KUALA LUMPUR: Given the high crude oil prices, international demand for floating production, storage and offloading (FPSO) vessels remains robust while the FPSO market remains tight.
UOB Kay Hian Research said the rosy outlook would allow oil companies to channel surplus cash flow into production projects.
“In its industry view as of Aug 22, SBM Offshore Group sees potentially five more new FPSOs being awarded by end-2022, on top of the eight that have been awarded year-to-date,” added the research house.
Over the 2023-2025 period, it believes there could be demand for nine new FPSOs per year, with Brazil as the highest FPSO demand centre, followed by West Africa.
The World Energy (WER) Aug 22 FPSO outlook edition is more bullish than SBM. WER noted that FPSO activity had returned to levels before the 2008 global financial crisis, and it has identified about 25 bids that may reach the engineering/construction stage within 18 months.
UOB Kay Hian Research said new contracts were increasingly allowing for favourable provisions. “One example is more turnkey arrangements, even though the oil majors are well aware that this is unfavourable versus a lease and operate model.
“However, a persistently tight FPSO market is leaving no choice for oil majors but to seek alternative contracting strategy,” it explained.
UOB Kay Hian Research noted that the key headwind that the FPSO players were facing was the ability of the supply chain to absorb and deliver a huge backlog of FPSOs, as cost growth and delays were increasingly being reported.
With the rising interest rates and environmental, social and governnance prioritisation, another key challenge faced is financing large FPSOs, which are about US$1bil (RM4.49bil) per ship.
However, with the strong international FPSO demand, UOB Kay Hian Research supports the three FPSO stocks under its coverage that are rated a “buy”.
“We like stocks with major exposure in the FPSO business, as their track record is international, and they do not need to be too reliant on local/Petroliam Nasional Bhd contracts.
“Investors can consider Yinson Holdings Bhd
as it is the best growth stock with solid delivery and MISC Bhd as a more diversified investment.
“Bumi Armada Bhd as a recovery stock on future prospects for both FPSO and gas, after hugely improving its gearing position,” it added.
