SYNERGY OF PERTAMINA-MEDCO: TOWARD TO WORLD-CLASS OIL COMPANY

Rumors about such a synergy plan of Pertamina and MedcoEnergy have spread since the last several months. These two corporations are increasingly mentioned in some news and energy magazines in Indonesia. Actually, it was also confirmed by Arifin Panigoro (Founder of Medco) in end October 2008 that Medco was possibility for have a synergy with Pertamina to stimulate the state oil and gas company to become a world-class company. There are three optional synergy plans that can be chosen by them, it could be acquisition, merger, or joint operation based only on certain project area.

Merger, acquisition, or joint operation of each business companies are ordinary things to keep on the continuity of companies. A merger occurs when two companies combine to form a single company. A merger is very similar to an acquisition or takeover, except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. By contrast, in an acquisition one company purchases a bulk of a second company’s stock, creating an uneven balance of ownership in the new combined company. And joint operation occurs when two or more companies just temporary doing specific project until it finished.

There are some examples for this synergy plan in oil and gas industry. Acquisition occurs in BP and ARCO or Chevron and Texaco where eventually we know only left as BP and Chevron today. And merger ever happens to Exxon Oil and Mobil Oil or Conoco Oil and Phillips Oil. Until now, we know that both names are remaining affixed to ExxonMobil or ConocoPhillips. Joint operation happened to Pertamina and ExxonMobil to operate Cepu Block in Indonesia. All these entire sample synergy plans happens depend on situation and also by certain purpose each companies.

As is well known, Pertamina is placed in second rank in oil production after Chevron Company and gas production after Total Company. This company has reached 191 mbopd (million barrel oil per day) and 1450 mmscfd (million standard cubic feet per day) of gas until august 2010. It’s only oil company have production increase when other company has decrease in their production in several years. Medco has reaching 30 thousand bopd and gas reaching 145 mmscfd. In addition, Medco has a network business in exploration and production overseas, from USA and some countries in Middle East area. No other words to say, synergy plan between these companies will push Pertamina into becoming a world class company like other state oil companies in other Asian companies.

Now the question, what is appropriate choice of cooperation option for synergy plan of Pertamina-Medco? To able develop Pertamina rapidly, acquisition is more appropriate than merger and joint operation. If it can materialize, Pertamina will not only potentially grow in performance of production, but also in assets and network. This company can increase profit and will easy to expanding the overseas oil business. But actually, Medco will disappear from oil and gas industry in Indonesia.

However, merger is second choice for synergy plan after acquisition, if Medco isn’t willing and Pertamina not ready for acquisition for now.  Pertamina should choose this option, because these companies will acquire profit and risk business equally, although it can’t grow Pertamina rapidly as same as acquisition choice. Merger can grow both companies potentially, if they can combine their strength to expand their business to all Middle East area, whose reserves reach 716 billion barrel. It will be an origin appears of merger between a state oil company and a private oil company in Indonesia.

How about Joint Operation? Looking the intensive process these companies, it seems to be small opportunity choice for Pertamina-Medco synergy plan. Moreover, these companies had in fact to do it a long time ago in Donggi Senoro gas in Central Sulawesi.

Moreover, with the revised Law No. 21/2001 issue and the spirit of Article 33 of the 1945, actually synergy plan between Pertamina and Medco has great opportunity and answer a doubt some parties that Pertamina can become a world class company not only for this country but also be an international player by its business in various countries.

 

Written by:

Ryan Alfian Noor

Writer is Student of Petroleum Engineering ITB 2006

 

 

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