Armada announced that it received a notice from Erin Petroleum Nigeria Limited advising of a purported “Force Majeure Event” and requesting immediate, orderly shutdown of operations on the FPSO Armada Perdana . Armada also received a Notice of Seizure/ Attachment of Goods from a third party informing that the entire crude oil produced and to be produced and stored in FPSO Perdana has been seized. The estimated financial impact for Armada is c.RM30m which we understand is the potential provision of demobilization cost. Maintain forecast as earnings contribution from FPSO Perdana has bee n excluded in our forecast and the estimated financial impact is one -off cost. Maintain HOLD with unchanged SOP-driven TP of RM0.79.

NEWSBREAK

Armada announced that it received a notice from Erin Petroleum Nigeria Limited (Erin) advising of a purported “Force Majeure Event” and requesting immediate, orderly shutdown of operations on the FPSO Armada Perdana (FPSO Perdana).

Armada also received a Notice of Seizure/ Attachment of Goods from a third party informing that the entire crude oil produced and to be produced and stored in FPSO Perdana has been seized/ attached by a Write of Attachment of the Federal High Court, Lagos, in relation to legal proceedings to which Armada is not a party.

Armada is of the view that the purported Force Majeure declaration by Erin is wrongful and is reviewing its legal options, including commencement of legal proceeding against Erin.

HLIB’s VIEW

To recap, Armada suspended the bareboat charter and operations & maintenance (O&M) on FPSO Perdana to Erin due to longstanding delays in payments back in June 2017. However, Armada has allowed continued flow of produced oil into FPSO Perdana so that the cargo would generate proceeds of which the amount would be offset against outstanding amount owed by Erin.

The estimated financial impact for Armada is c.RM30m which we understand is the potential provision of demobilization cost.

Forecast. Maintain forecast as earnings contribution from FPSO Perdana is excluded in our forecast and the estimated financial impact is a one-off cost.

Maintain HOLD, TP maintained at RM0.79. Maintain HOLD with unchanged SOP driven TP of RM0.79. Earnings are expected to be stronger this year with new projects expected to come on stream. However, continued delay in delivery of Armada Kraken would place overhang on the sentiment on the stock.

Source: Hong Leong Investment Bank Research - 18 Apr 2018