FPSO Armada Perdana still suspended, negotiations in progress

KUCHING: Despite Bumi Armada Bhd’s (Bumi Armada) floating production storage and offloading vessel (FPSO) Armada Perdana operations are still largely suspended, which could indicate that there is some progress in the negotiations.

In a filing on Bursa Malaysia, Bumi Armada announced that despite numerous discussions with Erin Petroleum Nigeria Ltd (EPNL), payments due to Bumi Armada (Singapore) Pte Ltd (BASPL) and Armada Oyo Limited (AOL) for the provision of services by BASPL and AOL to EPNL under the Operational and Maintenance Services Contract and Bareboat Charterparty Contract respectively, remain outstanding.

“However, following meetings with the Department of Petroleum Resources (DPR) of Nigeria and EPNL subsequently, BASPL and AOL have allowed the flow of produced oil into the floating production storage and offloading (FPSO) cargo tanks. “The company continues to engage with EPNL in order to reach an amicable solution for the outstanding payments,” the group said.

According to AmInvestment Bank Bhd (AmInvestment Bank), Bumi Armada has allowed oil to be produced from the OML 120 block, Oyo field, off Nigeria by independent oil and gas operator Erin Energy Corporation (Erin Energy) to flow into the group’s wholly- owned FPSO Armada Perdana’s cargo tanks.

AmInvestment Bank highlighted that even after a series of meetings with Nigeria’s Department of Petroleum Resources and Erin Energy, Erin’s debts are still outstanding.

“Hence, the oil will not be offloaded from Armada Perdana until a debt resolution has been reached with the stakeholders,” the research firm said.

“While this means that the FPSO operation is still largely suspended, it may mean that there is some progress in the negotiations.”

AmInvestment Bank recalled that on June 20 this year, Bumi Armada suspended Armada Perdana’s operations following irregular payments for the operation and maintenance (O&M) services together with long-delayed charter payments involving the OML 120 block, Oyo field, off Nigeria by Erin Energy.

The research firm noted that in 1H of this year, two of Bumi Armada’s FPSOs, including Armada Perkasa, were operating in Nigeria, but were only being remunerated for their O&M services since the second quarter of 2016 (2Q16).

“This was without being compensated for the bare boat charter, which makes up the main bulk of their revenues,” it said.

“As the outstanding Armada Perdana and Perkasa claims by Bumi Armada have been fully provided for in FY16, we estimate a four per cent-five per cent reduction to FY17F-FY19F earnings stemming from the loss of O& M revenue recognition from the two Nigerian vessels.”

AmInvestment Bank highlighted that besides Armada Perdana’s operation in Nigeria, the remaining FPSO operation in Africa is in Angola by Armada Olombendo which has achieved first oil on February 8 this year.

Even with the full recognition of the massive US$1.5 billion Armada Olombendo, the research firm remained cautious on the company’s near-term earnings trajectory given the uncertain penalties which could arise from the delays in the commencement of the US$ 1 billion FPSO Kraken’s contract in the North Sea.

AmInvestment Bank recalled 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.

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