Has Armada Olombendo been partially sold off?

According to the listing on the website, it was just within the past 24 hours listed as a JV FPSO.

www.bumiarmada.com/our-services/

I don't know if it's a question of incompetence or just a matter or time, but Bumi Armada has been working on their FSIU and FCSIU concepts for over 2 years. At least RM50mil, probably more, has been spent with no ROI as of yet.

Sometimes it feels like Bumi Armada should just fire all staff and departments not related to the core FPSOs that are operational. Just enjoy the ride into sunset. Take no risk, reward shareholders with all the residual equity value of the FPSOs over time.

Older article on Shell' plan: https://www.upstreamonline.com/energy-transition/shell-eyes-asia-offshore-ccs-hub/2-1-1234165

So far no project award, Bumi Armada has been working on pre-FEED/FEED for Shell

Bumi Armada is working on a project for Shell CCS LCO2 FSIU.

From AmInvest's research report:

"Sources from Upstream indicate that purpose of the sale is to raise additional cashflow to facilitate construction of a new unit and may occur either in part through the divestment of PT CakraPrima Satya’s stake or in full."

It's clear from the UpstreamOnline article and BAB IR's response that the divestment of the FPSO is centered around PT CakraPrima Satya's stake, which the AmInvest research report acknowledges.

I also don't understand how does divesting PT CakraPrima Satya's stake help raise additional cashflow to facilitate the construction of a new unit.

Regardless, this ties back to my initial assumption that with Pertamina in the picture, this potential stake sale is linked to the upcoming Madura FLNG project, most likely as a 50-50 JV between Bumi Armada and Pertamina.

Also, of course, the BAB IR response to my query does not mean that their intention to dispose of their ownership in the FPSO will not change in the future.

Dear Niki,

The BAB Group has no current intention of disposing its shareholdings in the FPSO asset in Indonesia.

Rest assured, the BAB Group would make the relevant disclosures where required to do so under the listing requirements.

Regards,

Bumi Armada Investor Relations

Ignore, sent in error.

Okay so I’ve managed to find out that Bumi Armada is definitely not selling their stake in the FPSO. That means, if the UpstreaOnline article has substance, it is the Indonesian JV partner who will be selling some or all of their stake to Pertamina.

Maybe this is one of the things Gary meant when he alluded to "creating shareholder value via corporate exercise" in the Q4 2023 results press release.

I believe the vessel can be sold for between USD350mil to USD400mil based on the remaining tenure of the contract and the value of the FPSO itself.

If we take USD350mil as the conservative estimate, Bumi Armada will be entitled to half the proceeds amounting to USD175mil, equivalent to around RM820mil.

Leading Asian joint venture eyes stake sale for huge FPSO

KAS III vessel owned by Indonedsia's PT Armada Gema Nusantara, a joint venture of compatriot PT CakraPrima Satya and Malaysia’s Bumi Armada

A leading Asian joint venture is in advanced discussions with Indonesian state-owned player Pertamina to sell its stake in a sizeable floating production, storage, and offloading vessel currently deployed at the Madura BD gas field, operated by Husky-CNOOC Madura Ltd (HCML) offshore Indonesia.

The move underscores the financial constraints faced by contractors operating traditional oil and gas facilities who now find it increasingly challenging to secure funding for new projects.

https://www.upstreamonline.com/rigs-and-vessels/leading-asian-joint-venture-eyes-stake-sale-for-huge-fpso/2-1-1606178

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Interesting stuff, if it can fetch a good valuation, I'm all for this. It might also tie-up with the upcoming Madura FLANG where Pertamina will be partnering with Bumi Armada based on the non-binding agreement signed in 2023.

Officially India and Shapoorji doesn't seem to acknowledge Bumi Armada as a partner and no mention of Bumi Armada's contribution to the success of the project.

https://www.linkedin.com/posts/shapoorji-pallonji-energy_fpso-armada-sterling-v-offshore-andhra-pradesh-activity-7169684891373191168-HMj7?utm_source=share&utm_medium=member_android

Some of the analysts were quite optimistic that acceptance will happen in April 2024, zero chance of that. Earliest looks to be Q3 2024 if all goes to plan.

Some bad news. According to my sources, Armada V Sterling is not going to attempt the final acceptance test anytime soon. There are still a lot of things pending.

For starters, the gas train has yet to be commissioned.

Final acceptance preparations will only begin after that.

They only said that acceptance will happen this year, maybe even towards the end of the year only.

https://cdn.qr-code-generator.com/account32835038/44091251_1.pdf?Expires=1709370957&Signature=C9wTXL3GiCO9f-UwZR-5f79ik0NY279iL~C8gRWDuyW5FFJ0yYjbCTFIFwEvFigL3atZNjIzsI6yMpTqjPMhGTyftNCidbbHQoNvAraA5640lYKJ1xn1ZPAp43Br6KocbPlBJT2PFjO5JTsoXe2-NG78UvPvQAfLDUifEVnfNIELk8KVLffwWnGBmaPfP~OJGr1w0YadepSMZwA6qT8kse7ch9O-fpL3XRUhEh8OJFsnrwCictCsOm4s--5ziHyErhVPYmY0IPJGc23KI82fQ7uiDAlFQt3rBZreqetNbzjqo-1R1MWaA1c1me1eiseNkKHHsnNo38SdAmPTM-QQZg__&Key-Pair-Id=KKMPOJU8AYATR

Shoplot accountants the lot of them.

Need to ask their CFO who pronounces millions as "minions"

Gabriel, the least rate will drop by nearly 70%, that much is certain.

1. Per Enquest's last operational update: "The Group also expects unit margins to improve as the Kraken FPSO lease rate reduces by c. 70% from 1 April 2025, while the culmination of major projects at SVT will crystallise significant operating cost reductions and emission reductions in 2026 and beyond."

2. Basic calculation from the contract values:

Firm: USD1,400mil for 8yrs = USD175.00mil/annum
Option: USD924mil for 17yrs = USD54.35mil/annum

54.35/175 = 31.1% (i.e. reduction of 68.9% which matches Enquest's statement)

From RHB's report: Bumi Armada entered into a non-binding agreement to engineer a carbon capture injection
system for a gas field in Indonesia.

Now, share price-wise, we are back where we were 2 weeks ago.

Raymond's reporting is always the most detailed. The others like Maybank / Public Bank just write surface-level stuff to cari makan.

Maybank: https://mkefactsettd.maybank-ke.com/PDFS/367879.pdf

Anyone have the research report from UOB Bank? Appreciate if you could share.

@Joshua, Armada TGT1 FPSO will unlikely face such impairment, as it is already at the end of its option period. Highly likely the carrying value of the FPSO is almost next to nothing.

As for Armada Sterling II, it is hard to say, but again, unlikely. There was already some adjustment done in the past for Armada Sterling II. Even if any, the impact should be a lot smaller as it's a significantly smaller project, and Bumi Armada only has a 50% stake.

@Joshua, the Kraken contract will definitely be extended for some years. Safe to say, at least it will be extended for another 3 - 5 years, even in the absence of any new wells being drilled whatsoever. Whether it gets extended until 2042 is a question mark though. The Kraken field is still producing >20k barrels per day and additional drilling has been budgeted for into the field operator's FY2025 planning.

Given that Enquest has indicated it will exercise 1-yearly extensions to the charter, the question then really is, how long will they continue exercising those extensions for? Per their last update, the plan is still until early 2040s. However, Enquest can terminate the contract in the option period with a one year advance notice, and will need to pay for demobilization costs.

Weighted average term loan interest rate as at 31 Dec 2023: 8.67%
Weighted average term loan interest rate as at 30 Sep 2023: 8.75%

Another small but positive thing going forward. Debt servicing cost will now slowly start going down assuming no change in US Fed rates. Shows that the loans with the highest interest rates are being paid down / refinanced, which is sound credit management.

If the US Fed cuts rate, the servicing cost will go down even faster. On the other hand, if the US Fed increases rate, the debt servicing cost will increase once again.

The more I think about the depreciation, the worse it seems to be. I recall reading previously that vessels usually see greater depreciation in the firm period, such that by the option period, the depreciation reduces.

Why then based on the analyst presentation slides, are the depreciation for Kraken constant throughout the firm + option period? Makes zero absolute sense. I've never heard of Yinson or any of the global FPSO giants facing this issue.

I wonder why this alternative method is not used: https://i.ibb.co/qkwhB79/b-armada-alternative-scenario.png

Bumi Armada Debt Evolution:

1) Table: https://i.ibb.co/5x8RfWW/armada-23q4-table.png
2) Time Series: https://i.ibb.co/zSdkYkD/armada-23q4.png

Maybe Gary knows something we don't. Tank the share price, let his insiders buy, then announce some good news.

Felix, I can't seem to find him saying that in the past.

Zonefinder, the Kraken debt had been repaid for some time now. I recall it was repaid in full in Q2 2023.

@Zonefinder, cashflows will not change due to this "impartment" as it is non-cash in nature. However, the future profits are likely to be inflated at the cost of the tanking we saw today.

Another update, the Mumbai FSRU project is officially DEAD.

There is no mention of it in the Bumi Armada investor deck, and also SP Energy has removed the project from the "ongoing projects" section of their website.

Also, I have checked in with Navigator Gas, and according to them, there will be an update on the Bluestreak CO2 JV when their Q4 2023 results are released in the 2nd half of March 2024.

Regardless, the depreciation in the upcoming quarters will be reduced. As such, barring any unforseen circumstances, FY2024 might just be the most profitable year, with each quarter's profits above RM250mil.

Let's see where this takes us. I do believe short of a disaster, long-term investors will still be rewarded at current share price levels (assuming zero new business other than extension contracts for existing projects).

Still the impairment seems silly. Surely the carrying value should be conservative. I don’t see other FPSO operators facing this issue. Simply means we as investors need to be wary that Bumi Armada’s FPSOs carrying values are likely overstated on their balance sheet. Especially Armada Olombendo, which is their golden goose. I shudder to think what the impairment for that would be come 2029.

No Rohan, Kraken failure has no impact. This is unrelated. Kraken failure was recognized via lower revenue at that point in time already.

What a bloodbath!

ITreeinvestor none else ending soon, so no other near term risk of the same thing recurring. Next is still 3 years away and is a JV vessel

www.bumiarmada.com/wp-content/uploads/2024/02/Q4-2023-Results_IR-deck_Full-Version_vF.pdf

The investor presentation goes into some detail on the impairment adjustment. On the whole, I think it’s still a positive quarterly results.

Core net profit to shareholders (after adjusting for net impairment): RM312.4mil

Operating cash flow before changes in working capital for Q4 2023 was a staggering RM455mil. By far the highest ever in any given quarter.

I won’t be surprised if this is just a blip. After all the impairment charges are completely non-cash in nature. The cash generating power of the business was the best it has ever been in Q4 2023

As investors, we must discount some of Bumi Armada’s net asset value as it might be overstated.

Everything looks good except for the impairment. Too many impairments done for Kraken and SC vessels. Now all research houses will mark down target prices cause you never know when more impairments are due. Especially for Armada Olombendo.

Roughly rm250mil reduction in net debt.

There is also reversal of impairment of RM36.4mil. No information about this whatsoever.

So many hidden things that are not addressed by management.

There is also this statement: “… resolution of outstanding issues with a charterer which resulted in higher revenue and a reversal of accrued costs.”

No clarity on what this refers to!

There are some funny hidden losses here. If you look at share of results for JV for “Others” segment in Q4 2023 (Page 15), there is a staggering loss of RM56mil.

This likely is related to front-loaded expenses for the Akia JV and/or Bluestreak JV. Good thing cause it shows there is some progress, though not mentioned explicitly.

If discounting the impairment, the Q profit would’ve likely been above rm200mil, maybe touching rm300mil even. I need to do a proper analysis later, am out now.


Of course the other good thing is with the impairment, there will be lower depreciation expenses going forward.