YINSON has entered into an agreement for preliminary activities with Azule Energy with regards to the Agogo FPSO project, which is a precursor to the official contract award. According to sources, the contract will have a lease tenure of 15+5 years with first oil in late-2025. BUY with a TP of RM3.15 as our valuation has already included one new win assumption, based on (i) capex of ~USD1bn, (ii) IRR of 13%, and (iii) WACC of 6%.

Azule Energy is the new 50-50 independently joint venture between BP plc and Eni SpA. Tenure of the agreement is 60 days, with an estimated aggregate value of approximately USD218m. In entering into the agreement, both YINSON and Azule have interests in commencing with the preliminary works to safeguard the project schedule in anticipation of the finalisation of the contract for the provision of the FPSO to be deployed for the Agogo Integrated West Hub Development Project, located in the West Hub part of Block 15/06 in Angola, as well as the operation and maintenance services.

We see this agreement as a clear sign that the official contract award is very close to finalisation and may come within the next few weeks. According to industry sources, the actual contract will have lease tenure of 15 initial firm years plus 5 one-yearly extensions, with expected first oil in late 2025. We estimate total capex to be ~USD1.5bn (assuming 100% stake), with total contract value surpassing the USD5bn mark – thus making it one of YINSON’s biggest contracts although we foresee YINSON potentially partnering someone else to take up a minority stake to ease equity financing burdens.

The USD218m value as part of the preliminary activities agreement forms the initial part of upfront pre-payments to YINSON. We expect to see further upfront payments upon the official contract award, with total pre-payments expected to reach up to ~30% of total project capex. This is a reflection of the current global FPSO market in general, as supply is tight given limited number of bidders; financing options provided by clients are becoming increasingly favourable. We continue to like YINSON for: (i) its strong market position, (ii) its strong management team, and (iii) its conscious decision to diversify into non-fossil energy sectors

Source: Rakuten Research - 6 Dec 2022