• Keep BUY and SOP-based TP of MYR0.73, 36% upside. We are generally long-term positive on Bumi Armada’s signing of the non-binding agreement to develop floating LNG and carriers in Indonesia while engineering a carbon capture injection system for a gas field also in Indonesia. However, earnings impact remains unclear as the capacity and capex remain unknown depending on the field development approach and complexity.

• To develop floating LNG unit. BAB announced the signing of a nonbinding agreement with PT Pertamina International Shipping (PIS), a shipping and marine logistics subholding of Pertamina, Indonesia’s stateowned energy company, and PT Davenergy Mulia Perkasa (DMP), an Indonesian natural gas trading company to develop and commercialise LNG from the Madura Gas Field and its surrounding fields. BAB and PIS will design, engineer, construct, install, commission, hook up and operate a floating natural gas liquefaction and storage facility, together with an LNG carrier to transport LNG. Preliminary discussions have been initiated with several potential off-taker clients and the first shipment of LNG is anticipated to take place three years after making the final investment decision.

• Development approach remains unknown. BAB partially owns Armada Sterling 3 FPSO, which has been deployed in Madura BD field since 2017. Madura fields are operated by Husky CNOCC Madura Limited (HCML), a JV entity between CNOOC (40%), Husky Energy (40%) and SMS Development (20%). There is a floating production unit, Trunojoyo01 with a gas processing facility of 175mmcf/day connected to the MDA-MBH-MDK (3M) fields cluster projects. Note that MDA and MBH fields started production in November and October last year. The 3M project could deliver a peak daily production of c.127mmcf/day once the five gas wells from the MDA field are put on stream.

• Overall, we are long-term positive on the venture – this could potentially generate a new source of income for BAB. It also shows that the company is expanding its footprint in Indonesia following the news of a consortium comprising Netherlands-registered Pexco Energy and BAB has been awarded the Akia block, which is located off the coast of North Kalimantan, Indonesia. At the same time, BAB also noted that it is currently engineering a carbon capture injection system for a gas field in Indonesia. The capacity and capex remain unknown depending on the field development approach and complexity. We believe such a project could be rather capex intensive but BAB, in our view, is likely to own <50% equity stake in the floating LNG unit. Pending further details, we maintain our earnings estimates.

• Downside risks: Contract cancellations, failure to win new contracts, and a further deterioration in Armada Kraken’s operations.

• ESG. We incorporate a 6% ESG discount to our TP given BAB’s ESG score of 2.7.

Source: RHB Securities Research - 14 Sept 2023