The termination is made by Aker Energy to postpone the activities under the DWT/ CTP Petroleum Agreement amid the pandemic

By SHAZNI ONG / pic credit: yinson.com

THE lower crude oil prices and Covid-19 pandemic have started to impact upstream projects with Yinson Holdings Bhd announcing its bareboat charter party agreement for the provision of a floating production, storage and offloading vessel (FPSO) at the deepwater Tano/Cape Three Points (DWT/ CTP) contract area, offshore Ghana, by Aker Energy Ghana Ltd being terminated.

“The termination is due to the decision made by Aker Energy to postpone the activities under the DWT/CTP Petroleum Agreement and the development of the project until further notice amid the Covid-19 pandemic,” Yinson stated in a Bursa filing yesterday.

Yinson added that it received a notice from Aker Energy on March 31, of its decision to terminate the letter of intent (LoI) issued on Feb 20, for the proposed award of the contract to charter, operate and maintain the FPSO for the project at the contract area with immediate effect.

Yinson noted that the group will preserve its right under the LoI for compensation arising from the termination.

It stated the termination will not have a material effect on the group’s earnings and for the financial year ending Jan 31, 2021.

The decision by Aker Energy comes as crude oil prices fell from an average of US$65 (RM282.75) a barrel in early January to the US$25 levels yesterday after talks to control output by OPEC+ collapsed last month.

That has raised the spectre of upstream oil companies cutting down on project roll-outs and costs amid fear of impairments and threat of prolonged low oil price environment.

The Ghana FPSO contract was accepted and entered into on Feb 20, 2020, by Yinson Production West Africa Ltd, an indirect 49%- owned joint-venture (JV) entity of Yinson; Yinson Gazania Production Ltd, an indirect 94.9%-owned subsidiary company of Yinson; and Yinson Gazania Operations Ltd (YGOL), an indirect 49%- owned JV entity of Yinson.

The contract was a bareboat charter of an FPSO at DWT/CTP contract area, including an operation and maintenance agreement contract to YGOL. However, there is no announcement for the latter.

According to a Bursa filing by Yinson on Feb 21, 2020, the primary term of the contracts was for 10 years and Aker Energy may extend such primary term for an additional one-year period, up five times, for a maximum duration of 15 years in aggregate or as otherwise agreed by the parties.

Aker Energy owns 50% of the rights to the field with the remainder being held by Lukoil Overseas Ghana Tano Ltd (38%), Ghana National Petroleum Corp (10%) and Fueltrade Ltd (2%).

Yinson’s shares closed 1.68% or eight sen lower to RM4.69, valuing the FPSO service provider company at RM5.22 billion.

The company’s stock has seen its share price drop several times since mid-February following weak sentiment from the ongoing petroleum price war.

Some analysts, however, remain positive on Yinson’s prospects in the year ahead.

BIMB Securities Sdn Bhd has a ‘Buy’ call and target price of RM7.70 on Yinson as its FPSO vessels are leased on a long-term charter at a fixed rate, which provides long- term earnings visibility.

“It is protected against early termination with clients required to pay fees (enough to pay up all project financing related to the FPSO assets) if they decide to do so.

“Their clients mostly possess a strong credit profile which is unlikely to default on such payment,” BIMB Securities analyst Azim Faris Ab Rahim told The Malaysian Reserve on Monday.

The next growth lever for Yinson is likely to come from FPSO-based projects in Brazil with Petrobras SA expected to proceed with new development projects despite low oil prices due to low cash lifting cost of below US$10 a barrel.