Bumi Armada's Olombendo FPSO vessel to generate new cash flow by mid-February

PETALING JAYA: The first oil production through Bumi Armada Bhd’s Olombendo floating production storage and offloading (FPSO) vessel at its East Hub Development Project, in Block 15/06 of the Angolan deep offshore is expected to generate new cash flow contribution to the company from mid-February onwards. 

The FPSO vessel can generate up to 80,000 barrels of oil per day and compress up to 3.4m cu m of gas per day.

UOB Kay Hian Research said FPSO Olombendo, operating on a firm 12-year contract (with eight optional extensions), is Bumi Armada’s largest contract with a capital expenditure of more than  US$1bil and worth at least RM0.18/share to the brokerage sum-of-the-parts (SOTP). 

“We view this positively as the first oil target is within Bumi Armada’s guidance for the first quarter of this year. It is also second of the company’s four new projects that have started charter ahead of 2017 and that payments should be rewarded according to original contract terms, as Italy’s Eni is a strong counterparty (one of the world’s supermajors) with good financial standing, and the East Hub is one of their most important new projects,’’ it noted.

Bumi Armada, in a contract signed earlier, had leased its Olombendo FPSO to Eni to be deployed at its Block 15/06 East Hub field development, located offshore Angola. 

Given this newsflow, the research house added it now expect incoming cashflow from Olombendo to begin from mid-February onwards. 
Nevertheless, the brokerage was maintaining its 2017 and 2018 forecast earnings of RM305mil/RM466mil (nine months: RM99mil), which already assume new contribution from all four projects. 

With a target price of RM0.92 and maintaining a buy call on the counter, UOB Kay Hian noted that long term investors should look beyond a weak 2016 as the start-up of the four floating projects would provide long-term cashflow visibility. 

The research house expect substantial improvements in cashflow and doubling of the group’s profit base in 2017, from both new project start-up and stabilisation of offshore marine services (OMS) utilisation in view of better oil prices. 

With two out of four projects having already started charters, there is also potential for earnings upgrades relative to consensus forecasts which may have conservatively assumed further startup delays, it said. 

The remaining projects are: Karapan Armada Sterling III which is now undergoing installation in Madura Field (first oil guidance: first quarter of 2017), and FPSO Kraken which is undergoing final inspection in KeppeVerolme in Rotterdam (first oil guidance: second quarter of 2017).