Securities.

"Medco has long-term prospects with probable and possible reserves in Matra (fields) of around six million boe, in addition to its proven reserves," he said.

"PTTEP has about $400 million cash in hand, so basically they should be comfortable in paying for this acquisition," he said.

Visit said the Medco stake would contribute around 1.2 billion baht ($26.8 million dollars) to PTTEP's coffers in 2002, which he predicted would be about 12 percent of the Thai firm's total profit.

PTTEP said it was seeking clarification with the Jakarta Stock Exchange on whether it was required to make a tender offer for all of Medco's shares.

The deal involves PTTEP taking a 40 percent stake in New Links Energy Resources, a holding firm which owns 85.44 percent of Medco.

SG's Visit said even if it did not make a tender offer now, PTTEP would probably want to increase its stake in Medco in the future by buying the rest of CSFB's stake.

"In the longer term PTTEP will probably want more," Visit said. "And CSFB is an investment bank. They won't want to hold a stake in a corporate for long," he said.

PTTEP said the price it was paying for Medco had taken into account political risk in Indonesia.

"We believe the investment to be appropriately priced at $1.74 per barrel oil equivalent of proven reserves and to be in accordance with PTTEP's policy to expand investment to overseas, increase oil reserves, and secure crude supply for national energy security," the note said.

But analysts warned that too much political risk could reduce investor confidence in PTTEP.