The struggling oil market continues to take its slow toll on service providers as the faltering fortunes of upstream clients have a knock-on effect on firms like Malaysia’s Bumi Armada, which announced problems with its deal with Erin Petroleum Nigeria that could put contracts worth up to $489 million at risk.
The group said in a Singapore stock market announcement that it was suspending the provision of floating, production, storage, and offloading vessel (FPSO) services to the Nigeria unit of Texas-based independent oil and gas company, Erin Energy Corp.
Bumi Armada, through its units, has a bareboat charter contract and operation and maintenance (O&M) contract to provide services using its FPSO Armada Perdana. This was itself a new contract at the Oyo field offshore Nigeria when the previous operator Nigerian Agip Exploration gave up its contract at the end of 2013. Erin associate Oceanic Consultants Nigeria signed the contract taking over the FPSO in February 2014 and transferred it to Erin a month later.
The contracts worth $381 million, were for seven years from 1 January 2014, with automatic extensions, amounting to a total of $108 million, for two additional terms of 12 months each unless terminated by Erin Petroleum.
Bumi Armada said services are being suspended due to “longstanding delays” in the charterparty payments due to its unit Armada Oyo, for the bareboat charter of the vessel, as well as “irregular payments” for the O&M services provided by Bumi Armada (Singapore). It did not disclose in the announcement how long the problems had persisted or what was the amount due.
Bumi Armada said that after repeated attempts to arrive at a mutually acceptable solution, it had on 16 May issued notices of overdue payment and letters of demand to Erin Petroleum, seeking immediate payment of the undisputed outstanding sum.
To date, Erin Petroleum has not responded to their notices and letters of demand.
“The suspension does not relieve Erin Petroleum of any of its own obligations under the contracts,” Bumi Armada added.
The contracts were due to be suspended from 12pm Lagos time on 21 June except for the critical maintenance and other activities to mitigate occupational health and safety and environment risk.