Bumi Armada eyes prudent growth
Easing debt burden remains a focus area this year for O&G service provider
PETALING JAYA: With optimism returning to the oil and gas ( O&G) sector, Bumi Armada Bhd is gearing up for growth.
However, this will be anchored on a “prudent approach”, as the company continues to pare down its debt burden and strengthen the balance sheet, said its chief executive officer Leon Harland.
According to him, the company is seeing a rapid increase in requests from clients for tenders, in particular for floating production, storage and offloading (FPSO) vessels.
“Yet, we maintain a clear and targeted approach for new tenders.
“We want to focus only on new projects that will fit well with our capabilities and these projects must have strong project fundamentals such as good clients, attractive overall project economics and oil reservoir characteristics,” he told StarBiz.
In this context, Harland con- firmed that the company has been pursuing FPSO for Eni’s Zaba Zaba development project offshore Nigeria for quite some time.
“We do know the client very well through our successful Olombendo project in Angola, but this is not the only project that we are working on,” he said in email replies.
About a month ago, Upstream reported that Bumi Armada was the frontrunner for the Zaba Zaba FPSO with a bid valued at US$7.62bil (RM30.32bil), beating the Bluewater Offshore-Saipem joint-venture that offered US$5.42bil.
The O&G field is operated by Eni’s Nigerian Agip Exploration Ltd, which has a 50% interest, while Shell has the remaining 50% stake.
However, legal disputes have troubled the development. High local content requirements in Nigeria also increase the risk of cost overruns for the FPSO project, said analysts.
Harland admits that O&G projects of this magnitude come with large investment requirements and require multiple stakeholders to be aligned.
“So, we are well aware that the timeline for the project sanction can easily slip and, therefore, we are prudent in this sense,” he said.
Bumi Armada, whose order book currently stands at RM22.3bil, has not bagged a new FPSO contract since 2014.
For the short-term, Harland said the company would focus on safe and reliable operations for all its vessels and to ensure clients pay.
“We want to finalise our new large floating production projects in the United Kingdom and Angola and gear up for growth, which we expect from new floating production and operation projects and new subsea construction contracts for our vessels in the offshore marine services (OMS) business unit.”
Oil prices now hover above US$70 a barrel, up more than US$20 per barrel from a year ago and US$40 more from the bottom of the oil bust in early 2016.
In the recent first quarter ended March 31 (1Q18), the company’s net profit came in flat year-on-year (y-oy) at RM48.42mil. Revenue rose 48.5% to RM600.34mil, with the bulk of earnings derived from overseas. Meanwhile, borrowings stood at RM10.86bil as at that period.
UOB HayKian noted that although earnings before interest, tax, depreciation and amortisation - which is a measure of a company’s operating performance - improved y-o-y from RM221mil to RM325mil in 1Q18, there was a RM224mil investing cash outflow for the company’s 20% equity investment in the joint-venture FPSO Karapan Armada Sterling III. The vessel received 100% rate recognition at the end of last year.
This reduced cash balance from RM1.8bil to RM1.5bil. The research firm said its cash flow forecasts assumes no new project wins, which implies a very low capex outflow of below RM0.3bil per year mainly for OMS/FPSO maintenance.
Without giving details, Harland said the company was exploring various funding and balance sheet options.
“We are not looking at cash calls in the context of supporting our current ongoing operations.
“However, seeking shareholder support could be interesting if that support can be allocated for investment into new large projects that boost growth,” he added.
Monetisation of assets (including FPSO stakes) and strategic partnerships are options being explored by Bumi Armada should it win new FPSO projects, said analysts.
The company, which is majority controlled by tycoon T. Ananda Krishnan, is also said to be considering medium-term notes issuance to refinance its current borrowings base.
Shares in Bumi Armada closed one sen down to 74 sen on Friday with a market capitalisation of RM4.37bil.