Medco's Profile Improves after Acquiring ConocoPhillips Indonesia

By Editorial Team 30/05/2022
Summary

Fitch Ratings has affirmed PT Medco Energi Internasional Tbk's Long-Term Issuer Default Rating (IDR) at 'B+' and placed the rating on Positive Outlook. Fitch has also affirmed the ratings on Medco's senior unsecured US-dollar notes at 'B+' with a Recovery Rating is 'RR4'. All ratings are now off Rating Watch Positive, as the company has completed the acquisition of ConocoPhillips Indonesia Holding Ltd. ConocoPhillips owns a 54 percent working interest in the Corridor block production sharing contract (PSC), an operating asset in South Sumatra, and a 35 percent interest in Transasia Pipeline Company Pvt Ltd.

Medco's post-acquisition operating profile has improved, with a larger scale and a more favorable earning mix due to a higher share of fixed-price contracts. Fitch expects Medco's EBITDA from fixed-price contracts to remain above 2.5x of interest expense, up from around 1.0x prior to the acquisition until 2025. "Medco's rating is underpinned by a low-cost position, earnings stability, and healthy free cash flow generation, which supports the company's strong financial profile under Fitch's oil and gas (O&G) price assumptions," as per Fitch Ratings statement.

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