Indonesia’s Medco Energi (IDX:MEDC) is on the lookout for more merger and acquisition (M&A) opportunities in Southeast Asia after successfully buying ConocoPhillips Indonesian assets in a $1.355 billion deal struck last year.
Significantly, ESG is playing a large role in shaping the oil and gas company’s future as it boosts its renewable energy portfolio and eyes CCS projects.
The ConocoPhillips deal, which completed in March and covered the giant Corridor Block, almost doubled Medco Energi’s oil and gas output – expected to hit 160 thousand barrels of oil equivalent per day (boe/d) in 2022.
Now, the Indonesian-listed independent is scanning the horizon for more acquisition opportunities around producing assets. “Some large opportunities might open up, but there are not that many compared to a few years back, only a few may come to market in the near future,” Roberto Lorato, chief executive of Medco Energi, told Energy Voice.
The focus of any expansion will be in Southeast Asia, particularly Indonesia, Malaysia, and Brunei, where material opportunities exist, he added. Aside from materiality, the key criteria for any M&A deals includes: operatorship, Medco Energi likes to be in control, especially in relation to determining its ESG strategy; and natural gas assets are preferred to oil. The company also has less appetite for frontier exploration, unless its natural gas.
Crucially, environmental, social, and governance (ESG) factors will be key in any material investment decisions – project investment or M&A. “ESG and the climate emergency will not go away. Medco Energi has progressively transitioned from a pure exploration and production company to an energy company,” said Lorato.
“We are committed to being a large 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 significant part of our portfolio over the next years,” added Lorato.
Medco Energi also has a power division, which provides a platform for the company to expand within the renewable energy sector. Medco is mainly looking at geothermal and solar opportunities in Indonesia. Its Sumbawa Solar PV 26MWp project is targeted for commercial operation by the end of June, a 30MW geothermal development in Ijen, East Java is progressing, while a power purchase agreement (PPA) for a solar PV 2×25 MWp facility in Bali has been signed with state-backed utility PLN, which has a monopoly on electric power distribution in Indonesia. Medco is also part of a consortium that is proposing to develop a solar PV project on Indonesia’s Bulan island that aims to supply electricity to Singapore.
Climate Change Strategy
The company’s climate change strategy covers three pillars. Firstly, decarbonisation by reducing emissions and flaring, using renewable energy to operate producing assets, as well as abating emissions via carbon capture and storage (CCS) or carbon capture utilisation and storage (CCUS) projects. Secondly, Medco Energi is making the transition towards low-carbon energy. This includes further expansion into the natural gas, and possibly liquefied natural gas (LNG), sectors, as well as increasing investments in renewable energy. Thirdly, the company will be seeking to manage the physical risks caused by climate change to ensure its operating assets are protected from extreme weather.
Medco Energi has a number of studies progressing on CCS and CCUS, which will be crucial as the company will not be able to monetise upstream oil and gas without capturing carbon dioxide (CO2), said Lorato.
Although the development of Indonesia’s carbon policy remains at a very early stage, “there is a lot of goodwill from the Indonesian government to play a part in the CCS story and facilitate projects. However, it’s complex and takes time to understand the opportunities,” he added.
Spanish company Repsol has advanced plans for a CCS project at its Sakakemang Block that would be linked to Medco Energi and is projected to start operations in 2027. Repsol, which is developing Sakakemang, is studying the potential to inject CO2 into the Dayung and Gelam fields within the nearby Corridor Block operated by Medco Energi. Medco Energi holds a 54% stake in Corridor, with Repsol on 36% and Pertamina 10%.
The Corridor PSC has two producing oil fields and seven producing gas fields located onshore 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 Singapore customers.
Medco Energi, which was founded by Indonesian businessman Arifin Panigoro in 1980, has benefited from international oil companies (IOCs) repositioning their portfolios in the region and has made various sizeable acquisitions in recent years. Aside from the recent ConocoPhillips acquisition, the company acquired Ophir Energy in a deal valued at GBP408.4 million 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.