The Medco Group

The Medco Group
Getting fit through sweet, bitter times

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After only 21 years in the business, the Medco Group has grown
into a growing leading corporation with diversified businesses.

During the recent bitter period of financial turmoil the
country experienced, Medco not only booked remarkable financial
growth and achieved significant expansion, but also recruited
more people for new projects. Its contribution to the country
sky-rocketed from only US$61 million in 1997 to $586 million last
year. Its debts have shrunk by almost 90 percent.

Foreign partners put their trust in the group as a company of
choice. And Medco, designed as a first-class organization, has
always shared its good times with others through its community
development programs.
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One outcome of the seemingly endless economic crisis is that
only companies committed to hard work, innovation and trust
coupled with ethics can survive and grow in the Indonesia of
today.

The strong team of some 10,000 skilled employees plus the top-
notch management team of the Medco Group have proven the
magnitude of such a professional approach, thanks to the
traditions they have applied since the founding of the
corporation in 1980.

Instead of hastily reviewing strategic plans by taking
unfavorable measures like downsizing its workforce or closing
business units, Medco grows steadily while expanding business
activities and continues to gain trust from domestic and overseas
partners.

Today, the group has developed into more than a dozen
companies and subsidiaries with different business activities,
from oil and gas to palm oil, hotels, banking, distribution,
pipeline construction, building construction and instant noodles
(see related article).

In running and expanding its businesses, the Medco Group can
proudly say that it has enjoyed no privileges from any party
since the very beginning.

"We run our businesses simply based on professionalism," said
Hilmi Panigoro, president and CEO of the Medco Group.

Unlike many major firms, the group recorded remarkable
financial growth during the turbulent years since 1997 when the
economic crisis first hit the country.

In the past three years alone, for example, the Medco Group
contributed over $1.33 billion to the state in taxes and other
payments (see chart A).

As for the employees, they enjoy the no-layoffs policy adopted
by the management, which instead has continued its recruitment
program up until now.

Established by businessman-turn-politician Arifin Panigoro, a
major name in the country's oil sector, Medco made its debut as
an oil drilling services company under the name PT Meta Epsi
Drilling Company.

Twelve years later, a subsidiary called PT Medco Energi
Internasional was set up in the oil and gas business which later
played a major role in the group's development.

One of Medco Energi's giant steps was the takeover of the
technical assistance contract (TAC) and production sharing
contract (PSC) for the Tesoro field in Kalimantan. The move later
proved to play a significant role in how the company and the
group developed. In the 10 years that followed, for instance, at
least one new rig was constructed every single year.

In many cases in Indonesia, a lucrative company tends to stay
in the hands of the founding family. This is not the case with
the Medco Group. When its subsidiary Medco Energi was developing
and became a money-generating machine, the owner sold part of his
shares to the public in 1994 through the Jakarta Stock Exchange.

Many saw the move as both an achievement and proof that the
Medco Group was committed to making a business undertaking
profitable not only for the owner but also for the broader
community through stock purchases through the capital market.

It must be noted that the price of Medco Energi (MEDC) shares
have increased almost six-fold since its initial offering, about
a 70 percent rise annually. Today Medco Energi is the largest oil
and gas company listed at the JSX with market capitalization of
some Rp 5 trillion, or approximately $500 million.

The recent astounding reward of a B+ rating with "outlook
stable" status from international rating agency Standard & Poor's
and an AA- from Pefindo, a local rating firm, has put Medco
Energi at a special level in the JSX. Very recently, the firm was
voted by SWA business and management magazine and MarkPlus & Co
management consultant as one of the best public companies based
on the economic value-added (EVA) concept. The Indonesian
Institute for Corporate Governance has also ranked Medco Energi
sixth on the list of public companies in terms of good corporate
governance.

"Those rewards are impossible to achieve without a high level
of commitment and professionalism," Hilmi said.

The great support and trust is transformed by the group
management to further maintain their commitment and
professionalism to improve stakeholders' value. Thus, every cent
of the public's funds is spent in the most effective way to
develop and increase the value of the company so that it can
provide greater benefit to shareholders and stakeholders alike.

Evidence of this professionalism has been demonstrated in two
cases of share acquisition, namely Tesoro in Kalimantan and
Exxon/Mobil at PT Stanvac Indonesia in Sumatra in 1995, which was
conducted through international tender.

"Without professionalism, we couldn't have won such a
competitive tender. This is a high-risk business," stressed
Hilmi.

The road to success continued to open when in 1996 the company
discovered a new oil field in Kaji/Semoga, Sumatra, one of the
largest discoveries ever made. It was this discovery that made
Medco the third largest oil producer in the country after Caltex
and Maxus.

In 2000, Medco Energi took over three new exploration areas:
Simenggaris, West Madura and Senoro/Toili. It also discovered a
new oil field in Soka, South Sumatra. In the same year, the firm
recorded the highest sales proceeds with a production rate of
66,800 barrels per day (bpd), a fantastic 60 percent jump over
the figure recorded in the previous year. Today, the company's
crude oil output reaches 90,000 bpd.

Medco Energi is also known for its high rate of efficiency in
its operations. It, for instance, spends less than $2 per barrel
for the discovery and development of an oil field, for which
Pertamina has rated it number one in Indonesia for operational
efficiency.

All earnings in Medco Energi are in greenback. In the first
nine months of 2001, it booked Rp 4 trillion in revenue, or Rp 2
trillion in earnings before interest, tax, depreciation and
amortization (EBITDA).

But Medco Energi is not the sole business of the group.

Always forward-looking, the Medco Group has been diversifying
its business to plantations, the food industry, hotels, financial
services, construction, manufacturing and distribution.

Like Medco Energi, other subsidiaries within the group have
also shown an impressive performance, allowing the Medco Group to
provide significant contribution to the state through taxes,
royalties and other payments.

The Medco Group, true to its original aspirations, will
continue to structure itself to be a company of choice for the
government, shareholders, business partners, creditors and
stakeholders, such as the employees and the local people and
administrations where its subsidiaries operate.

All in all, the Medco Group is proud of its success, which was
achieved through hard work, innovation, trust and ethics, not
through unprofessional practices such as corruption or by
soliciting special privileges.

The spirit and culture of the Medco Group remains the same:
professionalism is above all else. This means achieving goals
through efficient hard work and strategic planning while adhering
to ethics and commitment.

Based on its rigid stance and strategic plans, the group and
its staff are ready for future challenges brought about by the
dynamic changes in the world of business and technology.

In short, the Medco Group and all its staff intend to play a
vital role in the reemergence of a New Indonesia, one that is
safe, promising and open for all.