Bumi Armada set for better performance this year
Oil and gas firm sees itself ending the year on stronger footing
BUMI Armada Bhd, which had sailed through some rough seas of late due to the fluctuation in oil prices, could come out stronger this year if things go as planned.
The offshore energy facilities and services provider’s chief executive officer Leon Harland tells StarBizWeek that the group is expecting to record a stronger financial performance this year (financial year ending Dec 31).
This is due to new projects that will come online in 2017 that will support its plans.
“With revenue contributions coming onstream over the course of 2017, we do expect a significant improvement in the company’s financial performance this year,” Harland says.
“We have regularly highlighted that 2017 was a transition year for the company as we started up the four new floating production and operation (FPO) projects this year and these are not new developments,” he adds.
Due to the dramatic fall in oil prices some 2½ years ago, the company’s bottom line had been hit and this saw it recording net losses in the FY2015 and FY2016 of RM234.57mil and RM1.968bil respectively.
In its latest first quarter the company’s net profit doubled year-on-year to RM48.11mil on the back of revenues falling to RM404.17mil from RM430.76mil in the same quarter a year ago.
“The first quarter performance does reflect the transition phase of our company and marks a recovery despite the continuing challenges in the market.
“Bumi Armada has returned to profit after the losses recorded in the last quarter of 2016,” Harland says in its press release.
Some at the analyst community are turning optimistic on the company especially with the announcement of its Armada Kraken floating production, storage and offloading unit (FPSO) striking first oil last week with some expecting a turnaround.
In a report, UOB Kay Hian (UOBKH) says that with all new projects that are currently being put into operation, 2017 is set to be the turnaround year for the company.
Striking first oil on the Armada Kraken could also herald brighter days ahead for the company given that with this it also now resolves a major investor concern on the company.
Harland says that the full charter for the Armada Kraken is expected to start in the second half of 2017, after the vessel is fully commissioned and clears various regulatory requirements.
The Armada Kraken had suffered several setbacks in the form of delays, including being imposed US$20mil (RM85.98mil) in liquidated damages and a US$65mil (RM279.44mil) deposit refund that was incurred in 2016.
There was also another small penalty from clients that is being negotiated because first oil was delayed from the initial backstop date of Apr 1, 2017 which UOBKH reckons could amount to around US$20mil.
The delay was due to challenges in installing the FPSO on-site since Feb 13, 2017, due to harsh weather conditions in the North Sea. It is also to be noted that this penalty is already made known and Bumi Armada had already made provisions for this in the first quarter, according UOBKH.
The research house expects no further unexpected penalties moving forward after the first oil announcement.
Pertaining to this matter, Harland says that following the provisions which had already been allocated for, the company is currently working to ramp-up production and to achieve final acceptance of the unit.
He is unable to comment should there be any writebacks, if at all in the future.
On the issue of possible writebacks, CIMB Research estimates that Bumi Armada can write back up to US$5.3mil (RM22.76mil) in provisions that were earlier made in the fourth quarter of 2016 given that the company had already provisioned for compensation payments up to July 15 in the best-case scenario.
“As negotiations with EnQuest (the operator of the Kraken field) are still ongoing, we have not factored in any writebacks into our model,” CIMB Research says.
While there is some speculation from some that the company might need to raise money from the equity market to pare down some debt, Harland sees no necessity on doing that.
He is still intent on reducing debt though, just not through the equity route.
“Most of the company’s debt is related to current projects, which are project financed,” he says.
The company’s gearing as of its latest first quarter is at 1.84 times on the back of cash and cash equivalents at RM2.425bil and current borrowings at RM2.648bil.
Most of its debt or RM10.986bil of its total borrowings of RM12.814bil are denominated in the US dollars while the rest are in ringgit.
“Nonetheless, we want to reduce our dependency on bank loans by increasing cash flow, restructuring our cost base and monetising non-core assets. We are not looking to raise equity as a way to repay existing debt,” Harland says.
Bumi Armada is emerging from a tough period due to languishing oil prices that showing no signs of picking up anytime.
Recent developments prior to this, including the suspension of the Armada Perdana FPSO vessel some 1½ weeks ago had some questioning if the worst was really over for the company.
Perhaps the latest news that the Armada Kraken had struck first oil could serve to prop up sentiment in the stock and this could also be a sign of brighter days ahead for the company. is