Bumi Armada still a ‘buy’ despite problems in Nigeria operations

PETALING JAYA: Analysts have not changed their call on Bumi Armada Bhd despite continued problems at its Nigerian operations.

AmInvestment Bank Bhd is keeping its “buy” recommendation on Bumi Armada Bhd with an unchanged forecasts and fair value of RM1.22 per share.

In a note today, the research house said it continues to view the risk profile of the group as substantively improved with its clientele’s upcoming full acceptances of the floating production, storage and offloading (FPSO) vessels Olombendo and Kraken, supported by minimal Q4’17 impairment charges.

On Tuesday, the group announced that it had received a notice from Erin Petroleum Nigeria Ltd, requesting immediate shutdown of operations on its wholly owned FPSO Armada Perdana, which is currently operating in OML 120 block, Oyo field, off Nigeria.

It also received a notice of seizure of crude oil produced and to be produced there.

Recall that in June last year, Bumi Armada suspended Armada Perdana’s operations following irregular payments for the operation and maintenance (O&M) services together with long-delayed charter payments by Erin Energy Corp.

However, since then, the group has allowed oil to be produced from the field to flow into Armada Perdana’s cargo tanks.

As Erin’s debts are still outstanding even after a series of meetings with Nigeria’s Department of Petroleum Resources and Erin Energy, the oil was not to be offloaded from Armada Perdana until a debt resolution was reached with the stakeholders.

AmInvestment said it sees this as a negative development as it understands that the announced FY18 credit risk impact estimated at RM30 million (7% of FY18 earnings) involves the demobilisation of the vessel from the field, and not the remaining outstanding debt of Erin, of which some provisions have already been made.

“As negotiations were still ongoing, management has not revealed the full potential outstanding claim against Erin at this stage, which involves a shutdown, not a termination of the charter contract,” it added.

On a separate note, PublicInvest Research said while the news flow is negative, the research house is neutral on this development as issues with Erin is common knowledge and had already been ongoing since 2015.

“Our earnings estimates and valuations have already excluded these contributions much earlier. We retain our “neutral” call with an unchanged target price of 90 sen,” it said.