KUALA LUMPUR: Bumi Armada
Bhd's long-delayed Armada Kraken floating production storage and offloading (FPSO) completed the offloading of its first cargo in the UK North Sea on Tuesday.
The offshore energy facilities and services provider said on Thursday the FPSO had been operating on the Kraken field there.
On Tuesday, the FPSO completed the offloading of its first cargo and it arrived at the location in the UK North Sea the next day.
Bumi Armada said the FPSO achieved first oil on June 28, which was 4 1/2 months after its hook-up on Feb 15, which was the fastest first oil delivery on an FPSO in the North Sea in the last 10 years.
AmInvestment Research, in its research note, maintained its Hold call on Bumi Armada with unchanged forecasts and fair value of 79 sen a share based on a 20% discount to its sum-of-parts (SOP) valuation of 99 sen a share.
“Our valuations are maintained although the group’s long-delayed FPSO vessel Armada Kraken has managed to offload its first cargo on Tuesday.
“This is because the charter rates for the FPSO are currently uncertain pending the client Enquest’s full acceptance of the vessel,” it said.
The research house said Bumi Armada has indicated that an interim agreement has been reached between the group and EnQuest for the payment of the charter rates based on the proportion of FPSO Kraken’s processing capability vs. the field’s production rate.
Recall that the FPSO Kraken will be receiving reduced charter rates due to technical problems which have caused lower-than-expected production rates.
“While management indicated that the Kraken charter, even at the lower temporary rates, could still be profitable this year, we remain conservative given the group’s past earnings disappointments,” it said.
AmInvestment Research said Enquest had awarded a US$1.8bil FPSO charter for an initial eight years (which includes 17 years of optional extension) to Bumi Armada back in 2013.
While the group’s earnings from 2QFY17 onwards could potentially improve from the full recognition of the FPSO vessel Armada Olombendo, which achieved first oil on Feb 8 this year, “we remain cautious on the company’s near-term earnings trajectory given the uncertainties arising from Kraken’s lower charter payments”.
The research house said even though OSV utilisation rates are improving, management affirmed that charter rates are still weakening against the backdrop of the prevailing oil price which continues to slow down the progress of new potential projects.
The stock currently trades at a fair FY17F PE of 14 times vs the sector’s 20 time due to lingering risks on 2HFY17 earnings recovery, it said.