[Foreign Language] and a very good evening, ladies and gentlemen, thank you for joining our second quarter financial year 2024 analyst briefing. I am [ Feisal ] from MISC's Investor Relations team. We are honored today to have with us, Encik Zahid Osman, President and Group CEO; Encik Raja Azlan, Vice President, Corporate Planning; Encik Afendy Ali, Vice President, Group Finance, and Ms. [ Gurkiran ], General Manager, Corporate Planning.
Before we begin with the proceedings, I would like to invite Mr. Zahid Osman, our President and Group CEO, to deliver a short opening remarks. Zahid?
Thanks, Feisal. [Foreign Language] and very good evening to everyone. It's good to be back here. I think the last time I had this analyst briefing was beginning of last year for quarter 1 results. So it's good to have the time to engage directly with [Audio Gap].
If you can see the results that we have produced today, I mean, for this quarter, it has been a commendable performance as a group, and we've certainly been very happy with what we have achieved today, and it reflects on our focus on operational excellence, we anticipate in terms of our capital expenditure and costs and so on.
I think in the -- I had the chance to also monitor the market sentiment of MISC Berhad. I think the overall sentiment has been positive, and I'm happy that we can continue that way. I think it's also worth to note that the feedback and the support that you have given to us as a group. And certainly, I personally think that this is the opportunity for us to have a more open dialogue for you to ask questions that you have with regards to our performance.
For this evening, I think Raja Azlan and Afendy will certainly take you through the details on our business performance as well as on the financial. And I will take on question after that, I'm happy to do that. So thank you, looking forward to the engagement today.
Thank you, Encik Zahid. Now before we proceed to the presentation, I would like to bring your attention to the disclaimer slide. While this presentation contains some forward-looking statements with reference to our plans and expectations, our actual results could differ due to unknown risks, uncertainties and other factors that are in many ways beyond MISC's control.
Now I would like to invite Encik Raja Azlan for his introductory remarks on the quarter's highlights -- key highlights and business update. Encik Raja Azlan?
Thank you, Feisal. [Foreign Language] and a very good evening to our dear analysts and also investors. As our group CEO mentioned, we have delivered commendable set of results for the second quarter as well as the first half. I am very happy that in terms of the first half results, our profits have increased by 30% to 35% in the first half.
And in terms of cash flow, we also saw about 33% increase in our quarter-on-quarter cash flow. There was a reduction if you compare to the last year, that was because there was this one-off prepayment received for the early settlement on the FPSOs.
My colleague, Afendy, will provide more details on the financials in the next section. We're also very happy that we were able to continue paying a good dividend, the same amount that we declared in the first quarter. We have declared a similar amount of $0.08 in the second quarter.
In terms of ESG, as of the second quarter, we have achieved 5.23%, 5.23% measure in terms of our issuance, and this represents about 14% decrease year-on-year and a further 3% decrease quarter-on-quarter.
In terms of our big project, the Mero 3 project, which has now been renamed the FPSO Marechal Duque de Caxias, it has successfully arrived at its designated offshore field in Brazil as of the 27th of May. This was a major milestone in the project's journey. And today, we have achieved an overall completion physically of about 97%.
The FPSO is now in the key phase of hook-up and commissioning which are the final steps before achieving first oil. And following the achievement of original success in end of May, we were prepared to receive the first production riser from Petrobras in July with the aim of achieving first oil by the 2nd of August but due to a technical incident involving the production riser which was managed by the Petrobras subcontractor, the production riser is yet to be passed to us.
And we have been informed that the production riser should be delivered by the end of August. And we now anticipate that first oil will be achieved by end of the third quarter or at the very beginning of Q4 this year.
In so far as MHB, I'm also very pleased to highlight that MHB has secured a second subcontract for an offshore HVDC platform, which further strengthens our position in the renewable energy segment. We're also pleased to highlight that MHB recorded another profitable quarter, reporting profit is about MYR 70 million to MYR 80 million.
On AET, I'm very proud to share that AET has been honored with the prestigious Jones F. Devlin Safety Award for 47 of our vessels. This recognition underscores our unwavering commitment to maintaining the highest health and safety and environmental standards across our operations, ensuring the safety and well being of our crew, our customers and the environments in which we operate. And this award is indeed a testament to the diligence and dedication of our teams in upholding values that are at the core of our business.
Lastly, in terms of our education arm, MMASB. MMASB, the holding company for the ALAM academy, signed up an MOU with Darussalam Pilotage Services to drive advancements in maritime education research and industry practice. And this partnership aims to explore mutual interest in the maritime services and products, paving the way for future joint initiatives that would drive innovation and leadership in the industry.
Thank you very much. I'll pass back to Feisal.
Thank you, Encik Raja Azlan. Next, we'll have a presentation on financial performance by Encik Afendy, followed by a market outlook by Ms. Gurkiran. Encik Afendy, please.
Thank you, Feisal. So I'll go through some slides on the financials for quarter 2 for the company, for the group. In general, you will see trending wise, revenue is down compared to the 2 quarters of previous quarter as well as same period last year. However, the profit trending is actually better.
So quickly going to the revenue portion, we have recorded $703 million in this quarter, quarter 2, that is about 10% down compared to the same period last year or $82 million and 9% down or $67 million compared to the previous quarter.
So generally, the reason for the reduction of recorded revenue is because the softening of the LNG market which we see and hence, the spot actual rates for LNG vessels basically have been impacted by those softening of the LNG market. We do see an uptick on that.
And certainly, we hope the LNG market and the spot rates for vessels to recover towards the end of the year given it's a big decision. Also for the reduction in revenue is because of the project -- the stages of the projects for both our Offshore business as well as our Heavy Engineering business.
Profit before tax from operations. We have recorded $132 million, about 7% better compared to the same period last year, and that's primarily because of the better rates from the Petroleum segment as well as we have managed our cost better from our Heavy Engineering segment.
And I would also like to make a note here that for the Petroleum segment, we actually have additional three vessels, three VLCC vessels that is only in operation from quarter 3 last year, which we did not have same period of last year. Compared to previous quarter, our PBT from operations is slightly down by about $16 million. And that's primarily because of the softening of the LNG rates, which is kind of expected because typically, the spot rates are a lot higher during the winter season.
PAT, we have recorded $121 million for the quarter. Against the same period last year, we recorded about $51 million better. That's primarily because of the return that I had mentioned earlier on the Heavy Engineering, better cost management in Heavy Engineering as well as better rates that we have achieved in the Petroleum segment.
Compared to previous quarter, the main reason why last quarter, we showed a better PAT is because of a one-off gain on disposal for our LNG vessels -- two LNG vessels as well one chemical tanker as well as the better rates that was -- I mentioned earlier on the [Audio Gap] business.
Cash flow from operation, we have recorded $289 million as mentioned by my colleague Mr. Raja Azlan. When compared to same period last year, there was a payment from our cash flow of about $230 million. So that's a part of the acquisition when compared to the same period last year, and we have shown a better improvement in cash flow for this quarter compared to the previous quarter, primarily because of better collection from our Heavy Engineering segment.
Next. I think balance sheet-wise, we continue a strong balance sheet of about $14 billion, not much different there. I think I would like to tell that perhaps on the [Audio Gap] and liabilities of -- in fact, the noncurrent liabilities was a reduction of $3.7 billion to $3.2 billion in this quarter or as at June compared to December '23 because of the -- about $400 million is due in a set of our bond payment in April of 2025.
So that has been classed as current liabilities, okay, which is -- yes. And then if you look at our gearing ratio is fairly healthy and our debt composition remains very prudent whereby close to 90% of our -- has got a fixed rate, which certainly insulate us from the high interest rate environment that we are seeing today.
Cash balance is also -- and as well as debt balance over the last three period is also quite similar. I just want to note here that a slightly lower cash balance as at June is because payments made for our major projects, particularly our [Audio Gap] and our debt balance remains similar as the previous periods debt you can see probably.
Next. Performance by the business segments. So I'll start with Gas on the top left quadrant. So as I mentioned earlier, the revenue of Gas is on a downward trend because of the rates that we see, which is associated with the softening of Petroleum market.
And also to note that we have two less LNG vessels in operation given that we have disposed two vessels, Portovenere and Lerici, in quarter 1 this year. That also explain the $7 million nonrecurring profit that I suggested in quarter 1, 2024. And then in respect of the $7 million nonrecurring that's the impairment of our two LNG vessels in this current quarter.
For Petroleum, revenue remains similar if not slightly better, which I mentioned earlier, are due to the introduction of the two -- three VLCCs, Eagle Vellore that was in operation in quarter 3 of last year '23, Eagle Ventura in quarter 4 last year, and the latest and the final one, Eagle Veracruz, in January this year. And so that certainly helped to sustain our revenue as well as improve our profit in the Petroleum sector in addition to the better rates that we are seeing.
Our offshore segment is very much -- the revenue is very much associated with the progress of the project. And as we expect Mero at the tail end of the project, so the POC is suddenly reduced and hence, that's the main reason why the revenue has dropped in the current quarter.
In respect of the current quarter cost in the Offshore business, that is primarily because the allocation of the financing costs, particularly for the Mero 3 project as well as our GKL, which is the two biggest in our Offshore business.
On Heavy Engineering, I think we are making -- certainly making a lot of improvement at least from a profitability standpoint. This year, we have registered $16 million in quarter 2 and primarily because of the better cost management and cost recovery from our clients. And we certainly work very closely with our colleagues in MHB to ensure that the results are sustaining moving forward.
I think that's all that I have for the financial presentation. Back to you, Feisal.
Thank you, Afendy. Ms. Gurkiran?
Thank you, Feisal. I'm pleased to present our market environment of quarter 2, and let's begin with the LNG shipping sector. During most of the second quarter, the LNG shipping market experienced some [Audio Gap] performance, and this was largely attributed to lower demand in the early months.
However, we observed a notable recovery in June, and this improvement was driven mainly by two factors, namely increased demand in Asia due to the heat wave in the region that we are currently experiencing and also restocking efforts in key markets, engage in restocking to meet their energy needs. So these conditions have resulted in favorable shipping rates, which place us in a strong position to sustain our operating income, thanks to our resilient portfolio.
Moving on to the LNG project FIDs looking ahead. The outlook for FIDs in LNG projects remain optimistic. We expect global liquefaction capacity growth, which will lead to increased demand for LNG carriers. It is also important to note that while there may be a pause in the U.S. for LNG permits, which has led to some project deferments, the future still looks good and promising. We anticipate at least opportunities from FID projects in the Midwest, Qatar and Mexico.
Moving on to the next slide. A surge in LNG demand has prompted a significant increase in new shipbuilding orders. And we see that it will expand by approximately 9% in 2024 and 12% in 2025. And notably, QatarEnergy Phase 2 is expected to account the majority of the increase and where we have seen about 45 vessels in the first half of 2024. However, there could be potential challenges in slippage because of the higher workloads at the shipyards as well as bottlenecks in construction process.
Now let's turn our attention to the current market environment for the petroleum shipping rates. First and foremost, the overall petroleum shipping rates have been resilient -- have remained resilient and this is bolstered by an increase in the tonne mile demand. However, we have observed a softening of VLCC rates due to weaker imports from China. However, on the pricing note, the long-haul exports from the U.S., Brazil and Guyana present promising opportunities for our sector.
The growth rate of the fleet is low, which is expected to help stabilize overall shipping rates. And additionally, there are also opportunities to capitalize on the spot trading market, which could [indiscernible]. Looking ahead, we project the charter rates will remain attractive in the second half of the year. Disruptions in the Red Sea have also resulted in truncated supply and stretched voyages, which will keep tonnage utilizations strong.
The order book to fleet ratio, we saw a rise to 8.4% in quarter 2 and the majority of the new orders are for VLCC sized vessels. However, we still push them to recognize that the current vessels on order will be insufficient to meet future tonnage requirements. And on the demolition -- on the fleet stability, demolition rates in the Petroleum sector is expected to remain weak. And as a result of limited deliveries and low demolitions in quarter 2 has kept the fleet size almost unchanged from quarter 1 itself.
Moving on to the Offshore segment. We are also witnessing a steady growth in upstream capital expenditure spending. The complexity and the high costs associated with offshore projects lead to more collaborations and partnership with companies, allowing them to share risks and benefits. So operators are currently focusing on FPSO units in South America and the Asia Pacific regions. It is noted also that there has been a pause in [Audio Gap] over the past year as companies reevaluate costs and adjust to the new reality of financing current projects.
So that brings me to the end of my presentation. And I'll pass back to Feisal.
Thank you, Ms. Gurkiran. We will begin the Q&A session shortly.
[Operator Instructions] We shall now begin the question-and-answer session. Okay. First, we have a question from [ Raymond ].
So just to wish, Encik Zahid, congratulations for being the newest President and Group CEO of MISC. So I also recently noted that Datuk Yazid has taken over as the EVP and CEO of the Petronas Gas and Maritime business. So there are two new heads in the maritime segment in both Petronas and MISC. So Encik Zahid, could you give us a rundown of what you think are the priorities for MISC under your watch?
And also, what kind of business segments would you want to grow into? How would you prioritize the deployment of capital in the next few years under your watch? And what are your strategic directions for MISC generally? Yes, that will be my first question.
Thanks, Raymond. Good, I mean, to at least hear from you. You are absolutely right, there's two new heads now when it comes to the maritime within the Petronas group of companies that Datuk Yazid has just been appointed and he is also looking after the gas and maritime business for Petronas group.
Coming back to your question on priorities for MISC, I think there's no intention to change the current priorities. We will continue to focus on delivering our MISC 2030. The focus is certainly in terms of strengthening our core business and as well as putting the company -- to prepare the company for a low-carbon future.
In terms of the investment, I think it's not going to change. The current priorities remain the same. We have the four core businesses that we have and in terms of LNG, Petroleum, Offshore, and I think we are making use and we're going to strengthen further our new energy and decarbonization decision, Raymond. So for now, I do expect I mean still the scope because we are committed to deliver MISC 2030.
Okay. Thank you very much for the rundown. Okay. So maybe I'll just go through some of the technical questions on the second quarter results. I think the first thing is that for LNG segment, the second quarter profit was actually quite low. Even if you add back the impairment on the LNG assets, it's still very low compared to the first quarter.
So not comparing against the previous year but comparing against the first quarter. So I think Afendy, you mentioned that there were a couple of FPSOs for the Lerici -- a couple of LNG vessels like the Lerici and Portovenere that were no longer contributing, but I think they were no longer contributing already at the beginning of this year.
So I'm just wondering why is there a decline in the LNG performance in the second quarter versus the first quarter? And then just going on that same vein, Afendy, you mentioned something about Offshore dropping into a loss in the second quarter, but I couldn't really hear clearly your explanation. So I would really appreciate that you could repeat that.
And also in MMHE, is the cost recovery also one-off in nature? Do you expect it to recur in the future quarters? And finally, the AET profits was actually very strong in the second quarter compared to the first quarter despite a significant drop in spot rates. I'm just wondering how the AET achieved this?
Yes. For the LNG segment, yes, you're right. So we have launched the two vessels from -- Portovenere and Lerici, that is kind of quarter 1. But we also had, I think, about three or four spot vessels that we are not able to capitalize, i.e., get it hired on a long-term basis. So that essentially is a [indiscernible] the fact that we're not able to get our spot vessels [Audio Gap] as well as the delays are also not very good. Yes, so that's just to provide a bit more clarity in terms of the impact to our Gas business bottom line.
On the Offshore business, the $19 million, I think you're referring to the $19 million cost for Offshore business, it's primarily because of the financing allocation that we have allocated to GKL as well as Mero 3 project, right? Because these are considered as revenue here, right? So the financing portion of Mero 3 particularly is a P&L item, and therefore, that is an accounting loss to the -- is set up against the consortium profit of Mero 3. And therefore, that's why we are showing a loss for the Offshore business.
Then AET and whether we expect cost recovery for MHB, Encik Zahid Osman, I think that's the remaining question that Raymond asked.
Yes, I think, yes, we are working -- for MHB, we're working to make sure for the project that has been completed or near completion, which is Kasawari GDP, Rosmari-Marjoram, right? So it is my understanding that MHB is in the clients to obtain some form of cost recovery. So if we're successful of those, we will -- we see MHB will register those in their financials collectively in the future quarters. Yes. So for the future project, obviously I think their cost discipline and project execution is key to ensure that they continue to be [indiscernible].
If I can just add to what Afendy just said, on this cost recovery for MHB, I think it is related to a lot of the legacy project. So I think the team is actively pursuing that with our -- with the clients and we're certainly making sure that we put ourselves the best chance to meet the recovery.
So far, I mean, we have been successful in one of the recovery. I think we mentioned in the data, if I recall, it's around $60 million. Okay, I mean I'm not so sure, but we have been successful. But the focus in the future, I mean, we are going to pursue a recovery on the legacy project.
On AET, I mean, I think the market is very supportive of the performance in this sector. I think the crucial part that we have done is that we are able to redeploy the asset that we have into the region where we can capitalize on these high rates. The lightering business also have been very helpful, especially in the Gulf of Mexico. I think that's why you can see a stronger performance for AET in quarter 2.
Just going back to the offshore losses, right? Because Afendy, you mentioned about the financing for the Mero 3. So my understanding was from Raja Azlan in the past that the financing is internal in nature where MISC Berhad is actually giving a loan to the Mero 3 subsidiary. So isn't that usually eliminated on consolidation? I don't understand why it results in a loss?
I mean, this is basically the cost allocation to the offshore unit. So what you find is that at the group level, we're making a higher profit because there's a lot of interest income, right? Whereas the offshore unit, there is interest cost, right? And because we are at the tail end of the project, that's why you find that -- and there's no income coming through the Mero project other than the construction profit, which is really at the tail end, that's why now you see this net position of a loss in the Offshore unit.
I see. so if I add back the allocation, will I get an neutral at least? I mean, will I get a zero profit for offshore? Or will it be positive or still negative?
At the same time, in the same period last year, there was a one-off recovery for some insurance claims. If you're talking about comparing to this time last year. That's why you see the overall results have come down.
Just on an absolute basis in the second quarter. If I add back the allocation or is it always being allocated to the offshore side?
It is, yes. So if you take at the group level, those financing is eliminated. So how we have shown it Raymond is those interest costs are allocated to the business where the debt are being utilized by those businesses.
Okay, okay. So the reason why it went negative is because the construction profit -- probably went very low, right? So that exposed the interest expense to be visible at the bottom line?
Exactly. Because at the tail end you obviously have a lot more debt, right? So there will be -- naturally, the interest cost is going to be higher towards tail end of the project.
Next, we have a question from Ben Lim.
My first question is just want to follow up LNG. So I just want to clarify, you have 3 to 4 vessels on spot that don't have work currently. What's the utilization being first quarter, second quarter? I just want to understand whether you're seeing them deployed already in the third quarter? Or are they still off charter?
So yes, we are getting them employed but not for a long time for the spot charters, right? So I think the team in the gas business are continuously trying to find [indiscernible] for those spot vessels, right? And as I said, I think given the rates and the softening of the LNG which make it even more challenging in the second quarter.
So as I mentioned and as also shared by my colleague, Bin we are seeing an uptick in the spot market for the LNG vessels. So we are very hopeful that those vessels can be expected in a longer-term business.
Sorry, what was the utilization roughly in the first quarter and second quarter?
For the spot vessel, it was roughly about 56% during the first half.
Okay. And there was a drop off in utilization in the second quarter, right? Is what you're saying that explains the drop?
The numbers I question was the first half number.
Okay. Understood. My second question is Mero 3. I was under the impression that once you get the provisional acceptance, you're able to start collecting some income. Can you clarify that? And are you maybe already getting at maybe in the third quarter? What is the revenue situation there? So should we expect the offshore segment to bounce back?
Yes. I mean we will get paid upon first oil. That is the situation, and we hope to get that at the very end of this quarter or at the beginning of the fourth quarter. Again, this was beyond our control. The subcontractor of Petrobras, there were some technical issues in terms of the connection of the riser.
Okay. I was under the impression that as long as you are already on site and ready, you get some sort of charter, right?
Yes, we will be entitled to [indiscernible].
Okay. Right. So that's -- you have the [indiscernible] rate. So should we start to see that at least in the third quarter, even if the first oil is delayed, so we start to see the offshore segment is offset those interest costs?
And I think we make the contract provides for a standby with for one of the asset and we are pursuing that with Petrobras. But whether we are able to successfully get that and [indiscernible] that we are working with Petrobras but the contract provide was standby.
Dispute with -- oh no dispute maybe not the right word, but there's some -- it's not -- you guys are not on the same page with this standby rate?
No it's not a kind of contract, it is very clear and have to see that with...
Yes, Ben....
Is going to be -- I lost you there for a moment. Okay. Just a very quick one. Do you have much room to refinance your debt over the next 12 months? Assuming there's rate cuts, do you have room to maybe bring down your finance costs, I know all of it fixed. Do you have room to be technical here?
Yes. Ben, we are looking at all options at this point in time. So obviously, we quite -- we have to look at what our capital requirement in the next 5 years. So until we can finalize those, then we will look at what are the options -- financing options that will correspond to the capital plan that we had in the year. We certainly would like to take advantage. As you see, given the expected reduction in the delays, right, to perhaps tap the financial market for -- to enable to our business further.
Sorry, Ben maybe we just want to clarify on the standby rate is now because there was a cut in the line. What we see is that the contract is very clear that we are entitled to the standby rate, and we're working together with Petrobras through these final steps to ensure that we can hear the final hookup.
Next, we have another question from Raymond.
Okay. So just going back to the Mero 3, right. I think generally, after provisional acceptance, there's like a month or 2 that you have to wait prior to getting the [indiscernible], would that be correct? And I wanted also to check whether -- because the Mero 3 was delivered late to Petrobras, is there any financial settlement that you will have to make to Petrobras. Is that still under discussion? Is that -- is that even a possibility of that happen?
And the last question on Mero 3 is what was the profit that was booked in the second quarter -- sorry, what was the construction profit that was booked?
Yes. So on the delays, we have already taken on board the full extent of the delays back in 2022, right? So now we are in discussions with of Petrobras to improve the position. We hope that we will be able to get some recovery and so far as the delay effect is concerned.
So you provided for it early, right? So if anything, it will be a positive write-back? Is it?
That's right. That's right.
Okay. Okay. That's good.
For the Mero 3, sorry, you're asking for the Mero 3 provisional profit. That's about a $4 million.
Sorry. Can you repeat?
For the quarter, yes, this was $4 million for Mero 3.
$4 million?
$4 million.
USD 4 million. Okay. Okay. Okay. And when does your standby rate technically kick in based on the contract? Would it kick in, let's say, by August?
By this quarter, it will be a tighter to testament by this quarter.
By this quarter. Okay. Okay. Sure. For the whole of this quarter or part of this quarter?
Towards the latter part of this quarter.
Later part of this quarter, all right. Okay. Sure. Okay. So before I pass back to Ben, right. Could I just ask a little bit about the LNG side. The LNG impairments have been made consistently over the past couple of years, every couple of quarters. And I presume that these are being made for the Steam Turbine vessels. Based on what kind of assumption are you using to make these impairments. Are you assuming that the Steam Turbine vessels will be sold at scrap at the end of the 20-year lease or will there be some kind of redeployment opportunity and you're assuming some kind of spot rate for the post 20 years of the fixed time charter?
And also, I was just looking through the CII ratings for the LNG steam turbine fleet. I think [indiscernible] has published for 2023. And I think most of the Steam Turbine vessels are rate at either D or E, a couple of them are rated E. And I do know that for vessels rated E, are not supposed to be able to operate them this year. Could you give us me some idea why are your strategies there to address the D&E ratings for the CII?
Let me answer the last question first. For the CII, D and E still pay a vessel, but maybe to be a clear plan how we see that position. I think that is the carbon requirement by the regulation arrangement -- it's not cannot be [indiscernible]. So you have or CII E rating. I think you have within 12 months more to make the improvement. And for CII rating D you have -- we've seen 24 months of a restatement for you to make the improvement. So we start immediately, you cannot pay the vessels.
Yes. So -- but if you make improvements of this E vessel, you either have to increase the CapEx or you have to slow down the vessel. But I think slowing down Steam Turbine vessels are probably going to cause even more pollution. So...
There are a number of, I mean, elements we can do either operationally prove to deal with it or we certainly need to put in CapEx and put in the improvement. And some of that can give you for the petroleum assets to improve some of the older vessels in terms of the emission. We are using biofuel blending with our conventional fuel to improve the emission level.
Okay. I think maybe we should sit down one of these days to talk about this in greater detail because I think the CII ratings rather start in terms of the Steam Turbine, but I think it's not unexpected either.
Just on the impairment question, Raymond, the dermatology -- the methodology of testing impairment of the LNG vessels is obviously, if you look at the book value compared it against the value-in-use. Value-in-use is basically while contextual arrangement that we have existing [indiscernible] vessel and compare that against the demand of the vessel, which we get from publication, right?
So if the net book value compared against the higher of the value-in-use and market value, right? And then that number is compared against the net book value. Any difference or any deficit, that's the amount that we flush out in the -- for the [indiscernible].
Yes. But for the value-in-use, what kind of -- do you assume that the vessel will continue trading in the spot market?
No. When you know is whatever contract that we have [indiscernible] vessel.
Okay. I mean for the LNG vessels that are coming off the long-term 20-year charges, how do you -- what do you assume will be the value-in-use on the 21st year onwards?
Raymond, we would take the long run rate for the -- post the charter period. We assume that will be utilized in the small market at the long run rate.
Okay. Until the 40th year?
No, until 25th year.
Okay, 25. Okay. You assume that the vessel will only be operating for a further 5 years. And then you assume a scrap value at the end of the 25th year.
That's right. That's right.
Next, we have a question from Jeremie Yap.
Just in regards to your standby rates, right, on -- for Mero 3, are you guys able to disclose like what is the standby rate proportion in terms of like full leverage charter rate? In terms of...
No, we cannot because that is a confidential under the charter contract. I apologize for that.
All right. Then I'll just move on. So are you able to probably guide us on the term-to-spot ratio for both your LNG division and so petroleum tanker?
It is about 90% for the petroleum and about 80% to 85% for the jet [indiscernible].
Okay. Just a final question for me. Other than the Caledon FPSO, which is Petronas job, is MISC still bidding for other FPSO jobs given the current strong global FPSO demand?
No, I think -- at the moment, we want to complete the Mero job, I mean, [indiscernible]. And then also, we have also -- as we mentioned to you before, we're trying to also divest stay in the Mero project. And then also, we mentioned that for any big project, we will only pursue it if we have a partner.
Understand so meaning the precedent starts with a stick sale first, then only you guys will look into probably a joint venture also into a new FPSO job. Am I right? .
For the $2 billion kind of project.
Okay. Okay. So the precedent starts with the [indiscernible].
Yes. That's right.
All right. Okay. That's it for me. One last one. I know this may be a little bit juicy, but I think it's all over the news that you guys may be taking over [indiscernible]. Are you guys able to give some color on this?
I mean, I think when we have made a statement in the past to answer the questions. I think for -- for us in MISC, we are committed to deliver our MISC 2030 as we mentioned and that is our guidance formula when we explore all opportunities. I think when we have anything material, but we certainly made the announcement for Jeremie.
So I assume it's not all just rumors and it's not all [indiscernible].
Sorry, Jeremie, can you repeat that?
So I assume it's not all just rumors, and it's something that may happen, right?
I mean as I said, I mean we are committed on our MISC 2030, and we explore all opportunities to pursue that -- to achieve that. So when there is material so for opportunity that we are ready to disclose and we need to disclose, we will do that on the timely basis, Jeremie.
Next, we have Ben.
Maybe if you don't mind, I want to ask what Jeremie asked in a different way. Obviously, capital allocation is really important. And in fact, it looks like you're a bit constrained, right? Because you're tied up with Mero 3, even you need the monetization to free up capital. So when it comes to exploring potential acquisitions like this, right, putting aside a specific name, what are the kind of considerations that -- what kind of hurdles would these need to pass, right, to be a sensible acquisition?
And I'm thinking given sensitive case of this kind of FPSO like would you even order acquiring a company or would you prefer to just acquire assets. Just want to understand how you would approach let's say, a hypothetical opportunity like this band, right?
Ben, I think it's very difficult to answer a hypothetical question with hypothetical answer I do think we are going anywhere. But what I can say is that we are certainly going to maintain our capital discipline with regards to what investment that we want to do, what opportunity that we will to pursue. And that's number one.
Second, I mean, I think we have advised you and I mean the market with regards to what we are doing with the equity that we have. We are pursuing our partners and we are continuing that. Because for us, it's important once the asset is in operation, we are able to recycle the capital so that we can continue and pursue new opportunities, and the opportunity has to match our ambitions to grow and achieve my MISC 2030.
We have a core business that we want to continue to rejuvenate it different sectors, both gas and petroleum. And we also have our offshore business as well as our business [indiscernible].
The answer is not that clear what your intention is, but I do appreciate maybe it's hard for you to tackle this head on. But I want to point out that I think the perception is quite negative, I think, based on feedback, if this kind of acquisition goes ahead. I mean, of course everything depends on price, but it would look like you guys are detracting a bit from your capital discipline that you talked about. So hopefully, at some point, if you can provide more clarity than I think that would be helpful to put it to be.
Yes, maybe to give you comfort, what is we will stay true to our financial discipline, right, which is number one, we have got our gearing constraint, right? And then if we are going to pursue any transaction, you would have to be earnings accretive, you would have to be cash flow accretive because we need to ensure that we are able to deliver dividends sustainability and on the growth trajectory to our shareholders, right?
So any transaction, any corporate size, whatever we do will need to be something that makes sense. And if you're talking about a big transaction even more so because we need to go to the shareholders to seek approval from the shareholders. So no worry Ben, our discipline remains, in fact, it is the cornerstone of our performance so far.
Next, we have a question from Haoyan.
Can you hear me?
Yes, we can hear you, Haoyan.
Follow-up question on the Mero 3, do you think that the [indiscernible] is to replace the right because of what I can find on media [indiscernible] and all those were really installed in July.
Sorry, could you repeat your question, please, and a bit louder. We could not hear you, it's a bit muffled.
Okay. Yes. Is it loud and clear?
Okay, go ahead.
Just want to double check on the riser that you mentioned, you are [indiscernible] was already installed, I think, in around July. But I think there is a replacement needed and therefore, you are using the subcontractor to complete that. Is that correct?
So Haoyan let me just -- so your question is related to the Mero 3 commissioning activities at the moment and why it's delayed is that correct?
Yes. Yes. Is it confirmed that it is the rises that will need to be replaced because I think they were already really installed earlier. But based on what you see, you are waiting for the subcontractors to replace the risers.
So when the Mero 3 signed, we see with our hookup on the moving lines and the tension line. So that's completed. So we already get the certification for the class for that. So one is currently delayed is production riser that is Petrobras contractor. I think there has some technical gap and that is the one that's causing the delay. And because of that, we were not able to achieve first oil. That's what we initially planned in early August.
Okay. So I'm assuming that they are -- they need to do some replacement and all those things. But anyhow it won't come at any additional cost to you, right? Or yes.
No. I mean I think, as you said in this step, production riser is basically belong to Petrobras and it's managed by their contractor. That's the one that is causing the delay. They were not able to deliver the risers so that we set hookup on Mero 3.
Got it. And in the LNG side, right, you mentioned about [indiscernible], the disposal was it done in May, the sales? And the impairment recognized in this quarter, is this only fall to LNG vessels?
Haoyan, can you repeat that please?
The total energy, the disposal was done in May and the impairment that you recognized that $30-plus million. Is that wholly for those 2 vessels?
Yes. I was -- I think the early part of this year, Haoyan.
Yes, but the completion of the sale was in May, right I think you were offering for the sale [indiscernible].
The sale was done for quarter 1 and the gain on disposal was recorded in quarter 1 for May.
Right. Then this quarter is for which vessels? [Technical Difficulty]
That is not disposal in quarter. Did not referring [indiscernible] in quarter 2 related to the impairment of the current vessels that we have. It's not a disposal.
Okay. So in the LNG income, right, the -- how much of it would have been coming from the [indiscernible] fleet, it is not for because you mentioned that you have 2 vessel fleet, yes. And also the -- your other fleet because some of them were going on for charters, so the income was also lower bit because low utilization as a lower spot rates as well. So can you maybe quantify how much of it was due to the loss of the [indiscernible]? And how much of it is the difference from your existing fleet last year and this year?
So you are trying to ask it we can quantify the difference between last year and this year performance, one is due to [indiscernible] LNG and the other one is due to disposal of asset. Is it?
Yes. Due to the performance of the remaining fleet other than Lerici and Porto?
I don't think the analysis is readily here. I mean understand you try to contract performance and this year, if we remove the Porto and Lerici from the equation.
And one more question to ask. If I'm not mistaken, during -- when you were selling Porto and Lerici, right, there was some news out there that says that you have the good extensive repairs for these 2 vessels, because there was some contamination on the end of some that. So are those costs substantial worthy material. And if yes, how much of the cost incurred?
Those repairs were taken in previous years moment. In previous years, we have to incur a lot of repair costs for these 2 vessels.
Even -- and even if -- for the deployment when you're doing the sale, you really have repacked all the problems previously, right?
So I mean all those costs for these 2 vessels are on prior year issues.
All prior year issues, not -- there's none incurred in quarter 1 of this year.
No, no, no.
I see, okay. Okay. I think that's what I have for now.
We have time for one last question. So we have time for one last question, and I would like to invite Raymond.
I just wanted to ask about the trade receivables. There's a large portion of it that is positive more than 90 days. What is it? Actually, I can see that it's in previous years as well.
That is basically the related to our GKL arbitration.
Right, right. I see. Okay. I understand. So you just left it whatever amount that is currently under legal arbitration that.
Correct, correct.
Okay. Okay. And also, you reported that you have signed a letter of intent with Samsung Heavy Industries for possibly 2 LNG ships for charters to Petronas. Could you give us some color on that?
I mean I won't be able to comment on that because I mean I'm not aware of that, the letter of intent. Is it.
Yes. Supposedly, there was a letter of intent that you signed with Samsung Heavy Industries for the construction of 2 LNG ships. But there was no announcement from you guys. So I just wanted to double check whether it's true or not.
So if we sign any TV or a contract like that, we'll make the necessary announcement, Raymond.
I think this concludes our today's conference call. On behalf of MISC Berhad, and thank you for your participation. The PDF version of our presentation slides have been sent to the attendees of today's call and will be made available on our corporate website. So to the sell side analysts, please forward the copy of your published research report to the MISC IR team for our reference. Thank you again, everyone. Stay safe and have a good evening.
Thank you, everyone.
Thank you.
Thank you.
