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Jakarta Post

Medco cuts capex and production over oil price crash

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Fri, March 27, 2020   /   01:25 pm
Medco cuts capex and production over oil price crash Workers perform a pipeline stress test – a hydrostatic test – at the Temelat gas field in South Sumatra on Nov. 17, 2019. Local energy company Medco E&P began developing the field in 2017. (SKK Migas/SKK Migas)

Publicly listed oil and gas company PT Medco Energi Internasional has slashed its capital expenditure and production targets this year because of weakened global demand and the recent oil price crash.

Indonesia’s eighth most productive oil producer plans to reduce its 2020 capital expenditure by 30 percent to US$240 million “with potential for further 2021 reductions”. Three quarters of the funds are to go to Medco’s oil and gas business. The remainder is to go to the company’s electricity ventures.

Medco also plans to slash oil and gas production – “into 2021 and beyond” – by 5 million barrels of oil equivalent per day (mboepd) to 105 mboepd this year. The company may further cut production by 5 mboepd if demand weakens.

“In this low price environment, Medco has sufficient liquidity and supporting structures in place,” writes the company in its latest update presentation on March 17.

Global crude oil prices fell about 30 percent on March 9 after Saudi Arabia, the world’s largest oil exporter, slashed selling prices and set plans to increase crude production, effectively starting a price war between oil exporting countries.

International oil price benchmark Brent fell 60.2 percent year-to-date to $26.37 per barrel on March 26, Bloomberg data shows.

Indonesia’s Upstream Oil and Gas Special Regulatory Taskforce (SKKMigas) previously said the government would make sure domestic oil and gas production rates remained unchanged. However, as industry analysts have pointed out, many oil companies need deep spending cuts to protect their cash flows.

Medco stocks, publicly traded at the Indonesia Stock Exchange (IDX) as MEDC, rose 5.85 percent in the afternoon break on March 27 in line with the increase in  the benchmark Jakarta Composite Index’s (JCI), which rose 5.13 percent.