The Indian Oil Corporation board on Wednesday approved a proposal to bid for up to 40 per cent stake in Indonesia's largest independent upstream company PT Medco Energi International. IOC will now commence valuation of the company.

"We will be bidding for an Indonesian exploration and production company. The board has cleared the proposal," IOC chairman MS Ramachandran said.

While the public and financial institutions hold around 15 per cent stake in Medco, the balance 85 per cent equity is owned by a holding company -- New Links.

Thailand's PTT Exploration and Production Company has a 34 per cent stake in the holding company, 26 per cent is owned by US fund manager Credit Suisse First Boston and the remaining 40 per cent is held by the Panigoro family of Indonesia.

IOC executives said that there was the option to acquire 40 per cent stake while the other option was to acquire 17 per cent from PTT Exploration and Production Company of Thailand and CSFB.

"The final decision is to be taken by the Indonesian family," a senior executive said after the board meeting. The Indian public sector is keen on acquiring 40 per cent stake in Medco, which would be its first upstream acquisition overseas.

If the proposal goes through, IOC would be the largest shareholder along with the Panigoros.

In April, the board had cleared the setting up of an exploration and production division and subsequently a $2 billion plan for acquiring medium-sized foreign oil and gas companies had been drawn up to enable IOC to become a fully-integrated company.

Medco's oil producing properties generate close to 70,000 barrels per day, while annual gas production is estimated at around 200 billion cubic feet.

IOC executives said while the due-diligence exercise has been completed, the valuation exercise will commence in the coming days. The petroleum major intends to appoint a consultant to help in identifying and acquiring companies overseas in the future.

Climbing new heights

• Public and FIs hold around 15% stake in Medco, the balance 85% is held by holding company New Links
• Thailand's PTT Exploration has a 34% stake in the holding company, 26% is owned by Credit Suisse First Boston and 40% by the Panigora family of Indonesia
• IOC is also exploring the option to acquire 17% stake from PTT Exploration of Thailand
• Medco had a market capitalisation of around $469 million
• Medco has proven reserves of 150 bn cu feet of gas