This article first appeared in The Edge Financial Daily on May 7, 2019

KUALA LUMPUR: Bumi Armada Bhd said its joint-venture (JV) company Shapoorji Pallonji Bumi Armada Godavari Pte Ltd (SPBAG) had been awarded a nine-year charter contract worth US$2.1 billion (RM8.8 billion).

In an exchange filing yesterday, Bumi Armada said the contract was awarded by India’s state-owned oil company, Oil and Natural Gas Corp Ltd, for the charter hire and operations of one floating production, storage, and offloading vessel (FPSO).

The contract is for a fixed period of nine years, valued at US$2.1 billion, with an option to extend for an additional seven years on a yearly basis, at an aggregate contract value of some US$655 million if all extension options are exercised.

According to Bumi Armada, the contract will be operated by the JV company for Oil and Natural Gas Corp’s NELP Block KG — DWN 98/2 Development Project Cluster-II field located on the east coast of Kakinada, offshore India.

The loss-making group said the contract is expected to contribute positively to its future earnings. SPBAG is a 30:70 JV between Bumi Armada and Shapoorji Pallonji Oil & Gas Pte Ltd of India (SPOGPL).

Commenting on the notification of award, Bumi Armada chief executive officer Leon Harland, who will be stepping down next Wednesday, said this is a “very positive” result for the group.

“The JV with SPOGPL has been a very successful partnership, this being our third FPSO project together in India and fourth in total. I would like to personally thank everyone involved in securing this project. This is a positive result for the group and the project will add value to Bumi Armada going forward,” he added.

Shares in Bumi Armada, which have recovered some 35% since end-2018, closed one sen or 4.54% lower yesterday at 21 sen, with a market capitalisation of RM1.23 billion.

The group reported a net loss of RM2.3 billion for the full financial year ended Dec 31, 2018 (FY18) against a net profit of RM352.25 million in the previous year — due mainly to impairments and net allowance for impairment losses — despite revenue rising slightly to RM2.42 billion from RM2.4 billion a year ago.

About two weeks ago, Bumi Armada announced it had managed to restructure its US$660 million worth of debts after over six months of waiting, giving the group some breathing space although the delay of repayment dates resulted in higher interest rates.