YINSON (7293) - YINSON – Ghana FPSO Project

YINSON (7293) - YINSON – Ghana FPSO Project

Recently, YINSON has bagged a US$2.54 billion (US$3.52 billion if the extension option is exercised) FPSO charter contract. This project is definitely a big boost to YINSON’s confidence in entering O&G sector. Nevertheless, I still have reservation on this growth driver. Few reasons:

1. As far as I can search, I couldn’t find solid track record of YINSON in delivering FPSO. Maybank provides a list of YINSON projects, but it doesn’t show the current status of the projects. You have to do more research on this.
   • In a FPSO contract, a service provider must maintain certain uptime of the FPSO, and sometimes, the service provider will not gain any bonus even if able to maintain above 95% uptime. (iCapital, 27 Jun 2014)
   • You should ask YINSON management for the details. As a reference, you can find details of FPSO contracts of ARMADA in many analysts’ report.
2. FPSOs, as deepwater projects are more expensive, the minimum range in which the oil price can fall before the commercial aspect of the project becomes unattractive is much higher. If oil price falls below US$70 per barrel, it may negate the commercial viability of many deepwater projects.
   • If the oil price is not justifiable for a FPSO, you can see what happen to ARMADA:
     • http://www.rigzone.com/news/oil_gas/a/136241/Further_Delays_in_Contract_Signing_for_Madura_Field_FPSO
     • http://www.thestar.com.my/Business/Business-News/2014/11/13/Second-extension-for-Bumi-Armadas-FPSO-contract-share-price-hits-52week-low/?style=biz
   • So, the same drama will happen to YINSON too.
   • Now, whether oil prices can return to US70 per barrel is debatable and questionable.
3. The different nature of each offshore development project has led to a fleet of uniquely designed FPSO solutions
   • Scope changes can potentially push an FPSO to the back of the line, considering the multiple major projects to be executed
   • For example, before YINSON’s FPSO can commence operation in Ghana in Sept 2017, the FPSO will be customised by replacing steels, and will be converted to fit the needs of the field at a cost of US$1 billion.
4. Another thing you should ask YINSON management: They owned directly the FPSO, OR they rented the FPSO from another FPSO provider.
   • If the market is bad (such as low oil price), the FPSO market will suffer due to an extended period without new orders
   • From Mid 2008 to mid 2009, many providers of speculative FPSOs went bankrupt as they were unable to secure contracts for units under construction, or underwent consolidation. (iCapital, 27 Jun 2014)

YINSON is still a new player in this sector, and I hope YINSON will success in this business. On the other hand, as an investor, be sceptical and do more homework.
I am not suggesting a sell, by all mean. I am just highlighting common risks of a FPSO project. Many analysts’ report do not share the risks in details (and put too much emphasis on the positives), and I believe that this will mislead many people not to take the risks seriously.

 https://lcchong.wordpress.com/