Bumi Armada’s risk profile continues to improve

KOTA KINABALU: Bumi Armada Bhd’s (Bumi Armada) risk profile continues to be viewed as substantively improving despite the decline in the group’s share price recently, analysts say.

In spite of Bumi Armada’s share price having retreated by nine per cent since the recent announcement of a shutdown of the group’s wholly-owned floating production, storage and offloading (FPSO) vessel Armada Perdana off Nigeria, AmInvestment Bank Bhd (AmInvestment Bank) continued to view the risk profile of the group as substantively improved.

It explained that this was due to Bumi Armada’s clientele’s upcoming full acceptances of the FPSO vessels Olombendo and Kraken, supported by minimal fourth quarter of financial year 2017 (4QFY17) impairment charges.

“Additionally, Upstream revealed that Bumi Armada has emerged as the unexpected frontrunner to land the FPSO charter for Eni’s Zabazaba project off Nigeria in OPL 245,” the research firm said.

“A formal contract award is far from being concluded due to ongoing wrangles over local content and pricing while the OPL 245 is also at the heart of investigations into alleged corrupt practices by Eni and partner Shell.”

AmInvestment Bank noted that earlier, the bid for Zabazaba’s 150,000 barrels per day FPSO was only between Bumi and a group comprising Bluewater Offshore and Saipem.

“In early November last year, Upstream reported that Bluewater-Saipem had the edge with the lowest bid of US$5.4 billion versus Bumi Armada’s US$7.6 billion,” it said.

“However, negotiations over local content, which requires fabrication of 50 per cent of FPSO modules in Nigeria and full local integrate of the topsides, have brought into question BluewaterSaipem’s pole position.”

According to AmInvestment Bank, Zabazaba’s FPSO would be a converted very large crude carrier (VLCC) that, in addition to oil, will handle 200 million cubic feet per day of gas, 240,000 barrels per day (bpd) of injected water and would be able to store 1.7 million barrels of crude.

It noted that first oil is likely to flow in late 2021, rather than Eni’s original 2020 target.

Assuming that the capex for the FPSO is similar to Olombendo’s US$1.5 billion in Angola with a project internal rate of return (IRR) of 11 per cent, AmInvestment Bank estimated that Bumi Armada’s sum of parts (SOP) could be raised by 11 sen or 10 per cent to RM1.34 per share, if the charter was successfully secured.

“This is a positive development which reaffirms our view that rising opportunities in floating solutions in Latin America, the Gulf of Mexico and Africa offer re-rating catalysts, against the backdrop of a few remaining service providers still able to make a bid following the severe oil price slump in 20152017.”

On another note, the research firm added that to improve the group’s balance sheet profile, Bumi Armada plans to issue euro medium-term notes, of which US$1.5 billion is still untapped, proposed back in 2013 together with a disposal of minor stakes in completed FPSO projects such as Olombendo once full acceptance has been achieved.