MEYYY Medco Energi Internasional TBK PT (PK)

By Sara Schonhardt 

JAKARTA -- Indonesian listed energy company PT Medco Energi Internasional Tbk announced Monday that it had signed a sales agreement to acquire Houston-based ConocoPhillips' 40% stake in an oil and gas block off the northern coast of Indonesia's part of Borneo island.

The acquisition comes at a time of increasing resource nationalism and amid a push by officials to ramp up energy projects to strengthen defenses of Indonesia's maritime borders. The block is located in the Natuna Islands, an energy-rich chain at the edge of the South China Sea where Indonesia has faced increasingly aggressive maritime moves by China.

It also follows an agreement Medco sealed in late June, along with a group of local investors, to purchase a controlling stake in a copper and gold mine operated by U.S.-based Newmont Mining Corp. for $1.3 billion.

A Medco spokeswoman said the company couldn't disclose the amount of the ConocoPhillips transaction but said that it was "much smaller" than the Newmont deal. Company shareholders are expected to vote on that acquisition by the end of September.

A spokesman for ConocoPhillips' Indonesia operations confirmed the information in Medco's announcement, which also covers related transportation systems and an onshore receiving terminal.

Indonesia "is an important part of our portfolio," the spokesman said. "We hope in the future be able to continue our partnership as well as our investment."

The transaction is expected to be completed later this year pending necessary government endorsements and staffing.

Medco CEO Roberto Lorato said in a statement that once the acquisition takes effect Medco's daily production will increase more than 35%. The company expects the purchase to add around $100 million annually to earnings.

Medco plans to purchase the asset using funds already committed by foreign banks as well as existing cash, the spokeswoman said. It is still in discussion with domestic and foreign banks for further funding.

ConocoPhillips announced in August 2015 that it was seeking to sell its interest in Block B and associated facilities in the Natunas. It said its sale of the asset would depend on finding the "proper buyer."

Big oil companies have been cutting back operations globally over the past year in the wake of falling prices. At the same time, growing regulatory uncertainty and a lack of incentives to invest in exploration and expansion have added to the challenges of operating in Indonesia.

Medco's director Hilmi Panigoro said the transaction will strengthen the company's footprint in Indonesia and "significantly enhance its upstream oil and gas capabilities."

The block in the Natunas produces around 300 million standard cubic feet of gas and 30,000 barrels of oil a day. Its other investors are Chevron Corp. and Japan's Inpex Corp. ConocoPhillips has been operating the facility for nearly 50 years and has an operating contract that is good to 2028.

The company also has oil and gas assets in other parts of Indonesia's portion of Borneo island and in the south of Sumatra island.

--Deden Sudrajat contributed to this article.

Write to Sara Schonhardt at Sara.Schonhardt@wsj.com

(END) Dow Jones Newswires

September 19, 2016 10:48 ET (14:48 GMT)

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