DEVELOPMENT

• MISC Bhd (MISC) has achieved first oil for its floating production storage and offloading (FPSO) unit Marechal Duque de Caxias (MDC) in deepwater Mero Field, Santos Basin, offshore Brazil, which was chartered to Petrobras on behalf of the Libra Consortium (Petrobras, Shell Brasil, TotalEnergies, CNPC, CNOOC and Pré-Sal Petróleo S.A.).

OUR VIEW

• Substantial revenue expected. MDC has a 180,000bpd production capacity, a 1.4mbboe storage capacity and 440mcftpd of total gas handling capacity. At the minimum optimum level of production, MDC is estimated to have a charter cost of close to USD700,000pd with higher upside to higher Brent crude oil price, given that MDC is a newbuild equipped with the cutting-edge High-Pressure Separation (HISEP) technology. With Mero Field having an estimated 3.3bboe of reserves, we expected the field to have a lifespan of about 30-35 years, in consideration of the advanced technology currently used for extraction and storage. This subsequently gives MISC a possible advantage of extension past its agreement with Petrobras to charter MDC in about 23 years from CY20 and provides the group additional revenue stream in the long run.
• High commitment to energy security and sustainability. MDC's HISEP is a significant technological innovation that could assist in reducing GHG emissions and subsequent environmental impacts from FPSO operations. This technology separates CO2-rich gas from production streams and reinjects it back into the reservoir, which helps in: (i) capturing and reinjecting CO2 into the field with a capacity to compress up to 48mcfpd of CO2, (ii) freeing space and reducing weight on FPSO topsides subsequently leading to a more efficient operation, and (iii) contributing to enhanced oil recovery (EOR) which reduced the need for additional wells. This is in line with MISC's strategies in reducing CO2 emissions and increasing operational efficiency, through modernising its fleet with advanced technologies.
• All in all, we maintain positive on this update on the Mero Field to add into MISC's operating income moving forward. We believe that this update signifies robust upstream activities beyond CY24, in addition to the global upstream capex expected to surpass USD600b by end-year in tandem with the projected growth in global oil demand and higher production from major oil players. Despite geopolitical and macroeconomic challenges, as well as Brent crude oil price averaging at YTD24 of USD81pb (-1.2% from CY23 average), we opine that the upstream division remains resilient on the back of its contractual nature of operations for E&P and development projects, subsequently benefitting OGSE companies including MISC, which continues to be consistently ranked as Malaysia's top OGSE companies according to the Malaysia Petroleum MPRC.
• We make no changes to our forecast projection for MISC at this juncture, pending its 3QFY24 financial results, and maintain our BUY call, with a target price of RM9.75.

Source: MIDF Research - 1 Nov 2024