Thai PTTEP to buy stake in Indonesia's Medco

Thai PTTEP to buy stake in Indonesia's 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.

"PTTEP has already pushed its political risk up with its
Burmese activities, offshore in Vietnam and so forth," said
Richard Henderson, head of research at Kim Eng Securities

"It might have the effect of diluting PTTEP's very strong
image in international investors' minds," he said.

By the midday close PTTEP shares were at 110 baht on the Stock
Exchange of Thailand, down two baht on the day, but up 10 percent
this year.

The Thai energy sector has gained 16.84 percent this year,
while the benchmark Stock Exchange of Thailand composite index
has risen 2.68 percent.

Medco shares were trading at Rp 1,400, up Rp 50 on the day,
and up 40 percent this year. The benchmark Jakarta Stock Exchange
index has fallen 12 percent this year.