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BUY
Initiating Coverage PT Energi Mega Persada Tbk
Indonesia has total around 171.3 trillion cubic proven gas which much of
them not in the production phase yet. The next huge project that
expected to produce is Masela Block, which located in Maluku Province,
that estimated hold reserve up to 18.5 TCF. The Block licensed to
Inpex, which sell 10 percent of its stake to an Indonesian private oil and
gas company (PT Energi Mega Persada Tbk).
Finally delivered
DER, (x) 4.9 1.0 0.6 Revenue (Rp Bn) 1,859 1,444 1,210 2,114 3,952 4,332
EPS Growth, % -4849% 95% 460% Operating profit (Rp bn) 583 27 155 698 1,845 1,983
Source: Company, WSI Research Net Income (Rp bn) -35 -1729 -95 407 1349 1564
EPS (Rp) (2) (120) (2) 10 33 39
PE (x) -34.62 -1.61 -46.74 10.88 3.28 2.83
Analyst PBV (x) 0.33 1.60 0.71 0.66 0.55 0.46
DER (x) 2.39 4.87 0.61 0.69 0.63 0.57
Jemmy Paul W
jemmy@waterfront.co.id ROE (%) -0.9% -99.3% -1.5% 6.1% 16.8% 16.3%
Source: Company, Waterfront Research
Tel: (021) 529 21166
Indonesia has total around 171.3 trillion cubic gas proven which much of them not in the production
phase yet. Several issues has made the progress so slow. From the national interest to corruption
suspicion has made several largest blocks delayed its production. D-Alpha Block in Natuna, which
currently hold the largest reserve in Indonesia, is still in the join partnertship stage after the
government gave the operator right to National Petroleum Company (PERTAMINA) from the previous
licensed operator Exxon Mobile. The second largest (Tangguh Block) is now in production stage but
still not achieved production plan scheduled as it still behind schedule planned to deliver to their
customer. The other one is Donggi-Senoro Block which project being suspend because of corruption
issued and delayed because of the export portions that still negotiate. The next huge one is Masela
Block, which located in Maluku Province that estimated hold natural gas reserved up to 18.5 TCF. The
Block is licensed to Inpex, which sell 10 pct of its stake to Indonesian private Oil and gas company
which is PT Energi Mega Persada Tbk (EMP)
EMP as second largest oil and gas company in Indonesia with equity access
Significant role of oil and gas company in Indonesia is increasingly being attractive to investors due to
current oil price which promised huge gain through investment in that sector. Indonesia is a country
that dominates by its National Oil Company (NOC) that is PT Pertamina Persero is now in need for
equity access for investor to involve in this sector. EMP that currently hold second largest market
capitalization of public oil and gas company in Indonesia Stock Exchange (IDX) is a very undemanding
cheap valuation company which offer great potential of returns. EMP that currently hold 567 million
barrel oil equivalent (MBOE) 2P Reserves is a very cheap pick as it only trade at 1.58 times EV/2P
through our current estimate enterprise value. It is so much cheaper compare to its peer in Asia
Pacific regional, which trade around 5.1 times EV/2P. We believe that EMP will finally produce positive
bottom-line beginning this year as the realization of new oil and gas wells will increase its oil and gas
production by 43 % and 192% in 2011, 2012 respectively. A jump in oil price and realization of
higher ASP in its natural gas sales will start to effect this year. That will made the company revenue
soar up. A multiple growth in net income will be expected as a steady growth in cost of production in
the coming years cant be compare to multiple output in revenue.
EMP has 5 production blocks and 2 huge blocks expected come on stream
EMP hold production in 5 Blocks which produce around thirteen thousands barrel oil equivalent per day
last year. The contribution of its oil and gas production is almost the same. Unfortunately, due to
Sales Agreement that EMP hold in the past, the company is not making much dollar in the recent
natural gas price hike. EMP’s gas sales price is only 2.7 dollar per mmbtu on 2010. That price is
discounting about 40 percent from current gas price that traded in New York Mercantile Exchange. We
believe that lack of fortune will now evolve into profit since the company has renegotiated the current
price of gas delivery. We expect the company will improve its average gas-selling price by 34% and
112% to $3.52 /mmbtu and $5.57/mmbtu respectively in 2011 and 2012. The fortune will be double
as company will also book an increase on its oil average selling price to 91.7 dollar per barrel and 100
dollar per barrel according to our assumption in 2011 and 2012, compare to its current oil ASP around
79 dollar per barrel.
Figure 4. EMP Natural Gas Reserves and Indonesia Estimated Natural Gas Reserves
Source: Company, EM
Early January 2011 EMP just announced that its wells from Pagerungan Utara in its Kangean Block
starting to produce around 6000 barrels per day. As it hold only 50% share on that block due to sales
of interest to its 2 partners we expect that company will get around 3000 barrells oil per day in its oil
production. That will means an increase for about 50 percent on its production. The block, which hold
most of the EMP reserves before the acquisition of 10 percent, Masela Block will also produce about
300 bbtud next year. That will made EMP output almost 4 fold jump than its current production in
2012. We expect the company will produce more than triple its revenue in 2012 after the production
coming on stream. Not just because of the amount it produce, but also from the adjustment of its
average selling price which will be as high as $5.57/mcf. In 2010 company has made adjustment of
the selling price with its existing buyers to revised 90 percent of its gas sales above $5/mcf. Since
most of its short term project is a long delayed project then we believe there will be no much delayed.
Gas pipeline already secured and the buyers already made commitment to purchase the output with
conditions agreement which profitable to EMP. The company now expecting an output around 25 bbtu
from its Bentu Block early this year. We also believe there will be no delayed on Bentu project as the
production plan scheduled to start in late 2010.
Masela acquisition.
On December 2010 EMP announced that its already sealed the transaction of buying 10 percent stake
in Masela Block, one of the largest natural gas block in Indonesia. The company bought the stake at
around 30 cents dolar per barrel oil equivalent. It means more than 90 percent discount compare to
market price of M&A oil and gas asset which around 4 dollar per barrell. Santos, an Australia gas
company which hold a block near Masela Block just sold its interest around that figure. The 10
percent Masela block acquisition will make the company 2P reserves jump 2.5 times. If the production
plans of Masela block coming on schedule at 2016 we will see company revenue jump 5 times
according to our model.
As a subsidiary of Bakrie group EMP has experience a very hard time during the financial crisis. We
believe crisis of cashflow is the problem that hit EMP the most. Lack of trust from financial institution
has made company cost of fund surge. That resulting a lack in its organic investment activities. We
believe that the company history of not meeting production plan scheduled in the past years is simply
cause by lack of funding. Since the right issue succeeded, we believe EMP will now meet their
production planned on schedule. The hike in price of oil, restructured gas ASP and exploding
production will made the company stronger. Recent parent company group with Vallar will also boost
company prudential and image in the eyes of investors. We expect company will success restructured
its debt with a less costly interest next year as the result of current financial performance.
120
100
dollar per barrel oil
80
60
40
20
0
2008 2009 2010E 2011E 2012E
5
US dollar per mmbtu
0
2008 2009 2010E 2011E 2012E
We initiate Energi Mega Persada Tbk (ENRG) with BUY recommendation and 12 months target price at
IDR 380, We came out the price by using DCF valuation. Another valuation using EV/2P reserves
might need to be consider because it still have huge discount compare to its peers in Asia Pacific. We
choose DCF valuation due to ENRG now becoming more in operation activity. ENRG currently trading
on 72% discount to our TP. Additional risks to our view include :1) volatility of oil price which might
result in under forecast, 2) delayed on project at Kangean and Bentu Blocks, 3) any future possible
change in accounting treatment as a result of new oil and gas industry law which expected to be out
this year.
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