Medco Energi considering more acquisitions in Southeast Asia, ESG in the lead

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Medco Energi of Indonesia (IDX:MEDC) is seeking new mergers and acquisitions (M&A) opportunities in Southeast Asia after it successfully purchased the Indonesian assets of ConocoPhillips in a $1.355 billion deal completed last year.

Significantly, ESG plays an important role in shaping the future of the oil and gas company as it strengthens its renewable energy portfolio and considers CCS projects.

The ConocoPhillips deal, which ended in March and covered giant Corridor Block, nearly doubled Medco Energi’s oil and gas production – which is expected to reach 160,000 barrels of oil equivalent per day (boe/d) in 2022.

Today, the Indonesian listed independent is scanning the horizon for new acquisition opportunities around production assets. “Some great opportunities might open up, but there aren’t many compared to a few years ago, only a few might hit the market in the near future,” said Roberto Lorato, CEO of Medco Energi, to Energy Voice.

Any expansion will focus on Southeast Asia, particularly Indonesia, Malaysia and Brunei, where material opportunities exist, he added. In addition to materiality, key criteria for any M&A transaction include: being an operator, Medco Energi likes to be in control, especially when it comes to determining its ESG strategy; and natural gas assets are preferred over oil. The company also has less appetite for frontier exploration, unless its natural gas.

Fundamentally, environmental, social and governance (ESG) factors will be key in any major investment decision – project investment or merger and acquisition. “ESG and the climate emergency will not go away. Medco Energi has gradually evolved from a pure exploration and production company to an energy company,” Lorato said.

“We are committed to being a major producer of hydrocarbons, mainly natural gas. But at the same time, we are not just announcing, but investing in renewable energy, which will become an increasingly important part of our portfolio over the next few years,” added Lorato.

© Provided by Medco Energi
Medco Energi Corridor Block Operations in Indonesia

Medco Energi also has an energy division, which provides a platform for the company to grow in the renewable energy sector. Medco is primarily investigating geothermal and solar opportunities in Indonesia. Its 26MWp Sumbawa Solar PV project is expected to be operational by the end of June, a 30MW geothermal development in Ijen, East Java is progressing, while a power purchase agreement (PPA) for a facility 2 × 25 MWp solar PV in Bali has been signed with the utility PLN, which has the monopoly of electricity distribution in Indonesia. Medco is also part of a consortium that proposes to develop a solar photovoltaic project on the Indonesian island of Bulan which aims to supply electricity to Singapore.

Climate Change Strategy

The company’s climate change strategy is based on three pillars. First, decarbonization by reducing emissions and flaring, using renewable energy to operate production assets, as well as reducing emissions through carbon capture and storage (CCS) or capture projects, carbon use and storage (CCUS). Second, Medco Energi is making the transition to low carbon energy. This includes further expansion in the natural gas, and possibly liquefied natural gas (LNG) sectors, as well as increased investment in renewable energy. Third, the company will seek to manage physical risks caused by climate change to ensure that its operating assets are protected from extreme weather conditions.

Medco Energi has a number of CCS and CCUS studies underway, which will be crucial as the company will not be able to monetize upstream oil and gas without capturing carbon dioxide (CO2), said Lorato.

Although the development of Indonesia’s carbon policy is still in its infancy, “there is a lot of willingness on the part of the Indonesian government to play a role in CCS history and facilitate projects . However, it is complex and it takes time to understand the opportunities,” he added.

Spanish company Repsol has put forward plans for a CCS project on its Sakakemang block that would be linked to Medco Energi and is expected to start operations in 2027. Repsol, which is developing Sakakemang, is studying the potential of injecting CO2 into the fields of Dayung and Gelam in the nearby Corridor Block operated by Medco Energi. Medco Energi holds a 54% stake in Corridor, with Repsol at 36% and Pertamina at 10%.

The PSC Corridor has two producing oil fields and seven producing gas fields located on the coast of South Sumatra, Indonesia, adjacent to Medco Energi’s existing operations in South Sumatra. The majority of production is sold under long-term gas contracts to Indonesian and Singaporean customers.

Medco Energi, founded by Indonesian businessman Arifin Panigoro in 1980, has benefited from the repositioning of the portfolios of international oil companies (IOCs) in the region and has made several significant acquisitions in recent years. Along with the recent acquisition of ConocoPhillips, the company acquired Ophir Energy in a deal valued at £408.4m in 2019.

Outside of Southeast Asia, the company has upstream assets in Tanzania, the Middle East and Mexico. However, 80% of the company’s activities are in Indonesia.

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