Medco Energi International (MEDC IJ)

FY24-25F f’cast upgrade from Oman block; positive impact from Corridor reversion to cost recovery

• We believe the newly acquired Block in western Oman will begin to contribute to MEDC’s financials at the beginning of FY24.
• MEDC has obtained Ministerial approval for the amendment of the new Corridor Block which will revert the PSC back to Cost Recovery.
• Maintain Buy rating with a higher TP of Rp1,950, reflecting our FY24-25F earnings estimates upgrade from higher production estimates.

Higher FY24-25F production est. as Oman start contributing at early FY24F

We believe the newly acquired Block in western Oman will begin to contribute to MEDC’s financials at the beginning of FY24 as the acquisition was completed in Dec23. The Oman block production rate is 13 mboped with 2P reserves of 56mmboe (MEDC’s net ownership). With the additional production from Oman, we expect MEDC’s total production in FY24-25F to to 166mboepd and 169mboepd respectively (8.5% and 8.3% higher vs. our prev. forecast). We also see potential for the block to have low operating costs given its onshore location and thus expect its lifting costs to be around USD10/boe. Assuming a net split of 60% for MEDC from this block, we now project FY24F-25F net profit of US$358mn and US$350mn respectively (up 18.5% and 20.5% from our prev. forecast).

The government approves amendments to the Corridor block PSC

MEDC has obtained Ministerial approval for an amendment to the new Corridor Block PSC. The PSC will revert to ‘cost recovery’ scheme (from ‘gross split’ scheme in Jan24) with improved terms to ensure the economic viability of several new developments and to sustain further exploration of the block. As a result, we maintain our current production volume forecasts for the Corridor block in FY24-25F as there will be no changes to its production split with its PSC contract using the cost recovery scheme.

Expect oil price to remain >US$70/bbl amid lingering geopolitical tension

We continue to see risks of higher disruptions to global logistics activities amid the escalating tensions in the Red Sea. Shipping lines have diverted vessels around the Cape of Good Hope, impacting global trade and inflation dynamics. Although Red Sea oil transport (c. 5-8 mn bpd) is significantly lower compared to the Hormuz Strait (18 mn bpd), we nonetheless see the disruption in the Red Sea to be potentially enough to keep oil prices above US$70/bbl in FY24F (our estimate: US$78/bbl).  

Maintain Buy with a higher SOTP-based TP of Rp1,950

We maintain our Buy rating on MEDC with a slightly higher SOTP-baed TP of Rp1,950, reflecting our higher production volume assumptions from the newly acquired block in Oman. Key risks to our call include lower oil prices, asset impairment and AMMN’s financial performance.

… Read More 20240229 MEDC