Quoting from Bisnis Indonesia, Chubu Electric Power Co and Kansai Electric Power Co (which act as a buyer for LNG) have agreed to give more time for MEDC and Pertamina consortium to further negotiate with the government, in regards to supply gas to DSLNG. The Japanese buyer did not give the exact deadline for the negotiation process.
MEDC believes that there are 3 reasons why the government should agree with the consortium in supplying its gas to DSLNG; 1) the upstream scheme will give out optimum income for the government, 2) around 17% (or 70 mmscfd) of its total production will be allocated to fertilizer plant in Indonesia, and 3) a decent gas selling price of around US$6.2/mmbtu at US$70 oil price and LNG price of around
US$10.9/mmbtu.
Apart from that, PLN’s Planning and Technology Director announced that they have not agreed the selling price of geothermal with MEDC yet. Previously there was news which stated that PT Perusahaan Listrik Negara has agreed the selling price of geothermal power plant in Sarulla of US$6 cents per kWH (30% upward adjustment from previously US$4.6 cents). As MEDC is currently still in a negotiation process with
PLN, we therefore have not factored in future income from this project in our forecast. Thus project realization will provide an upside to our current valuation.
The construction will be in 3 phases over the next 5 years, and the project will start up 2012. Assuming the plant running at its full capacity of 330MW thus, MEDC may obtain an extra income of around US$170mn per year. The company announced that they will out dividend around US$50mn or Rp157/share (assuming Rp10,500/US$). It reflects a divided yield of 5.7%. MEDC is currently trading at EV/2P of US$1.9/boe,
including its contingent reserves.
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