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.
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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.