The Ministry of State-Owned Enterprises has planned to launch an IPO for two state oil and gas giant PT Pertamina’s subsidiaries, namely PT Pertamina Hulu Energy (PHE) and PT Pertamina Geothermal Energy (PGE).
“We will initiate the IPO process for four companies, including PGE and PHE,” SOE Deputy Minister Pahala Mansury told a hearing with the House of Representatives (DPR)’s Commission VI overseeing industry and investment on December 7, 2022.
PGE, which was established in 2006, is Pertamina’s subsidiary in the geothermal sector. The company focuses on the development of geothermal to create cleaner and environmentally friendly energy. Meanwhile PHE, which was founded in 2001, focuses on its collaborations with third parties at home and abroad.
PGE performance
Mansury said the government has set a target for PGE’s IPO in the first quarter of 2023. The company is in the process of the IPO by preparing documentation and appointing consultants. It has filed its first and second registrations with the Financial Services Authority (OJK).
“The IPO price range delivery to the OJK will occur at the end of 2022 or early 2023. In addition, the period for public exposure, registration, and public offering will continue,” he said.
By going public, PGE will optimize its existing assets and increase its installed capacity by developing several projects, especially in operating geothermal blocks.
In the next five years, Mansury said, the company would be able to construct Units I and II of the Lumut Balai geothermal project in Muara Enim, South Sumatra, and Units I and II of the Hululais project in Bengkulu. The company will also use cogeneration technology or binary technology that provides additional capacity by implementing low brain pressure and bottoming. It is a technology that uses existing water and steam to generate extra heat.
By developing all PGE’s geothermal blocks – in collaboration with other state-owned enterprises and PT Geo Dipa, a subsidiary of the Finance Ministry – the company will further expand the partnerships. From 2023 to 2027, PGE anticipates developing 600 MW of capacity.
“PGE currently operates 672 MW of installed capacity and 1.2 GW through joint operations,” Mansury said.
In his view, the company has positive financial and operational performance. A long-term track record of operating the Kamojang geothermal block in West Java since early 1980s demonstrates excellent operational performance. The company generated 5.6 GWh in 2021. “PGE has been developing and operating geothermal sources in Indonesia for over 35 years,” he stated.
By the end of 2021, PGE had total revenue of US$ 369 million, with an EBITDA margin of 78.7%. According to him, the EBITDA margin is a factor that attracts investors.
“We believe that a long-term commercial contract with PGE can ensure the sustainability of the company’s financial performance. PGE has an excellent rating from Fitch as far as its environmental, social, and governance credentials are concerned,” Mansury added.
PHE performance
Mansury explained that the PHE has already selected financial and legal advisers, finished the June financial report, arranged for reserve and resource certification, filed the first and second registration at the OJK, and sounded to the market to know how many people would be interested in its IPO.
“We hoped the PHE would offer 10%-15% of its shares on the capital market,” he said.
PHE plans the funds from the IPO will be used to increase production in the future, as Indonesia’s crude oil production has been declining in recent years. The raised funds will be used to develop existing production blocks owned by PHE in Indonesia and other countries.
“We hope the IPO will be able to increase our energy security. We’ve seen the current situation in the region has adversely affected by Russian energy sources,” Mansury said.
With a total revenue of US$ 11.7 billion and EBITDA of US$ 3 billion, PHE has the potential to develop further. With significant reserves, PHE is Indonesia’s largest oil and gas exploration and production company.
“We hope that PHE can create existing gas and oil blocks at home and abroad, have technical and operational expertise, and operate a large gas and oil block in Algeria,” he added.
According to Mansury, the IPO can increase transparency, accountability, and diversification of financial resources. For many years, PHE was financially supported by parent company Pertamina, which had capital expenditures of between US$ 4 billion and US$ 6 billion. It is a positive momentum for investors because the high oil and gas price encourages a positive outlook. Only a few oil and gas explorations and production companies are listed on the Indonesia Stock Exchange (IDX).
The PHE’s IPO may be supported by a small number of companies and the high price of oil and gas.
A portion of the proceeds from the IPO will be used to finance PHE’s exploration activities in Sumatra, Java, and Papua. Enhanced oil recovery technology, workovers, improved oil recovery, and the development of newly acquired oil and gas blocks overseas can also be developed using the fund.
Pertamina still has a name for buyers
Reza Priyambada, Senior Analyst at CSA Research, said market players would be interested in both PGE and PHE shares as the companies were part of Pertamina. However, they would also consider fundamental aspects, pricing or the price of shares and percentage of the shares that will be released.
“If the companies only release a small amount of shares to the market, and the majority is still controlled by the companies, the shares will not be liquid. It is not interesting for the market despite the fact that the company has good performance,” he pointed out.
Priyambada said that geothermal was a new industry at the IDX. There are not many players in geothermal, except for Barito group’s subsidiary Star Energy. “The majority of the players are other renewable energy companies. It will be a concern of investors,” he added.
It is a completely different story for PHE because there are other oil and gas downstream industry companies at the capital market.
“Market players will compare PHE with other oil and gas companies, which have already been listed in the IDX like Medco, state-owned PT PGN (Perusahaan Gas Negara) and RAJA (PT Rukun Raharja). From the comparison, the market players will see wether PHE has a strong financial growth or not,” Priyambada explained.
Energy economist at Gadjah Mada University Fahmi Radhi said the IPO was a right and strategic effort to secure a huge amount of fresh money in low cost in comparison with credits from consortium of banks. He said the IPO was not a liberalization if the majority of the share was still controlled by Pertamina subsidiaries.
