UBS Investment Research Energi Mega Persada - Back to acquisition mode (TP unchanged at Rp 200/sh, SELL rating maintained)

􀂄 Company announced plan to buy 10% of Masela PSC Energi Mega Persada has sign an agreement with Inpex Japan to purchase a 10% working interest in the Masela PSC (Production Sharing Contract), conditional upon BP Migas (oil and gas upstream agency) approval. According to a Reuters article on 3 Jul09, Masela PSC is estimated to contain more than 10tcf (1.7bn barrels of oil equivalent) of gas resources. Inpex has not yet announced any plan to divest the remaining 90% it currently holds.

􀂄 Potentially adds 18% to net 2P reserves if everything goes well Assuming 12 years of 4.5m tons of LNG sales per annum starting in 2016 (PSC expires in 2028), the total 2P reserves that can be booked after LNG sales agreement is sales will be 2.6tcf. Given EMP’s 10% interest, this would translate to 260bcf (43m of barrels of oil equivalent), or 12% of EMP’s current gross 2P reserves and 18% of EMP’s current net 2P reserves.

􀂄 Could there be more acquisitions? EMP has a history of expanding its reserves through acquisitions, but has not announced any deal since a US$12m controlling stake in Tonga PSC in April 2008. Given improving global credit availability and better equity market conditions, we believe EMP is likely to further expand its asset portfolio.

􀂄 Valuation: DCF-based price target of Rp200 Our price target is based on a WACC assumption of 15.7% with delineated cash flow forecasts until the end of reserve life.