PT Medco Energi Internasional arrests rate of production decline from its fields-

Established in 1980, Indonesia-based PT Medco Energi Internasional (MedcoEnergi) is an oil and gas exploration and production company with its presence in six countries – Libya, Oman, Papua New Guinea, Tunisia, the US and Yemen. With regard to oil and gas, MedcoEnergy holds more than 36 oil and gas assets in the world. Apart from a few international discoveries, the company made a new oil and gas discovery at Hijau-2 well, South Sumatra block, in Indonesia during 2014. A drill stem test at the block confirmed a gas flow rate of 5.05 million standard cubic feet per day. Southeast Asia Infrastructure provides an update on MedcoEnergi’s oil and gas operations in Indonesia…

Existing reserves

As of 2013, MedcoEnergi had oil reserves of 121.1 million barrels and gas reserves of 857 billion cubic feet (bcf). In Indonesia, the company has stakes in 16 oil and gas blocks, including three coal bed methane (CBM) blocks. While the company has commenced production from six blocks, three are currently under development (see Table 1).

During 2014, MedcoEnergi produced 8,061.6 million barrels of oil and 51,901.1 million cubic feet (mcf) of natural gas. Notably, the company has been able to mostly maintain oil and gas volume production by arresting the rate of production decline from its oil and gas fields. Lukman Mahfoedz, President Director and Chief Executive Officer, MedcoEnergi, stated in the company’s 2013 annual report, “We have been extremely successful at managing matured oilfields, arresting the rates of production decline from these ageing fields to just below 10 per cent year on year against the industry trend of 25-30 per cent. We will continue to maximise our efforts at managing matured oil fields in Indonesia, including with the use of enhanced oil recovery techniques that we have successfully tested since 2012.” The monthly production of MedcoEnergi’s oil and gas is depicted in the figure.

Gas pipeline and distribution

MedcoEnergi commenced its gas pipeline and distribution business in 2008. The company has a 17.5 km gas pipeline and a booster compression station at Gunung Megang in South Sumatra. This facility is used to transport the gas produced from MedcoEnergi’s gas producing field, located in Singa Lematang block. It connects the Gunung Megang facility to the Singa Lematang facility, pushing the gas through the booster compression station at a capacity of 67.5 mcf per day. Going forward, MedcoEnergi plans to produce natural gas liquids and construct multi-user gas pipelines in Sumatra and Kalimantan.

Major projects

Donggi-Senoro liquefied natural gas (LNG) project: The Donggi-Senoro project envisages the construction of a 2.1 million tonne per annum LNG facility in Central Sulawesi province in Indonesia. The estimated cost of the project is $2.08 billion. The facility will have one LNG storage tank with a designed handling capacity of 0.17 million cubic metres (mcm) of gas. The project has been undertaken by Donggi-Senoro LNG (DSLNG). It is 59.9 per cent owned by Sulawesi LNG, a company owned by Japan’s Mitsubishi Corporation and South Korea-based Korea Gas Corporation, 29 per cent by Pertamina Hulu Energi, a unit of Indonesia’s state-owned Pertamina and the remainder by Medco LNG Indonesia, a unit of MedcoEnergi.

In November 2014, a group of lenders agreed to provide a $763 million project finance facility to fund the project. The lenders include the Japan Bank for International Cooperation, the Bank of Tokyo-Mitsubishi UFJ, Mizuho Bank, the Sumitomo Mitsui Banking Corporation and the Korea Exim Bank. Nippon Export and Investment Insurance will provide insurance and the Korea Exim Bank will guarantee the amount supplied by commercial lending institutions.

The DSLNG plant is expected to commence commercial operations by the first half of 2015. “The commencement of the DSLNG plant will be a turning point for MedcoEnergi to establish itself as a major player in the gas and LNG business, both upstream and downstream,” said Hilmi Panigoro, President Commissioner, MedcoEnergi, in the company’s 2013 annual report. While DSLNG will supply about three cargoes a month initially, it is expected to make an annual delivery programme at a later stage.

Senoro upstream gas project: The project entails the development of gas production facilities in the Senoro-Toili block with a capacity of 310 mcf per day. The field has proven and probable gas reserves of 2 trillion cubic feet. MedcoEnergi has a working interest of 30 per cent in the project. The remaining share is held by PT Pertamina (50 per cent), and Mitsubishi and Korea Gas Company (20 per cent). As of December 2014, the EPC completion progress of the project had reached 93.9 per cent.

Recent contracts 

MedcoEnergi’s Block A in Aceh province has proven and probable gas reserves of 121.7 bcf and is currently under development. In January 2015, the company signed an agreement to sell 58 billion metric British thermal units (bmBtu) per day of natural gas from Block A, Aceh, to PT Pertamina over a period of 13 years. The natural gas price has been estimated at $9.45 per million metric British thermal units. Gas from the block will be supplied in the provinces of Aceh and  North Sumatra. The final investment decision is expected by mid-2015 and gas supply is due to start by 2017.

Apart from this, MedcoEnergi has signed another contract with Perusahaan Daerah Mura Energi to meet the gas needs for electricity in Musi Rawas Regency, South Sumatra. Under the deal, MedcoEnergi will supply 2.5 bmBtu per day of gas from the South Sumatra block for 11 years.

Financials

In 2013, MedcoEnergi’s oil and gas segment’s financial performance took a beating. During the year, the company’s revenues from the oil and gas segment declined by 6 per cent to $827 million. This was attributed to the decrease in sales in the chemical and other petroleum segments to $8.32 million in 2013 as compared to $203.56 million in 2012. This decline was also due to the divestment of PT Medco Sarana Kalibaru. In October 2012, Puma Energy acquired 63.88 per cent of PT Medco Sarana Kalibaru – the fuel storage and distribution subsidiary of MedcoEnergi. MedcoEnergi’s key oil and gas financials between 2010 and 2014 (January-September) are given in Table 2.

Outlook

Against the backdrop of MedcoEnergi’s substantial capital base and major ongoing oil and gas projects, the company will remain one of the significant players in Indonesia. However, the fall in global crude oil prices is expected to have a slight impact on the company’s operational performance in the short term. The deterioration in financial performance was reflected in February 2015 when MedcoEnergi announced plans to spend $250 million on capital expenditure in 2014, a decline of 24 per cent as compared to the $330 million spent in 2013. The reduced capital expenditure will imply delay in the implementation of some of its exploration plans.