Bumi Armada's Indonesian venture could reap long-term rewards

KUALA LUMPUR: Bumi Armada Bhd's venture with two Indonesian firms to develop floating LNG and carriers while engineering a carbon capture injection system for a gas field in Indonesia could be the start of a new source of income for the company.

In an announcement yesterday, the offshore energy facilities provider said it had entered into a non-binding agreement with PT Pertamina International Shipping (PIS), a shipping and marine logistics subholding of Indonesia's state-owned energy company, and natural gas trading firm PT Davenergy Mulia Perkasa (DMP) to develop and commercialise LNG from the Madura gas field and its surrounding fields.

According to the agreement, Bumi Armada and PIS will design, engineer, construct, install, commission, hook up and operate a floating natural gas liquefaction and storage facility, together with an LNG carrier to transport LNG.

Bumi Armada said in its statement that preliminary discussions have been initiated with several potential off-taker clients and the first shipment of LNG is anticipated to take place three years after making the final investment decision.

In its update, RHB Research said the developments shows the company is expanding its footprint in Indonesia.

This comes following news of a consortium comprising Netherlands-registered Pexco Energy and Bumi Armada being awarded the Akia block off the coast of North Kalimantan, Indonesia.

At the same time, Bumi Armada also noted that it is currently engineering a carbon capture injection system for a gas field in Indonesia. The capacity and capex remain unknown depending on the field development approach and complexity.

"We believe such a project could be rather capex intensive but BAB, in our view, is likely to own less than 50% equity stake in the floating LNG unit. Pending further details, we maintain our earnings estimates," said RHB.

The research firm said it is long-term positive over the venture although earnings impact remains unclear and the capacity and capex remains unknown depending on the field development approach and complexity.

"Keep 'buy' and SOP-based target price of 73 sen, 36% upside," said the research firm.

Meanwhile, Hong Leong Investment Bank (HLIB) Research said in its own report it would take several years for the potential consortium to conduct explorations work and feasibility studies to reach FID and subsequently another three years for development works before contribution from the first LNG shipment starts kicking in.

"Information is sparse at this juncture as estimated capex amount, shareholding structure, processing capacity of the FLNG are still uncertain at this juncture," it said.

The research firm maintained 'buy' on Bumi Armada and slightly decreased its target price to 69 sen from 71 sen previously following a change in its valuation method to sum-of-parts.

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Bumi Armada , oil and gas , LNG


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