PERTAMINA'S ACQUISITION OF MEDCO TO RAISE ITS OIL OUTPUT

By Andi Abdussalam

Jakarta, Nov 11 (ANTARA) - State-owned oil and gas company Pertamina's plan to acquire PT Medco Energi International is hailed by many quarters, including legislators, as a strategic step to reinforce its business in the upstream sector and increase its oil production.          "Medco's acquisition has the potential to benefit Pertamina because Medco has a number of potential oil fields at home and abroad that could raise Pertamina's oil output and national oil production," Dito Ganinduto, a member of the House of Representatives (DPR)'s Commission VII on energy affairs, said.          The same opinion is also voiced by Pri Agung Rakhmanto, executive director of ReforMiner Institute, who viewed Pertamina's move to acquire Medco as a strategic step. He said that the plan was a business strategy being developed by Pertamina to increase its oil output.          This step will have positive impact on the government's oil production target of 1 million barrels per day in 2015. After all, Pertamina and Medco are two oil and gas firms which are trying to build themselves into a world class firm.          Pertamina and Encore International Limited (EIL) have signed a principle of agreement as part of the step for Pertamina to purchase the EIL stake at Encore Energy Pte Lted ((EEPL). EEPL owns 50.7 percent shares at Medco Energi International. With the acquisition, Pertamina will automatically control 27.9 percent of Medco shares.          The two sides have agreed to continue the sale purchase of EIL shares at EEPL to an exclusive phase which would end on November 30, 2010.          Medco is recorded to have oil blocks at home and abroad. At home it has ones in South Sumatra, Sembakung oil Block, Tiaka Oil Block, the Lematang and Senoro gas fields as well as Blcok A gas field in Aceh. It also has 12 oil drilling wells abroad, among others in the United States, Yemen, Cambodia, Libya, Tunisia and Oman.          Medco's oil output as of August 2010 reaches 30,974 barrels per day which exceeds its annual target of 29,690 barrels per day.          Pertamina's  Vice President for Corporate Communications, Mochamad Harun, said his company's step to acquire Medco was part of the efforts to achieve the target of 1 million barrels of oil equivalent per day (boepd) in 2015.          "We have the target to produce up to 1 million boepd in 2015. For this, Pertamina could not merely rely on existing fields but also on the ways of merger and acquisition," he said.          He said that Pertamina would have additional output of about 10 thousand barrels per day with the acquisition of Medco.          However, Pertamina was suggested to also purchase Medco's oil blocks if it wanted to effectively raise its  output. Director of the Center for Public Studies Research (Puskepi) Sofyan Zakaria,  said that the acquisition of Medco was not a too precise step.          "The acquisition of the shares would not directly raise Pertamina's oil production. This is unlike if it purchases the oil field," he said.          The purchase of the shares meant that Pertamina would also bear the debts of Encore.  "Because what were purchased were corporate shares, all responsibilities and burdens will also become the burdens of the shareholders," the Puskepsi director said.          Yet, legislators supported the acquisition plan by Pertamina.  "The acquisition plan is a corporate action of both sides. I support the step because it would lead Pertamina to become a global player in the world oil business," Achmad Ferial, another member of the House Commission VII, said on Thursday.          He said that through the acquisition process, Pertamina could increase its performance and supports its transformation into a reputable company in the world. However, the acquisition should guarantee that Pertamina would be able to increase its oil and gas production in the future.          Legislator Dito Ganindito, also of Commission VII, said Pertamina's plan to acquire Medco needed support.  He said that if it acquired Medco, Pertamina would obtain not only supply for increasing its production capacity but also dividends from the acquisition.          "So, the chance for Pertamina to become a world class oil and gas company would soon become a reality," Dito, who hailed from the Golkar Party faction, said.          Pertamina is now surrounded by foreign oil firms which dominate the oil business in Indonesia. Exxon Mobil, Shell and British Petroleum are foreign firms which control most of the country's oil fields. Malaysia's Petronas which could be said to have learned its experience from Indonesia is now more progressive than Pertamina.          Therefore, it is now time for Pertamina to become a main player in the oil business. If this expectation is fulfilled, Pertamina would become a strong firm to compete in the world market.          There are many strategies that could be applied by Pertamina to fulfill the expectation, among others through the acquisition of Medco, he said.          Vice President for Corporate Communications of Pertamina, Mochammad Harun said Pertamina's hope for becoming a world class firm needed support. The immediate target it has to realize is to achieve its target of 1 million barrel production per day, at least in 2015.          Pertamina could achieve the target if it maximizes its oil and gas  upstream production capacity. The upstream sector would serve as Pertamina's growth center, he said.          "We have the target to produce one million barrels of oil per day in 2015," he said.      (T.A014/A/HAJM/21:59/a/R013) 11-11-2010 22:15