KUALA LUMPUR (April 12): A joint venture (JV) involving Bumi Armada Bhd is likely to secure a US$2 billion floating production storage offloading (FPSO) charter from India’s Oil & Natural Gas Corp (ONGC), said AmInvestment Bank Research.
In a note today, AmInvestment said Bumi’s JV with Shapoorji Pallonji Oil & Gas is the only bidder for a lease and operate contract for the KG-DWN-98/2 charter in east coast India, as Japan’s Modec Inc has pulled out of the bid process.
Quoting a news report from online portal Upstream, the research house said the JV has submitted technical and commercial offers in February for the charter, which could have a day rate US$745,000, the note said.
“ONGC is understood to be involved in talks with the Shapoorji-Bumi consortium and is expected to finalise the award within weeks with the parties still negotiating on the pricing terms as ONGC’s budget is lower than the tender,” AmInvestment Bank said.
“Upstream reported that the tender process, which has already been delayed on several occasions, cannot be postponed anylonger as most of the key contracts have been awarded for the KG-DWN-98/2 development,” it added.
The project, it said, may have been revised downward from FPSO capacity of handling 90,000 bpd oil and 135 million cf/day gas, to 50,000 bpd; while storage capacity may have also been revised lower to 700,000 barrels from 1 million previously.
“ONGC is offering a fixed-lease term of 9 years for the FPSO with an option for extension up to 7 years. First gas from KG-DWN- 98/2’s Cluster-2 development was initially targeted for June 2019 has been delayed to 2021 or 2022,” the note said.
Bumi Armada management has affirmed that no equity capital is required for the project, implying that it could transfer an existing FPSO — such as Armada Claire — into the JV structure “while its partner contributes modification costs”.
“Assuming a capex of US$300 million, a 50% equity stake, project internal rate of return (IRR) of 12% and weighted average cost of capital of 7%, we estimate that this charter could raise Bumi Armada’s sum-of-parts by 7% and FY21 earnings by 8%,” said AmInvestment.
In the mean time, AmInvestment has maintained its ‘Hold’ call on the counter with fair value of 20 sen per share.
This is on the back of 30% discount to its sum-of-parts valuation of 33 sen per share, in light of a possible equity-raising exercise to resolve its a US$380 million (RM1.6billion) unpaid short-term and another RM926 million debt repayment due this year.
“The negotiations with Bumi’s financiers are expected to be resolved by the end of this month,” the note said.
At 10.32am, Bumi Armada was flat at 20 sen wth 2.11 million shares traded.