Pertamina Should Not Buy To Boost Production: House

State energy company Pertamina’s plan to buy a stake in Medco Energi Internasional is facing opposition from lawmakers, who say Pertamina should optimize its existing oil and gas production rather than increasing output through acquisitions.

Erlangga Hartanto, chairman of House of Representatives Commission VI, which oversees state enterprises, said Pertamina’s proposal should be reconsidered.

“Total national production capacity will not change by acquiring the Medco stake,” he said at a hearing with Pertamina late on Thursday. “Pertamina’s capital expenditure should be allocated to boost its own oil production by increasing capacity at its refineries, exploring more oil sources and investing more in the LNG Senoro and Natuna D Alpha projects.”

Pertamina signed an agreement in October with Encore Energy to buy a 27.9 percent stake in Medco, with the sale to be completed by Tuesday. The state company had said it was considering paying $200 million for the stake.

Erlangga said the acquisition was not a strategic fit for Pertamina because it would not have a majority control over Medco, the nation’s largest listed oil company. It has market capitalization of Rp 12 trillion ($1.3 billion).

House approval is required for the acquisition to go forward, and Erlangga said the State Enterprises Ministry should block the deal.

“All members of Commissions VI and VII [overseeing energy] will urge the state enterprises minister to cancel the acquisition,” he said.

Pertamina, he added, should provide clear plans for the deal. “Pertamina enjoys government subsidies and it has a dividend target to be paid to the government, so Pertamina should be transparent with us.”

Mustafa Abubakar, the state enterprises minister, on Friday acknowledged the House’s concerns, but said Pertamina was still studying the deal.

“I am giving Pertamina a chance to complete its due diligence by November 30,” he said. “If the study proves that the acquisition can lift Pertamina’s oil production, I will approve it. If not, Pertamina should find other alternatives.”

Frederick Siahaan, Pertamina’s finance director, confirmed that the company was still evaluating the deal.

Pertamina’s production is at around an average of 430,000 barrels of oil per day.

It aims to produce 500,000 next year and a million by 2015, primarily through acquisitions, Frederick said.

Medco has an average production of 30,000 barrels per day, and plans to invest $1.7 billion through 2014 in several major projects. Its Area 47 oil project in Libya is expected to produce 50,000 to 100,000 barrels a day and is to start production in 2014.

Medco shares fell 3.7 percent to close at Rp 3,275 after losing 2.9 percent the day before on news the House would oppose Pertamina’s stake purchase.

Faisal Maliki Baskoro
Jakarta Globe