Bumi Armada (BAB) announced that it has entered into non-binding agreement with PT Pertamina International Shipping and PT Davenergy Mulia Perkasa (DMP) for the development and commercialization of Liquefied Natural Gas (LNG) from Madura Gas field and its surroundings. Under this agreement, both the Group and PT Pertama International Shipping will design, engineer, construct, install, commission, hook up and operate a floating natural gas liquefaction and storage facility (FLNG), together with an LNG carrier to transport LNG to consumers who are not nearby. At the moment, no guidance has been given on the financial and operational parameters discussions are still at preliminary stages. However, it expects the first shipment of LNG to take place in three years after final investment decision. This development is consistent with the Group’s optimistic view on the FLNG market, with gas as a transitional energy source. We expect it to reach definitive agreement soon after factoring its success in LNG FSU Malta and its familiarity in the Madura BD field via its partnership in FPSO Karapan Armada Sterling 3. We retain our Outperform call with unchanged TP of RM0.65.

• Madura BD Field. Not much has been disclosed on the Madura Gas field in the announcement. However, taking cue from the existing producing Madura BD field (within Madura Straits) operated by Husky-CNOOC with FPSO Karapan Armada Sterling 3, the field is expected to recover 441.7 billion cubic feet (BCF) of gas and 18.7 million barrels of condensate over field life of 13 years.

• FPSO Karapan Armada Sterling 3 is well advanced in technology, the only FPSO in the world that uses amine recovery system to extract H2S from sour and toxic gas, then treated to produce sweet gas for sales to gas buyers in gas metering stations. The similar process also applies to carbon capture recovery systems. This could be a critical feature in developing the upcoming FLNG, with the Group already having a track record to replicate the successes.

• Consistent with guidance. The Group holds an optimistic view on the FLNG market due to increasing demand for gas as it is deemed a transitional energy source. The Group also guided that it prefers to have partnerships to mitigate the risk rather than taking 100% risk exposure. While no specific numbers have been disclosed on the anticipated capital expenditure, the Group guided that generally FLNGs are cheaper as compared to FPSOs. We believe the Group has sufficient financial strength for this upcoming FLNG.

Source: PublicInvest Research - 14 Sept 2023