KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) is slightly positive on Bumi Armada Bhd allowing the continuing flow of oil from a suspended contract with Erin Petroleum Nigeria Ltd but feels that the proceeds from one-off cargo will be immaterial.
In a note, HLIB also said continuing flow of oil would not generate any revenue for the company as the client had stopped its charter payment.
On Thursday, Bumi Armada announced that a substantial portion of proceeds from the sale of the cargo will be used to partially settle Erin Petroleum's outstanding payments to the group.
“The one-off cargo would generate proceeds of which the amount would be offset against outstanding amount owned by Erin to Armada,” HLIB said.
In June, Bumi Armada suspended its operations and maintenance contracts with Erin Petroleum for the Armada Perdana vessel, which operates at the Oyo field off Nigeria.
Bumi Armada said Erin Petroleum had delayed payments for the bare-boat charter contract, and made irregular payments for the operations and maintenance contract.
HLIB said allowing oil to continue flowing for the FPSO (floating production storage and offloading) has enabled better discussion with client for the settlement of its debts, which could be more beneficial in the long run.
However, it said discussion could be further dragged before a significant sum of outstanding owned could be recovered by the group.
HLIB has maintained its “hold” call on Bumi Armada with an unchanged target price of 72 sen.
“Earnings are expected to be stronger this year with new projects coming on stream. However, the continued delay in delivery of Armada Kraken would further exert cautious sentiment on the stock,” it said.