The Medco Group: Getting fit through sweet, bitter times

The Medco Group: Getting fit through sweet, bitter times

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.

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.