Bumi Armada's Kraken to anchor profits

PETALING JAYA: Bumi Armada Bhd's Armada Kraken floating production, storage and offloading unit (FPSO) in the North Sea, which achieved its first oil last week, will anchor Bumi Armada's profits in years to come given its significant project size, said HLIB Research.
It said the successful commissioning of the project would give the group more credibility in handling larger size and more complex FPSO jobs.
"However, Kraken project is not without its risks especially when oil prices are still depressed while Enquest (field owner & operator) is highly geared (net gearing of 1.13 times), which increases risk of payment to Armada if oil prices are further depressed," the research house warned.
Kraken is the largest FPSO project for Bumi Armada so far with liquid handling capacity of 460,000 bbls/day.
HLIB said Kraken's first oil is a positive development for the company as there were concerns of the project first oil being possibly pushed further beyond July 1, 2017 after several delays earlier in 2017.
"However, revenue recognition would not be immediate after first oil as full commissioning has yet to be completed with an audit expected in September before final acceptance," said HLIB.
It added that there is no material impact to its forecast as it has already factored in contributions of FPSO Kraken in 2017.
"Earnings are expected to be stronger this year with new projects expected to come on stream. However, depressed oil prices would continue to weigh on the stock and its offshore marine services division would continue to be a drag on the company," said HLIB.
HLIB's target price for Bumi Armada is maintained at 72 sen with a hold call retained on the stock.