Bumi Armada's total order book as at end-March 2016 was RM36.4bil
KUALA LUMPUR: The termination of Bumi Armada
’s contract for the Balnaves field in Australia by Woodside Energy Julimar Pty Ltd could result in a setback to earnings.
Maybank IB Research said the abrupt cancellation will bring a negative knee-jerk reaction on the stock, while the matter is unlikely to be resolved anytime soon.
Its earnings forecasts and target price are placed under review pending further clarity on this dispute.
Based on its preliminary assessment, which is based on limited information, Maybank said the news is a major setback to Bumi Armada’s operations and financials.
“Typically, when an FPSO contract is terminated midway, our understanding is that the FPSO operator would be compensated accordingly, based on the legal contractual framework,” it said on Wednesday.
When Bumi Armada won the bid, the contract was worth US$593mil on a 4+4 year charter.
A full impact to the stock’s financials from the development would be a negative 28%/11%/11% cut to Maybank’s 2016/2017/2018 net profit forecasts and a 22sen per share downward revision in its target price to RM1.23 (-15%).
Bumi Armada received a Notice of Termination from Woodside Energy Julimar Pty Ltd, purporting to terminate the contract in relation to the charter of the Armada Claire, which has been operating in the Balnaves field, off north-western Australia, since delivering first oil in August 2014.
Bumi Armada’s position is that the purported Notice of Termination is not valid. It is tantamount to a cancellation for convenience or alternatively, a repudiation of the contract by Woodside, pursuant to which it is entitled to compensation.
The company intends to fully enforce its rights under the contract, including initiating legal proceedings against Woodside for its unlawful purported termination of contract.
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