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Betting on US$100 oil, Indonesia driller aims to triple output

[JAKARTA] Oil's dominance as a energy source may be on the wane, but one Indonesian producer is confident there's still plenty of opportunities to be had as the age of the hydrocarbon enters its final act.

PT Medco Energi Internasional is aiming to lift its oil and gas output from 120,000 barrels of oil equivalent a day to 300,000 in the next five to 10 years, said President Director Hilmi Panigoro. The explorer -- which already has fields from Indonesia to Libya to Mexico -- is most interested in buying existing onshore wells, he said in an interview in Jakarta.

Medco's strategy is based on Mr Panigoro's view that a dearth of exploration and strong aviation and petrochemical demand will push crude prices above US$100 a barrel in a decade or so. That runs counter to the perspective of oil majors like BP Plc, which said recently that some of its resources probably won't see the light of day due to low prices and an investor push for low-carbon projects.

Crude prices are likely to stay around US$60 a barrel in the short term, but "in the long run it will be a different story as not enough investment is happening upstream to replace declining production," Mr Panigoro said. There will be an oil shortage even if fossil fuel use ebbs as electric vehicles take off, he said.

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Medco, which also owns copper and gold mines and gas-fired power plants in Indonesia, kicked off its buying spree with the purchase of Ophir Energy Plc this year for 408 million pounds (S$705 million). Ophir has oil and gas assets in Indonesia, Thailand and Vietnam and the acquisition will add about 25,000 barrels of oil equivalent a day to Medco's 2019 output, it said in a statement.

As much as US$46 billion of oil and gas assets in Australia and Southeast Asia could be available for purchase as the majors seek to divest producing fields and rebalance their portfolios toward more high-growth areas in the US and South America, Wood Mackenzie Ltd. has said in notes this year. Southeast Asian state oil companies may also seek to sell small stakes in large projects, such as PT Pertamina's Rokan block, in order to help finance operating costs, according to the energy consultancy.

PT Panin Sekuritas is maintaining its buy rating on Medco, said Jakarta-based analyst Juan Oktavianus. The Ophir purchase was a positive for the company's financial performance and it has opportunities for more acquisitions following divestments of some subsidiaries, he said.

Medco prefers onshore assets to deepwater projects because of the heavy capital investment required in offshore fields, said Mr Panigoro, a graduate of the Colorado School of Mines. Medco will be "opportunity driven" and consider assets where the cost of production is US$10 a barrel or less, he said.

"There will always be money for the right assets," Mr Panigoro said. "Besides ensuring that it fits into our business, we will also ensure that our debt-to-ebitda ratio doesn't exceed three."