MedcoEnergi finally announces the closure of its production activities of the Bunyu Methanol Plant, operated by its wholly owned subsidiary, PT Medco Methanol Bunyu (“MMB”) after having temporarily shut down production since 1 st February 2009 due to a decline in gas supply needed for the operation of the plant.

MedcoEnergi commenced the operation of the Bunyu Methanol Plant in April 1997 under the Operation Working Agreement (“KSO contract”) with PT Pertamina (Persero) to monetize gas reserves from the Tarakan PSC Block, East Kalimantan, which is operated by the Company’s wholly owned subsidiary, PT Medco E&P Indonesia (MEPI). As a result of this closure, the Company is currently in the process of completing the administrative procedures required to return the plant to PT Pertamina (Persero).

The plant was designed with an optimum capacity of 32 MMSCFD and supplied with gas from the Tarakan PSC Block and Bunyu PSC Block, operated by Pertamina. The gas productions from both gas fields have declined drastically due to the maturity of the fields to 13 MMSCFD (all derived from the Tarakan PSC field) as of January 2009, creating an inefficient and hazardous working environment for operation to continue (30% capacity from an optimum 85% capacity).

Impact from the Bunyu Methanol Plant closure:

• The Company terminated 234 employees who have been working at the plant since the operation was taken over by MMB.
• In 2009, the Company will no longer book: 1) Revenue from methanol sales, which has contributed USD 38.8 million for 2008 to the Company’s consolidated revenues; and 2) Gas supply cost from the Tarakan PSC Bock to the plant which was eliminated by the income from gas supply from the Tarakan PSC Block at USD 3.9 million for 2008.
• The sale of gas to Regional Government Company in Tarakan (“Perusda Tarakan”) in accordance to the Gas Sales Agreement (“GSA”) signed with Perusda Tarakan on 22nd January 2009, by the Tarakan PSC Block will add revenues. The GSA is a 6 (six) years contract that commences in June 2009 starting with 1 MMSCFD and will gradually increase up to 3 MMSCFD commencing June 2010 until GSA expires. This gas supply will be used as a fuel source to meet the Tarakan city electricity demand.

“The Bunyu Methanol Plant in Bunyu marked a historical milestone for MedcoEnergi as it was the first step for the company to monetize its gas reserves. We have done our best to maintain operational activity until February 2009 despite a low supply of gas. Sadly, we have to cease the Plant operation and return the operatorship back to Pertamina,” explains Darmoyo Darmoyo Doyoatmojo, President Director of the company.

Budi Basuki, President Director of MEPI adds: “With a mature Tarakan oil & gas field, it is still difficult for us to maintain a sustainable gas supply even on a minimum-base requirement needed for the Bunyu Methanol Plant.”

“To the 234 employees who were terminated as a consequence of the plant closing down, the Company will provide severance pay in accordance with the prevailing government laws and regulations on Labor, and will include additional package at the Company’s own discretion. Furthermore, the Company will also implement an outplacement program for those having laid off to improve their skill.” Djatnika S. Puradinata, President Director of MMB.