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MEDC Area 47 Divestment. To Buy or Not to Buy?

Medco Energi Internasional announced that it has agreed to divest its ownership in the Area 47 contract in Libya – which includes all participation rights and share ownership in the joint operating company, Nafusah Oil Operations B.V. – to the Libya National Oil Corporation.

MEDC President Director, Roberto Lorato, stated that this divestment aligns with the company's strategy to continuously enhance its portfolio through targeted acquisitions and divestments. The divestment value of the Area 47 contract is 119 million USD, equivalent to the book value of Area 47 as of 2023.

This divestment will not result in a reduction in the company’s daily production in 2024, which is targeted to reach 145-150 MBOEPD, considering that Area 47 is an exploration and development block in Libya that has not yet produced. MEDC will not record any profit or loss in the 2Q24 financial statements related to the divestment of Area 47, but it will receive cash inflow in the investment cash flow statement.

Although currently Brent crude oil price has not surge significantly despite the current tension in the Middle East, we see besides the slow recovery in oil demand, US SPR also has not yet rebound from its low position since 1983, amounting around 360mn barrels.

Source: US Energy Information Administration

We see that if the economy can recover faster, oil price will shoot up high. We believe this is feasible considering China Caixin manufacturing which still in the uptrend although considerably in a slow pace.

China Caixin Manufacturing PMI

Source: Trading Economics

However, we see another angle as to why MEDC might still worth included on your stock watchlist. As we know metal prices YTD is performing really well, and we don't see that the trend will over anytime soon. The geopolitics has forced some precious metal prices like silver and gold to surge significantly. We see that MEDC can be a reasonable entry point should we want a proxy to precious metal as it owns some of AMMN's shares.

Normalized 1 Year Copper (white) and Gold (blue) Price Chart

As seen on the chart, precious metal is offering a strong momentum wave that investors can ride. Looking from AMMN's valuation which is quite demanding, we believe MEDC deserve to be valued more. Therefore, we believe MEDC is one of trading idea worth to be included on the watchlist.


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