In a phone interiew with Bloomberg news, Pertamina’s CFO Frederick Siahaan said this Indonesia’s largest state-owned oil company has a plan to acquire PT Medco Energi International. He said that Pertamina may buy a stake in Medco’s parent company Encore Energy Ltd, but the company wants Medco to “spin-off” its non-oil and gas units before proceeding with an acquisition.
The comment confirms the on-going market speculation about such a deal, that has not really translated into the stock’s outperformance. I think MEDC is undervalued at its own right, whether or not the acquisition deal materialize. Oil price gained 2.2% overnight. On 23 Sep, JPMorgan’s global oil team put out bullish report raising 4Q10 average WTI forecast to US$81 (from US$75), and 4Q11 to US$88 (from US$85). I have copy & pasted my previous company visit note on MEDC below.
A number of bullish developments:
* Reserves – on its full year 2009 results reported at the end of March, the company reported a 160% jump in 1P reserves, from 89 mboe to 231 (net ownership to Medco). Total reserves and resources estimate went up by 10% from 725 mboe to 800. The driver behind the growth in 1P was the certification of Senoro’s gas reserves by GCA in Feb-10. According to the company, the Street could have missed flagging this important development. On the new 1P number, I calculate an attractive EV/1P reserves of US$6.31/boe.
* Lybia area 47 – this project is now resuming after the Lybian Investment Authorithy resolves the ownership issue, by taking over Verenex’s 50% participation interest (Medco owns the other half, and is now the operator for the block). DeGoyler Macnaughton estimated a contingent resource of 176 mboe for Medco’s 50% stake. In total, 21 wells have been drilled on area 47: 17 exploration and 4 appraisal wells. Of the 17 exploration wells, 12 wells are producing wells, estimated to produce 109,000 bpd (a big one, in the context of Medco’s current oil production of around 31,000 bpd). The consortium will drill 4 more exploration wells for US$30mn. Value of this project is not being reflected in Medco’s US$6.31/boe EV/1P reserves calculation.
* Senoro – this project is being fast-tracked now; government is expecting FID (final investment decision) by 31 Aug. The wheel has turned since the ministry of energy overturned Jusuf Kalla’s block on gas exports, allowing Senoro to export up to 70% of its gas output. State-owned banks have expressed willingness to support the project, which is estimated to cost up to US$3.1bn (a big chunk is on the downstream LNG plant, where Mitsubishi is majority).
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