Bumi Armada hit with $247m impairment on OSV fleet value

Malaysian oil and gas company Bumi Armada was the latest to take a hit from poor market conditions, finally succumbing to a MYR1.1bn ($247.3m) hit from impairments it had to take on its offshore support vessel (OSV) fleet.

This resulted in a net loss of MYR1.3bn in the fourth quarter and a sharp spike in full-year net loss for 2016 to MYR1.9bn from a MYR234.6m loss in 2015.

While weak revenue in the fourth quarter, which fell 65% to MYR205.5m from MYR589.0m previously did not help, the impairments on several of its assets, mostly in the OSV segment, were a sign of the times Bumi Armada could not avoid. Charges were also taken on two older and smaller size FPSOs, for which it is expected there will be a reduced number ofredeployment opportunities in the future.

“The large impairment we have taken indicates that we are addressing the burden of the severe under-utilisation of several assets, particularly in the OSV segment,” Bumi Armada executive director and ceo Leon Harland said in a press release.

The decline in revenue was mainly due to a 97% fall in floating production storage and offloading (FPSO) and floating gas solutions (FGS) revenue as conversion activities on all the major projects had been completed in the fourth quarter whilst in the previous corresponding period, these projects were at their peak construction rate, he noted.

There were also reduced contributions from the FPSOs Armada Claire, Armada Perdana and Armada Perkasa compared to the previous corresponding period.

“These results reflect the dynamic situation that Bumi Armada is in today,” Harland said, pointing out that the lower revenues are ironically due to the four new projects,having left the conversion yard and moving into production phase.

In addition, Bumi Armada also saw reduced reveneu from its Armada Claire FPSO and its Niegerian FPSOs compared to the fourth quarter of 2015.

Looking ahead Harland cautioned that there was still a huge oversupply of vessels and the situation was likely to persist for the coming years.

He noted however, that despite this, the group recorded strong cash flow for the full year, with net cash flows of MYR1.1bn from its operating activities and was in a good position with MYR3.01bn in cash and cash equivalents and a total orderbook stood at RM39.5bn as of end-December 2016.

With four projects due to start operations this year, Harland said the group expected to see a strong increase in cashflow generation and positive core earnings for the year ahead.

He also pointed out that the group sees a growing number of new project opportunities, especially in the large-size FPSO market where Bumi Armada has comparative advantages. Harland reiterated however that the group  would be “selective” in the projects that it pursues.