This article first appeared in The Edge Malaysia Weekly on June 12, 2023 - June 18, 2023

First, not many companies issue a profit warning. On this score, Bumi Armada Bhd deserves a pat on the back for alerting investors to operational problems at one of its floating, production, storage and offloading (FPSO) vessels in the North Sea.

The Armada Kraken, which is operating in the Kraken field in the North Sea, was shut-in last week following the failure of the hydraulic submersible pump (HSP) transformers. According to Bumi Armada, the company, together with EnQuest plc, attempted some remedial works to restart operations but was unsuccessful.

Hence, it is the shut-in of Armada Kraken that will have a financial impact on the company. Bumi Armada stated it cannot reliably estimate the quantum of the impact at this point.

While Bumi Armada has issued a profit warning, which caused its share price to fall by more than 25% to as low as 45 sen within four days, there is no news — adverse or otherwise — on the development of the Kraken field from UK-listed EnQuest.

In its last update on May 24, EnQuest, the operator of the field, stated that the Armada Kraken had continued to perform well with about 94% efficiency as at end-April. Perhaps the company is still looking into the depth of the problem before making an announcement.

Adding spice to the incident is the equipment provider of the HSP downplaying the problems, stating that Bumi Armada’s announcement gives the impression that there is a failure of its pumps.

According to a report, Celeros Flow Technology said the shut-in was due to a failure of “critical motor supply transformers on the topside for the HSP lift system”. It added that the topside equipment was more accessible than well equipment, which could prove more costly to fix.

Well equipment relates to subsea operations, which is more difficult and costly to repair.

The Armada Kraken contributes more than 30% to Bumi Armada’s top line. Any unplanned shutdown will affect its bottom line and investor sentiment towards the oil and gas company that has gained the confidence of analysts and investors.

While it is good that Bumi Armada has issued a profit warning and used the shut-in period to undertake maintenance works, it should issue some guidance on the impact to its bottom line. At the moment, the depth of the problem in Armada Kraken is anybody’s guess.

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