PT Medco Energi Internasional Tbk (MEDC) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining Medco Energi's First Half 2026 Results Call. I'm Teresita Listyani from Investor Relations, and I'm joined today by Bapak Ronald Gunawan, our Chief Executive Officer; Bapak Amri Siahaan, our Chief Operating Officer; Bapak Benny Setiawan, our Chief Financial Officer; and Bapak Sanjeev Bansal, our Chief Growth Officer. This is the first full set of results featuring our new management team. We will run for about 30 minutes. Pak Ronald will open with the highlights and the strategic picture. Pak Amri will take you through upstream operations and power, and Pak Benny will elaborate on the financials and 2026 guidance. We will then open the line for your questions, and Pak Sanjeev will be joining us as well for the Q&A. Before we begin, a reminder that today's presentation contains forward-looking statements. The usual disclaimers apply as set out on the slide in front of you. Ronald, the floor is yours.

Good afternoon, everyone, and thank you for joining Medco Energi's earnings call. Before we move into the financial and operational results, I would like to briefly introduce our leadership team and importantly emphasize the continuity behind Medco Energi's strategy. First about myself, Ronald Gunawan, Chief Executive Officer and has been with Medco Energi for 11 years. I was the Chief Operating Officer from 2015 to 2026. At the center is Pak Hilmi Panigoro, our President Director, with 28 years in this company. He has taken Medco Energi through every cycle it has faced, and he continues to anchor this board. Amri Siahaan is our Chief Operating Officer and has been with the company for 11 years. Previously, he was the Chief Administration Officer from 2015 to 2026. Pak Benny Setiawan is our Chief Financial Officer and has been with Medco Group for 7 years. He is familiar with Medco Energi's business from his previous role as Managing Director at Medco Holding. And Pak Sanjeev Bansal joins us as Chief Growth Officer with 11 years at Medco Energi. He was the Senior Vice President of Business Development from 2015 to 2026. Our leadership team is built on a strong and proven foundation with deep experience across operations, finance, growth and capital markets. Together, we remain fully aligned around the same principles that have guided Medco over many years, disciplined growth, operational excellence and financial discipline. As we move forward, our priority remains very clear. First, operational excellence, maintaining safe, reliable operations while continuously improving performance. Second, production and cost management, delivering our production commitment while maintaining strong cost discipline and continuously optimizing our assets. Third, disciplined capital allocation. We will continue to balance investment in the business with deleveraging and shareholder returns. Growth must remain value-accretive and supported by appropriate returns. Fourth, balance sheet and liquidity management. Maintaining financial flexibility remains fundamental to our strategy, allowing us to manage market cycles and pursue attractive opportunities when they arise. And finally, sustainable growth. We will continue to develop our core portfolio organically, remain disciplined and selective on M&A and maintain our commitment to strong ESG performance. So while leadership responsibilities may change, the fundamental principles by which we manage Medco remain the same, continuity, consistency, discipline and value creation. With that, let me now take you through our performance for the first half of 2026. The key message from this slide is the strong operational execution has translated into higher profitability while maintaining a disciplined balance sheet. On operational side, production reached 170,000 barrels of oil equivalent per day, up 19% year-on-year and is currently tracking above our full year guidance. Importantly, this growth continues with strong cost discipline with cash costs at $8.4 per BOE, comfortably below our guidance of $10. Our power business also delivered solid growth with sales increasing 16.5% to 2,323 gigawatt hours, supported by an 18.8% increase in renewable generation. This operational performance translated directly into strong financial results. EBITDA increased by 31% to USD 805 million, while net income rose significantly to USD 275 million. The results also benefited from stronger realized oil prices and strong performance of AMMN. At the same time, we have maintained disciplined allocation. First half CapEx was approximately USD 188 million, largely in oil and gas, while return on equity reached 15.8%. And most importantly, our balance sheet remains strong. Restricted group net debt remained stable at USD 2.1 billion while restricted group net debt to EBITDA improved materially to 1.4x, down from 2.0x at the end of 2025. This gives us substantial financial flexibility as we continue to invest in growth. Our credit and ESG rating also remains solid, including AAA ESG rating from MSCI. Overall, first half shows what we want to keep delivering production growth, disciplined costs, stronger earnings and continued balance sheet strength. This slide shows how Medco Energi's strategy delivers long-term value through a diversified portfolio and strong operational performance. We have three complementary business pillars: Oil and Gas, Clean Power and Copper and Gold Mining. Together, they provide a more balanced earnings base and improve our resilience through different commodities and market cycles. Starting with Oil and Gas, this remains the core of the portfolio.In the first half of 2026, we produced around 170,100 barrels oil equivalent per day with 72% of gas and 28% of liquid. The 45% of production is sold under long-term fixed price gas agreements, while the remaining 55% exposed to commodity prices split roughly evenly between oil and gas and the export gas is linked to oil index. Importantly, we continue to maintain cost discipline, with cash cost of approximately USD 8.4 per BOE. Our reserves and resource base provides significant depth with over 542 million barrel MMboe of 2P reserves and more than 1.2 billion barrel oil equivalent of contingent resources supporting the longevity of the business. The second pillar is Clean Power. We sold more than 2,300 gigawatt hour in the first half supported by diversified portfolio of gas-fired generation, geothermal and solar more than 1 gigawatt of installed capacity and around 26% of capacity from renewables, the power business provides stable long-term duration cash flows while also positioning the group for the energy transition. Third pillar is our strategic investment in Amman Mineral, where Medco holds approximately 21% ownership. This provides exposure to high-quality copper and gold resources. Copper, in particular, is increasingly important for electrification and energy transition, while gold provides additional diversification. Amman also has a substantial reserve base supporting long-term production visibility. So our businesses are different but highly complementary. Oil and Gas provides scale and cash generation, Power provides stability and growing renewable exposure and Gold and Copper provides participation in structurally attractive commodities. Combined with disciplined operations and capital allocations, this diversified portfolio is what enables Medco to remain resilient through uncertainty while continuing to create long-term value. Starting with value. Our objective is to build sustainable long-term value from a diversified and integrated platform across oil and gas, power and our exposure to Copper and Gold through AMMN. In Oil and Gas, we can see the benefit of that strategy in our operating performance. Production has increased. At the same time, we continue to maintain substantial reserve base. Together with our MSCI AAA ESG rating, this demonstrates that value creation is being supported by both operational performance and long-term sustainability. The second pillar is focus. Growth creates value only when supported by execution capability and disciplined cost and capital management. Our Oil and Gas cash costs remain well controlled below our guidance $10 per BOE despite the growth in production. Importantly, we have also strengthened the balance sheet with improved restricted group net debt to EBITDA. This financial discipline gives us both resilience and flexibility, resilience to manage market volatility and flexibility to continue investing when attractive opportunity arise. The third pillar is Growth. Our approach has been very deliberate. We pursue acquisitions when we believe we can create value rather than simply adding scale. The track record at the bottom of the slide is important. Since 2016, our major acquisitions, including Block B, Ophir, Corridor and Oman have generated substantial cash recovery relative to the acquisition cost.. Block B, for example, has generated cash recovery equivalent to more than 3x its acquisition price and the original Corridor acquisition have already recovered more than their original investment. More recent acquisitions are naturally earlier in the recovery cycle, but they are already contributing to production, reserves and cash flow. At the same time, AMMN and Elang development provide additional long-term exposure to gold. So our growth is not growth at any cost. We are increasing production and expanding the portfolio while maintaining cost discipline, strengthening leverage and demonstrating that acquisitions can translate into cash and value. That is what we mean by value, focus and growth. I have described the portfolio we have built. Amri will now take you through how it performed. Amri, over to you.

Thank you, Pak Ronald, and good afternoon, everyone. I want to start with how this production number came about because it matters more than the number itself. 170,100 barrels a day was not a surprise to us. It was scheduled in some cases, years ago. Forel and Terubuk in South Natuna Sea Block B were sanctioned, drilled and brought on stream through last year. The additional 24% of Corridor closed in August. So this is the first half in which we have had a full 6 months of it. Senoro Phase 2A reached full production in June. Bualuang Phase 1 in Thailand came on stream in the second quarter. And in Oman, the Bisat C debottlenecking was completed. Five separate projects across three countries, each delivered on or close to plan. That is what 19% growth actually looks like from the inside. Not a windfall, a queue of commitments arriving on time. Volume is only half of the story. The other half is what it costs us to produce those barrels. On costs, our cash cost for the half was USD 8.4 per barrel of oil equivalent. We have held this below $10 per barrel of oil equivalent every single year since 2016. On the USD 7.7 per barrel of oil equivalent cash cost in the second quarter, the improvement came mainly from higher volumes, not from cost cutting. Most of our field costs are fixed. So when we produce more through the same facilities, the cost per barrel naturally comes down. For full year 2026, we are still guiding to below USD 10 per barrel of oil equivalent. That covers the barrels we produced this half. Let me turn to the barrels we have left. On reserves, two things are worth separating -- proved and probable reserves stand at 542.1 million barrels of oil equivalent, 12% higher than a year ago, driven by the additional corridor interest. Sequentially, though, reserves are lower than at the December position because we produced roughly 27 million barrels equivalent in 6 months and added less than that. That is not a concern in itself. It is the ordinary rhythm of a producing business, but it does tell you where our attention sits. Reserve replacement runs through three channels. First, contract extensions. The key terms of Madura's 20-year extension are signed and five more: Lematang, Sampang, Block B, Block A and Bangkanai are with the Government. Extensions retain barrels we already know how to produce, which is the cheapest reserve you can find. Second, Sakakemang, where the revised development plan is approved and first gas is targeted for the third quarter of 2027. Third, the Corridor development programs, Sambar, Rebonjaro, Rawa, and Suban. Those three channels are not abstractions. They are the projects set out on the next slide. This slide is usually read as six boxes. Please read it instead as three different time horizons running at the same time. The first horizon is this year. Sambar in Corridor targets partially on stream in the fourth quarter, building to roughly 108 million standard cubic feet a day through 2027. The second horizon is next year. Rebonjaro begins first phase drilling now, targeting partially on stream in the first quarter of 2027. Sakakemang follows in the third quarter at around 85 million standard cubic feet a day with the development plan approved and binding key principles signed with buyers. The facility sharing agreement with Corridor lowers Corridor operating costs. So the benefit runs in both directions. The third horizon is the decade. Senoro Phase 2A now holds a plateau of about 340 million standard cubic feet a day through to 2031. And we have begun assessing Phase 2b to expand it beyond that. In Oman, the Karim Small Fields exploration period has been extended by 9 years to 2035 and full-scale steam flood development at Ilham is approved. So production this year, production next year and plateau protection into the next decade. Different projects, different risks deliberately staggered. One item worth highlighting today is Cendramas. The Production Sharing Contract offshore Malaysia becomes effective on 23rd of September with Medco Energi as operator, making our return as an operator in the country. There is one more thing I should address on this page directly rather than wait for it in questions. A word on the Middle East because we are asked about it constantly. To date, there has been no disruption to our people, our operations or our liftings in Oman. No cargo has slipped, and we have not paid a higher freight rate. Our business continuity protocols with local partners are in place and have been tested. I say to date, deliberately as we continue monitoring the situation, and we don't assume there is a wave. That concludes the operational update. Let me stay with you and move to Power and what the business is turning into. Power sales reached 2,323 gigawatt hours, up 16.5% from last year. That is 51.1% of our full year target, so we are on pace. Renewables grew faster still at 18.8% and now make up 1/4 of our power sales. You may ask why power revenue grew only 1.1%. That sits oddly next to 16.5% volume growth. And the reason is straightforward. The first half of last year included construction revenue from projects we were building. Strip that out and the underlying business grew properly. EBITDA was up 15.3% and the margin improved from 31.6% to 36.1%. The story I want to leave you with on power, though, is not about this half. It is about what this business is becoming. Let's look at the shape of the portfolio on this slide. 365 megawatts of geothermal, 578 megawatts of gas-fired, solar and mini hydro on top of that and then separately, 2,160 megawatts that we operate and maintain for other companies. The last number deserves more attention than it usually gets. Operation and maintenance are fee income. It requires almost no capital, adds no debt to our balance sheet and is the kind of business that compounds quietly. On growth, the Dalle Energi Batam expansion takes us from 85 to 300 megawatts, and we have a conditional power purchase agreement signed. Ijen's next phases are being worked through a PPA amendment. We are also drilling geothermal exploration in Bonjol, West Sumatra, and conducting geoscience survey at Samosir, North Sumatra. Power is an increasingly important part of our portfolio. It is growing at double digits, becoming progressively more renewable and expanding at the project level without recourse to the group, providing a clear pathway to greater scale over time. How we build that scale matters as much as the scale itself, which takes me to the last slide in this section. On sustainability, one slide and one argument. In March, we were upgraded to MSCI AAA rating. That is the top of their scale and 3 notches above where we sat 5 years ago. Very few companies are there. Underneath the rating, emissions from our exploration and production business are down 30% against the 2019 baseline, which means we have already met our 2030 interim target. Methane is down 40% against a 37% target for 2030. Why does this matter in the result presentation? Because a AAA ESG rating can enhance the company's investability among ESG-focused investors, particularly those with specific sustainability criteria or mandates. We, therefore, do not view ESG as separate from the business. That completes operations and power. Pak Benny will now take you through the financials and our guidance for the year. Pak Benny, over to you.

Thank you, Pak Amri. Let me turn now to the financials. Revenue for the half was USD 1.4 billion, up 23.4%. EBITDA was USD 805.1 million, up 30.7%. EBITDA grew faster than revenue, so the margin expanded from 53.7% to 56.9%. Prices helped: realized oil was up 25%, but we also produced 19% more through largely the same facilities, while unit cash costs moved only from $8 to $8.4 per BOE barrels of oil equivalent. This is operating leverage, more barrels to a largely fixed cost base, and it is the clearest evidence that the discipline Pak Amri described is real rather than historical. Net income was $275.3 million against $30.7 million last year. Amman swung from $31.1 million loss to $104.2 million contribution. But this is not an Amman story. Excluding Amman, net income was around $171 million against around $62 million. That is 3x and our core business carried this result. That is the earnings picture. What matters just as much is what those earnings did to the balance sheet. Now the balance sheet where I would like to spend a little time. Operating cash flow for first half 2026 was $514.7 million, up 46.6%. Consolidated gross debt closed the half at $4.1 billion, around $600 million higher than at the end of March. I want to explain that rather than leave it sitting there. The increase reflects drawdowns under committed facilities together with operating cash flow. This took cash and cash equivalents to $1.4 billion. That cash sits on our balance sheet and restricted group net debt actually fell 7.5% in the quarter. It gives us the flexibility to fund our growth plans while keeping leverage within our policy. During the half, we also completed a $200 million tap of our Senior Notes due 2030, taking that issue from $400 million to $600 million. The restricted group net debt to EBITDA is at 1.4x on an annualized basis at the half year from 2x at the end of last year. And at mid-cycle pricing of $65 per barrel, we sit at 1.9x. That is inside our 2.5x policy ceiling and well inside the 5x bond ceiling. That mid-cycle figure is important because it shows where we are if prices normalize rather than where we are at today's rate. On the same basis, our fixed charge coverage ratio stood at 5.6x against a floor of 3x. That is the natural place to turn to what we intend to do with the capacity for the rest of the year. Our first half performance keep us well on track for our 2026 targets. Production was 170,100 barrels of oil equivalent per day, around the top end of guidance, while power sales are progressing in line with plan. Cash cost remains well below our ceiling at USD 8.4 per barrel of oil equivalent. Leverage is at 1.4x and return on equity is always above our target at 15.8%. Main update is CapEx. We are bringing forward investment to fast track Sakakemang, taking oil and gas CapEx guidance to USD 450 million to USD 475 million, while our CapEx is now up to USD 50 million as we progress the Batam expansion. At Sakakemang, the revised development plan is already approved, and we have signed binding key principle with gas buyers. So we are accelerating towards first gas. At Dalle Energi Batam, we have signed a conditional power purchase agreement. In both cases, the capital is going into projects that are commercially viable and that converts into production and cash flow inside our planning horizon. With Bualuang Phase 1 now on stream and further catalysts across Sakakemang, Corridor, Batam and Amman, we remain focused on delivering this year's guidance while positioning the portfolio for future growth. Let me close our presentation with three thoughts. First, this half was delivered. It was projects arrived on schedule and our cost base stayed disciplined below $10 per barrel. Second, we grew while continuing to deleverage. That gives us greater financial flexibility to invest in growth while maintaining a disciplined approach to the balance sheet. Third, the management team has changed and the strategy has not. Value focus and growth is the same as it has always been. We are conscious that the second half carries maintenance and a more uncertain external backdrop. We are reaffirming our guidance because we believe we can deliver. With that, let us open the floor for your questions.

Thank you. Pak Benny, we will now move to the Q&A session. We have received a number of questions from the audience, also questions that received via e-mail, and we will take them one by one. I will read it one by one and refer it to our Board of Directors to answer it. So let me start with the first question. Let me just get to this question from the audience. Okay. Okay. This is an interesting question. You have built a USD 2.6 billion liquidity buffer, raised debt, you have not spent, and you keep describing your acquisition track record Are you preparing to buy something? And this is a question that I will refer to Pak Sanjeev. Over to you, Pak Sanjeev.

Thanks, [ Teresita ]. If I could tell you that, I don't think I would be very good at my job. To be clear, we're not able to comment on any specific transaction at this point. We are constantly evaluating assets, trends and acquisitions across our operating universe. Our acquisition criteria has not changed. We remain focused on sizable high-margin producing assets in Southeast Asia and selectively the Middle East as in the past in Oman, for example. We look for assets that generate long-term cash flow and attractive returns, offer synergies with our existing infrastructure and established monetization routes and have a well-understood risk supported by production history and a defined subsurface portfolio. We also prioritize markets with accessible infrastructure and predictable fiscal and regulatory frameworks. That said, our liquidity does give us the flexibility to pursue the right opportunities, but our acquisition discipline remains unchanged. Every acquisition we've made since 2016 has been value accretive and any future transaction will be assessed against the same criteria and financial discipline.

Okay. That is also to answer similar questions related to our acquisition criteria and our acquisition plan. So we will move to the second question. Why is the first half audited? And this is also one of the most recurring questions that we received by many.

Thank you, Teresita. Well, obviously, I think everyone knows that we have completed the audit for first half 2026, and we have disclosed it to IDX and OJK. But mainly just to give us flexibility for any potential corporate action in the future. At the moment, we have nothing to disclose, and we will always follow IDX and OJK regulations if and should there be any material disclosure in the future.

Thank you, Pak Benny. So moving on to question #3. This is more on production. So that should go to Pak Amri. Production of 170.1 million barrel equivalent per day -- it's kilo barrel equivalent per day is at the very top of your 165 to 170 guidance range. Why are you reaffirming rather than raising it, Pak Amri?

Okay. Thank you. Thank you for the questions. The first half results is basically benefited from our full contributions from Forel and Terubuk and the incremental of the Corridor working interest that we acquired from Repsol and also the Senoro Phase 2A ramp-up. So all which provided additional production compared to the prior year. Now we remain confident in maintaining our full year guidance, considering we still have planned maintenance across some of our assets and also expected decline in production during the second half.

Okay. So yes, we still maintain our production guidance and we affirm it for anticipating that activities that we will conduct in the second half. And moving to question #4. We you have -- this is related to PSC extension. You have 6 licenses extensions currently with the government. Madura, Lematang, Sampang, Block B, Block A, Ijen and Bangkanai. What happens to your production profile if those extension slips? I will refer this question to Pak Ronald. Over to you, Pak Ronald.