Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: OSK

Tanjung Offshore Bhd
(Oct 11, RM1.69)
Maintain neutral at RM1.81 with target price RM1.73: Last Friday, Tanjung Offshore announced that its 100%-subsidiary, Tanjung Kapal Services Sdn Bhd (TKS) has been served a notice of claim dated Aug 3 by Newfield Peninsula Malaysia Inc (Newfield) for damages to a pipeline allegedly caused by one of its vessels at the East Belumut Field, block PM 323, offshore Malaysia. The claim amounts to approximately US$15.9 million (RM49.3 million) and includes costs associated with the repair and clean-up of the alleged damage to the pipeline.

According to our secondary research, we understand that Newfield shut-in oil production at its East Belumut field due to this sub-sea pipeline damage in July. To recap, the pipeline, which connects the East Belumut platform in the PM 323 block to the Tinggi platform, was damaged by a passing vessel which the industry now believes is Tanjung Offshore's. The PM 323 block is located about 260km offshore Peninsular Malaysia in 73m of water. It achieved its first production in 2008. Newfield is the operator of the block with 60% interest. Before being shut-in, we understand that the field was producing an average of 20,000 barrels per day.

TKS' insure has been notified of the claim and will investigate the allegation. If it is proven to be true, Tanjung Offshore expects the claim to be settled based on the terms and provisions of the TKS' protection and indemnity insurance policy.

Management does not expect a major negative financial impact on the company if the claim goes through. It only expects the insurance premium for that particular vessel to be higher in future renewals.

We are keeping our FY10/11 earnings forecast unchanged for now pending the result of claim. Our target price for the company remains unchanged at RM1.73 based on PER of 11 times FY11 EPS.' OSK Investment Research Sdn Bhd, Oct 11


This article appeared in The Edge Financial Daily, October 12, 2010.