Positive on Bumi Armada’s move to suspend FPSO Armada Perdana

KUALA LUMPUR: Bumi Armada Bhd's (Bumi Armada) move to suspend the operations of its wholly-owned floating production storage and offloading (FPSO) Armada Perdana, gained positive views from analysts.

According to a statement, Bumi Armada said the vessel's suspension of operations was due to longstanding delays in bare-boat charter (BBC) payments owed to Bumi Armada, as well as irregular payments on the operations and maintenance (O&M) contract.

AllianceDBS Research Sdn Bhd (AllianceDBS Research) viewed this suspension positively as the group has not been fully recognising revenue from the charter of Armada Perdana.

It noted that in the first quarter of the financial year 2017 (1QFY17), the group has completed documentation for sale of FPSO Armada Perkasa which was experiencing the same problem.

While the research team was positive on Bumi Armada's recent development, the group's FY17 earnings are expected to rebound but remain weak, with improvement from FPSO Armada Olombendo FPSO contribution unable to fully offset the drag caused by the offshore marine services (OMS) segment.

Similarly, the research arm of AmBank (Malaysia) Bhd (AmBank) said even with the full recognition of the massive US$1.5 billion Armada Olombendo, it remained cautious on the group's near-term earnings trajectory given the uncertain penalties which could arise from the delays in the commencement of the US$1 billion FPSO Kraken's contract in the North Sea.

“Recall that some of Kraken's undisclosed late delivery provisions were only up to the backstop date of April 1, 2017 which was later extended to July 1 this year,” it said in a separate report.

“The backstop date gives the client the right to terminate the charter. With penalties potentially accruing at US$6 million per month, negotiations with the client Enquest are still deadlocked.”