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Wednesday, October 26, 2016

A good 2017 seen for FPSO industry

Tuesday, 25 October 2016

Good business: File picture of an offshore FPSO Cendor of MISC

PETALING JAYA: The floating, storage, production and offshore (FPSO) industry is likely to experience a good year in 2017, as more project deliveries or startups are expected to surface, according to UOB Kay Hian Malaysia Research. It says Bumi Armada Bhd, MISC Bhd and Yinson Holdings Bhd could benefit from contract flows.

The research house said in its published report that although the order book backlog for floating projects may be in declining mode, there were huge opportunities for FPSO contract flows in Africa, Brazil and Indonesia.

The current order book backlog, including projects on order and undelivered for overall floating systems had reduced to 52 units, from 63 units in Jan 16.

On the contract flows in the above countries, UOB Kay Hian Research said some of these tenders suggest capital expenditure of US$1bil to US$2bil.

It is optimistic that Bumi Armada, MISC and Yinson could benefit from the contract flows.

Quoting the Energy Maritime Associates (EMA), UOB Kay Hian said that most final investment decisions for new FPSO projects were deferred to 2017.

“EMA expects small FPSO projects to be awarded in the fourth quarter of 2016, although overall, 2016 has been a dry year with lack of contract awards.

“For the fourth quarter of 2016, EMA expects three potential FPSO awards from Yombo in Congo, Ophir in Malaysia and Ca Rong Do in Vietnam. These are small-to-mid-sized FPSOs, with capex of US$100mil to US$500mil allocated for each facility,” it noted.

UOB Kay Hian thinks that MISC stands a better chance of securing a Brazil contract due to its partnership with SBM Offshore.

Both Bumi Armada and Yinson could also secure contracts with recurring customers in Vietnam and Africa.

“Yinson could be at risk of exclusion from the Securities Commission Malaysia’s Nov 16 Shariah review, although the company intends to be syariah-compliant in the future.

“We estimate Yinson’s financial year 2016 non-Islamic debt/assets slightly above the 33% minimum threshold,” said UOB Kay Hian, adding that Bumi Armada remained non-Shariah compliant.

The recent new output highs from non-Opec producers like Brazil and Russia had complicated oil price’s direction, despite a planned output cut by Opec.

“We believe our 2017 Brent forecast of US$55/barrel is realistic, supported by a recent comment from Saudi Aramco, which views the US$50 to US$60/barrel range sufficient to support low-cost resources over the next three to four years.

“Oil majors will be strict to ensure cash flow neutrality and be selective in new contract flows,” it added.

UOB Kay Hian’s top pick is Bumi Armada, as the company remained an undervalued FPSO proxy versus its local peer Yinson.

Bumi Armada has low termination risks and its profits are expected to double with cash flow improvements by 2017, if the firm executes the delivery of four floating projects by Oct 16, according to the research house.

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