THE BUZZ 

Bumi  Armada  reported  on  Bursa  Malaysia  yesterday  that  Afren  Energy  Resources  Ltd has extended its bareboat charter contract for the Armada Perkasa floating, production storage and offloading unit (FPSO) with the former's wholly-owned subsidiaries, Armada Floating  Solutions  Ltd  and  Bumi  Armada  (Singapore)  Pte  Ltd,  by  one  year  effective  1 July 2013.

OUR TAKE 

Details about the contract. The contract for the FPSO was first awarded in 2007 for a firm  five  years  with  options  to  extend  for  another  five  years  on  an  annual  basis.  The FPSO  has  been  operating  in  the  Okoro-Setu  field  in  Nigeria  and  is  chartered  by  Afren Energy,  a  subsidiary  of  Afren  PLC,  which  is  engaged  in  the  exploration,  development and production of oil and gas (O&G) in Nigeria. The extension  for the bareboat charter contract coupled with other related operations & maintenance contracts are estimated at  RM100m. Management added that the FPSO has been operating for Afren since 2008 with  99.8%  uptime  and  it  achieved  its  1,000  days  without  lost  time  injuries  in  July  this year.
 
In line with our expectations. We are making no changes to our earnings forecast in FY13 as we have previously assumed that Armada Perkasa's contract will  be extended for at least a year. We foresee that there could potentially be an upside to our earnings forecasts  if  the  group  manages  to  secure  Oil  and  Natural  Gas  Corp  of  India's  (ONGC) job  for  the  development  of  several  offshore  marginal  fields  off  India's  west  coast  worth approximately RM1.5bn-RM2bn.

Upgrade  to  BUY.  While  we  make  no  changes  to  our  earnings  forecast,  we  are upgrading the stock to a BUY from NEUTRAL as there is an upside of 12.2% to our fair value. Our FV is unchanged at RM4.15 based on our sum-of-parts valuation pegged to its  FY13  earnings.  We  continue  to  like  the  group's  standing  as  a  one-stop  solution provider  for  the  O&G  industry.  That  said,  our  concern  lies  in  the  likelihood  of  major shareholders  paring  down  their  stakes  in  the  group  which  could  suppress  share  price performance in the medium-term.

More  about  the  Armada  Perkasa.  The  Armada  Perkasa,  which  is  211.2  m  long  and  weighs  58,557 deadweight tonnes, has a production capacity of 27,000 bbls/day of liquids and storage capacity for 360,000 barrels.  The  FPSO  underwent  a  recent  de-bottlenecking  which  takes  the  potential  production  capacity  from 27,000 to 35,000 bbls/day of fluids. To date, the Armada Perkasa has lifted over 24 million barrels of oil.

Background on the Okoro-Setu oil field. The Okoro Field (Okoro) and Setu Field (Setu) are located in OML 112  in  shallow  water  offshore  Nigeria,  and  were  originally  awarded  to  Amni  -  an  established  indigenous  oil company  -  in  1993  as  part  of  the  Nigerian  government's  indigenous  licensing  programme.  Okoro  was discovered in 1973 by Japan Petroleum with the Okoro-1 well. The well encountered oil in two zones in the Agbada Formation and was logged and tested. The Okoro-2 well was drilled in 1974 at the eastern extension of the field and was water wet. The field is covered by good quality 3D seismic data which was acquired by Mobil Corporation. Setu is located 7 km North of Okoro and was discovered by Amni in 2002 with the Setu East-1  well.   Five  oil  bearing  zones  were  encountered  in  the  Agbada  Formation  and  all  were  successfully tested  at  individual  rates  above  1,900  bopd.  A  second  well,  Setu  East-2,  was  drilled  to  the  west  and  was water wet.

Source: OSK