Interview: Medco sees 2005 net to up by 37 percent on oil prices

PT Medco Energi (MEDC.JK), Indonesia's largest upstream oil and gas exploration company, expects its net profit for this year to rise 37%, fueled by record-high crude oil prices, its chief executive said recently.

Medco's net profit this year will rise to around $96 million, with the company already posting net profit of $47.5 billion in the first six months of the year, Hilmi Panigoro told Dow Jones Newswires.

Medco's upbeat profit projection reflects the positive impact of record-high global oil prices, with Nymex benchmark crude prices at $63.17 a barrel at 0656 GMT.

"For every one dollar increase in oil prices, we can earn $2 million in net profit," he said.

Panigoro expects crude oil prices to hover around the $60 a barrel level for the rest of the year as total global crude oil demand stands at 86 million barrels a day, outpacing daily supply of 84 million barrels.

He noted that soaring demand in China and India and the ongoing maintenance shutdown of two huge U.S.-based oil refineries will help keep oil prices buoyant, but declined to provide a specific forecast for global crude oil prices beyond this year.

The world's oil reserve replacement ratio is now only 50%, meaning that for every one barrel of oil sold this year, producers have made only half a barrel in new oil discoveries

"Given those factors, it isn't surprising if oil prices remain high for the rest of the year," Panigoro said.

However, Medco's reserve replacement ratio is well above the global average at 150%, and he believes that the firm is well-placed to take advantage of the current high oil prices.

Medco currently produces 90,000 barrels of crude oil a day, or around 30 million barrel a year, he said. It now has 45 million barrels in new oil discoveries.

The company is also actively seeking new sources of oil and gas in Indonesia to ensure Medco's continuing profitability.

Panigoro said those efforts include a plan to bid for a 50% stake in an oil and gas block in Aceh owned by U.S. petroleum giant Exxon Mobil Corp. (XOM).

Exxon Mobil owns a 50% non-operating stake in Mobil Block A Ltd. in Lhokseumawe in northern Aceh. U.S.-based ConocoPhillips (COP) owns the remaining 50% of the firm and operates the block. Exxon Mobil Oil Indonesia said last week that the firm was "soliciting offers" from companies for the Block A stake, without elaborating.

Medco also plans to spend $220 million in 2005 and another $600 million in 2006 and 2007 to maintain business operations at peak efficiency, Panigoro said. The company will use its own internal cash to finance the investment.

Medco's investment will go some way in helping Indonesia reverse its decline in oil output. Southeast Asia's sole member of the Organization of Petroleum Exporting Countries, will this year be a net oil importer, placing great strain on the government's already tight budget.

Analysts expect the nation's oil production to fall to an average of 476 million barrels a year between 2006 and 2010, from around 502 million barrels a year between 2001 and 2005. (*)