Medco Energi Beyond Oil & Gas

MEDC possesses expansive O&G upstream assets portfolio in both domestic and international markets
Its assets span beyond Indonesian blocks to sites in USA, Libya, Yemen, and Oman. MEDC also engages in downstream businesses, renewable energy, power generation and recently coal mining. We view MEDC’s recent cost leadership, production initiatives, and diversified portfolio in energy-related businesses as keys to sustainable growth.

Enhanced corporate strategy & production reserves
MEDC restructured its corporate lineups in 2011 and moved to directly manage and supervise its O&G operations. The new structure helped to reduce operating costs by 13% between 2010-2011. Late last year, MEDC also obtained commercialization approval to start the development phase in Area 47 Libya, which reported 44 mmbo oil and 45 bcf gas 2P reserves, accounting for a significant 32% of MEDC’s total 2P oil reserves in 2011.

Beyond oil & gas
We like MEDC’s story upon which it brought about: 1) production consistency through major project initiatives, 2) sales assurance through purchase arrangement with the Indonesian government entities, 3) proven cost leadership, 4) diversified revenue source. In addition to Area 47, MEDC has also initiated Enhanced Oil Recovery in Rimau block, in addition to gas field developments in Lematang, Aceh Block A, and Serulla.

MEDC pioneered a bio-ethanol production at its Lampung plant, as well as geothermal projects in Sarulla and Ijen. Revenues from power generation business grew by 190% between 2007-2011. This number far outpaced total revenue growth at 16% during the same period, which was sorely influenced by commodity prices and production fluctuations. To this fact, we view MEDC’s diversified portfolio as a key to its sustainability.

Meaningful growth
Fresh strategy and increased production capacity honed MEDC’s financial performance, with a robust 23% y-o-y growth at 2011 close. While 70% of MEDC’s revenues were generated by the O&G sales, revenues from power generation & other energy-related businesses went up by a whopping 27% y-o-y. Higher sales and lower operating costs led to a 96% y-o-y increase on operating income while net profits increased to USD 85.1m.