Good evening, ladies and gentlemen. Thank you for joining the Third Quarter Financial Year 2024 Analyst Briefing. I am Faisal from MISC Investor Relations team. We honored to have with us today Encik Zahid Osman, President and Group CEO; Encik Raja Azlan, Vice President, Corporate Planning; Encik Afendy Ali, Vice President, Group Finance; and Ms. Gurkiran Kaur, General Manager, Corporate Planning.
Before we begin the proceedings, I would like to invite Encik Zahid, our President and Group CEO, to deliver a short opening. Encik Zahid?
Thanks, Faisal. [Foreign Language] and very good afternoon, everyone. Thank you for making time to join us for our quarter 3 results briefing. I think this quarter presented a significant headwind for 2 of our business segment, gas and offshore. We, however, we focus on navigating challenges and are pursuing long-term growth. And please be informed that our financial performance for the quarter has enabled us to declare a consistent dividend, a term dividend of $0.08 per share, amounting to USD 86 million set to be distributed in December 2024.
I'm also delighted to share that one of our biggest projects in the group, Mero-3, has successfully delivered its first oil on the 30th of October. I know many of you are demanding and speaking and asking us about this project. And I think now we can safely say that the project is progressing well. Now we can see the next phase of the project, which is just to operate safely and maintain the asset [ as we need ].
So the first oil, we achieved on the 30th of October. And a few days later, we received the final accepted permission from our client Petrobras. As you know, I think in the last quarter, we also mentioned that the asset has been ready for quite a while. However, the issue or challenges on the production rise on the Petrobras has delayed the achievement of this oil. Now I think both parties can focus on resolving many outstanding issues on the project and we're certainly looking forward to close towards discussion and got successfully with our clients.
I think additionally, for this quarter, we signed a letter of intent with PETRONAS LNG for 2 newbuild LNG vessels on long-term charter. This is very important development, if you [ realize ] that after a long while, I think this is the new LNG vessel that we have with PETRONAS LNG. It's also consistent with our efforts and our strategic move to rejuvenate our current asset portfolio with an efficient, larger vessels that can help us to continue to deliver our financial performance sustainably in the future.
I think the other thing that I want us to highlight here, I think I'm sure you have seen the announcement that we have made with regards to the MoU that MISC has entered with Bumi Armada on a nonbinding MoU to look into the viability of a potential merger with our offshore business segment. Discussion on the proposed merger are still at a prime stage and subject to due diligence and agreement on definite terms. We believe the proposed merger presents a strong strategic rationale and we will available to address a question on these mergers at the end of this presentation during the Q&A session.
As a group, I think in summary, despite a significant headwind affecting 2 of our core business, gas and OBU, we were able to maintain consistent cash flow from operation and significantly reduced our emission level compared to last year. As a group, we are on track to deliver our 2030 emission target. And in parallel, we also able to continually taking investment decisions on new assets that will help us as a group to continue our -- delivering our financial performance ongoing. So that's what I want to say.
Thank you, and we will certainly take more questions at the end of the session. Thanks for that.
Thank you, Encik Zahid. Before we proceed to the presentation, I'd like to bring your attention to the disclaimer slide. The presentation contains some forward-looking statements with reference to our plans and expectations. The financial results could differ due to unknown risks, uncertainties and other factors that are, in many cases, beyond MISC's control.
Now I would like to invite Encik Raja Azlan for his remarks on the quarter's key highlights and the business updates. Raja Azlan?
Thank you, Faisal. [Foreign Language] and a very good evening to the investment community, analysts, the investment professionals, et cetera. Thank you for joining our third quarter for 2024 analyst briefing. As Encik Zahid mentioned this now, this quarter has indeed presented its share of challenges and achievements, which I will outline.
Despite a decline in revenue and profit for the quarter, we have retained stable cash flow, and we remain committed to delivering shareholder returns. Our significant ESG progress and strategic business milestones, including the first oil of FPSO Marechal Duque de Caxias further demonstrates our resilience and forward momentum.
During the third quarter, revenue has declined by 5% quarter-on-quarter, year-on-year due to lower revenue from the GSE Offshore segment, as was highlighted. We also recorded lower profit after tax in the third quarter, a decline of 34% Q-on-Q and 7% year-on-year. However, the year-to-date results are still stronger by 25% in terms of profit after tax. And in terms of adjusted cash flow, for the third quarter it's comparable against both the proceeding in the corresponding quarter of last year. My colleague, Encik Afendy will provide more details on the financials in the financial performance section.
We're also happy that we have been able to announce an interim dividend equivalent to $0.08 per share during this quarter. And in this quarter, we have recorded 5.23 grams of CO2 equivalent per tonne nautical mile in our GHG intensity across the gas and petroleum units, and this represents a 12% reduction year-on-year and there's no change quarter-on-quarter.
In terms of the business highlights, for the Mero-3 project, there was a delay in the first oil production initially scheduled for early August due to a technical incident involving the production risers, which was managed by the Petrobras subcontractor, and this resulted in additional operational and closing-out costs this quarter However, we're very happy that as of today, FPSO Marechal Duque de Caxias has successfully delivered its first oil on 30th October, and was finally received the final acceptance of Petrobras on the 2nd of November, recently. And we are diligently working to [indiscernible] rates as per our contractual entitlement due to this delay. This indeed marks a key milestone following the FPSO's successful journey from China in February this year to its offshore destination in Brazil in May 2024. And this certainly reflects our team's dedication and precision in executing such a complex operation. And the commencement of operations for FPSO Marechal Duque de Caxias will ensure a steady long-term cash flow to the group.
For the gas unit. During the third quarter, the gas segment's performance was impacted by lower average rates for spot vessels and lower utilization of spot vessels, and we anticipate continued challenges for the gas segment in the coming quarters as the spot charter rates show signs of sustaining softness. And this causes potential risks affecting some [indiscernible] vessels that are approaching their contract expiry, where softer rates may affect the long-term value of our assets.
Furthermore, the heightened geopolitical tensions that we see in the Middle East could also disrupt certain contractual arrangements, which may have an adverse financial effect on our gas segment. Despite these challenges, we remain focused on mitigating risks and actively pursuing strategic opportunities to mitigate the potential impacts on our operating income and with -- aligned with our commitment to rejuvenate our fleet with modern and efficient vessels to achieve our 2030 emissions and intensity targets. We are very happy that we were able to sign the letter of intent with PETRONAS LNG on the long-term provision of 2 newbuild energy carriers, which shall be built in Samsung Heavy Industries in Korea. The charter will be for firm period of 3 years from '27 onwards, and this achievement also aligns with the PETRONAS gas and maritime initiative which will bring about better collaboration between the 2 entities and also providing opportunities to MISC for growth and value creation. There will be enhanced synergy, which will help to drive the revenue growth going forward, particularly in the gas, Heavy Engineering segment as well as in relation to new energy initiatives by combining -- by leveraging on our combined strength.
Furthermore, it goes without saying that the stronger synergies between the 2 entities will also bolster our [ credit rating ] and improve our stability and positioning well as well. Additionally, the anticipated deliveries of newbuild LNG vessels in '25 and '26 for long-term charters will be expected to strengthen the GAS segment's revenue and cash flow. By 2027, the GAS segment will have in operation directly or indirectly a fleet of 29 new modern, efficient and non-steam engine vessels.
Insofar as the MHB business, it has secured a subcontract award from Uzma for the conversion works of a mobile offshore drilling unit into a mobile water injection facility, and this marks MHB's first project involving such conversion works. MHB also signed an MoU with HD Hyundai Marine Solutions to accelerate maritime decarbonization efforts, reflecting our commitment to energy transition. Through this collaboration, MHB will be HD MHS' strategic partner for green retrofit solution installation within the regional trajectory in Southern Asia. And we are also pleased to highlight that MHB continued to record profitable quarter this quarter. And year-to-date, it has recorded a profit of about USD 25 million.
With that, I end the third quarter 2024 highlights and my colleague, Encik Afendy, will take you through the financial performance for the quarter. Thank you.
Thank you, Azlan. So colleagues, I will walk through you the financial highlights for quarter 3 MISC. As mentioned, as you have heard from Zahid as well as the Chief, Raja Azlan, we have -- we are facing headwinds, so as you can see all the financial parameters that's in front of you, is showing a lower number compared to quarter 3, 2023. So lower revenue in quarter 3, 2024 versus quarter 3 2023 due to overstate revenue from Mero-3 from the Offshore business segment, coupled with the lower risk and earning days in our Gas Assets and Solutions segment. This, however, is being offset by higher revenue from our Heavy Engineering project.
From a profitability standpoint, our operating profit in quarter 3 '24 [indiscernible] time with low revenue, particularly from the GAS segment, which I mentioned earlier, right, due to the challenges from rates, especially coupled with the operating loss of the Offshore business from Mero-3, right? These are partially offset by additional [indiscernible] [ oil ] delivery as well as by our strong performance in our [ operating ] factor. The lower tax explanation [ from our ] operating profit, our CFO is comparable against the previous and corresponding quarter.
Next. Our balance sheet has not changed significantly, right? We made about $14 billion. I would like to highlight you -- bring your attention to the liabilities. So in September '24, the current liabilities has increased versus December '23, but because reclassification of a $400 million bond that is due in April 2025. Our gearing ratio has remained similar compared to those 2 figures.
Next. There's not a major movement on our cash and debt balances, and we remain to have a healthy cash balance asset quantity of about $1.7 billion.
From a business segment perspective, as mentioned by my colleagues, especially in the GAS, we do see a very strong headwind. If you look from the industry perspective, there has been the high inventory of gas and LNG in those important countries as well as the war meter, which has contributed to the softening of the rates for the spot vessels.
For the Petroleum segment, has certainly helped our financial performance. If you compare quarter 3 '24 [indiscernible], is much stronger than our quarter 3 performance of last year. On the Offshore side, the reduction in the revenue [ Mero-2 ] project, partly due of the project till end as we're nearing completion and as mentioned as well, we have, in fact, achieved first oil and final acceptance in [ Q3 ]. On Heavy Engineering, not much in this. The very much contribution was from quarter 2 was a one-off claim from our [ outlines ], right?
So that's all that I have for the financial performance. Thank you.
Thank you, Encik Afendy. Next, we will have a presentation on market outlook by Ms. Gurkiran.
Thank you, Faisal. Hello. Good evening, energy analysts. Let me take you through the market environment for this quarter. Looking at the LNG segment and in shipping side, we see that it will face the soft commissions in the coming future. And this could be influenced by the higher vessel deliveries that we see. So a significant number of new LNG vessels are expected to enter the market which may increase the supply and of course, the rates under pressure. And this is also identified by the high levels of LNG inventory in Europe which has led to lower spot rates, reducing demand for additional shipping capacity in the short term.
But in terms of spot rate trends, what we see is that the steam turbine carriers I expect to see a decline in demand and rates due to less efficiency compared to newer models. And as you can see, the stock rates for the newer models are on the higher side and this is because they're more efficient and they're expected to trend upwards highlighting a shift towards fuel-efficient, environment-friendly LNG carriers.
On the long-term outlook in terms of long-term charter rates, while the spot rates captured within the market demand and inventory levels, the long-term charter rate as far as [indiscernible] and the newer carriers, like I said, just now would be [indiscernible] due to their lower emissions and [indiscernible] as you can see, which indicates a transition in the LNG shipping industry towards sustainability. So as the LNG shipping market is adjusting to an oversupply environment, efficiency and sustainability are becoming key differentiators [indiscernible] and older vessels will face reduced [ expense and ] share.
Moving on to the next slide, what we see is that after a slow year, we expect FID activities to actually regain momentum in 2025. So we expect a new wave of new FID projects flooding the market next year. And some of these potential markets are actually from the U.S., Qatar and Africa. And they have a secured investment and contracted supply. And a lot of it also hinges on the development in the United States [ after the ] election campaign.
Next, we move on to the LNG shipping newbuild orders. The left chart shows a significant increase in new LNG carrier items. And as you can see, the order book has risen sharply indicating growing interest and investment in LNG shipping. The total order book actually grew -- the volume actually grew from -- in 2019 to 2024 as we are showcasing a fourfold increase over 5 years. And that is a steady number of deliveries, as you can see there of both the firm and speculative. But in 2029, forecasts are heavily speculated, and this actually reflects optimism and market potential. So charter deliveries are consistent, particularly from this year to 2028, indicating some stable demand from clients with dedicated needs for energy shipping. So what we see is that the rapid increase in orders are also very much aligned with the global demand for LNG and infrastructure investments.
Moving on to the next slide. As for the Petroleum segment, the [indiscernible] shipping rates for VLCC stabilized in the third quarter 2024, and this is due to the [ growing ] Asian oil demand. However, the midsized tanker rates softened slightly due to weak seasonal demand and we see a slowdown in refinery runs in the U.S. and Europe. However, the midsized tankers will continue to remain above its 10-year average. And the overall tanker outlook remains supported for the rest of the year, driven by strong growth in the long-haul Atlantic Asia trade as well as limited [ fleet growth ].
Going on to the next slide. The charter rates -- yes, the charter rates for petroleum shipping, what we can see is that the order book -- the chart shows the volume of the crude tanker on it. It declined from around 11% in 2019 to below 5% last year. And we will see -- we see that moving forward, this percentage is projected to revise the gain to just above 8%, suggesting a rebound in the order book relative to 3 size. And this 2024 uptick indicates a shift to its extensions which could impact tanker rates and the [ time ] ratio.
In terms of demolition, we do not expect a demolition rates to rise. So it will remain low over the next couple of years as charter rates remain high.
Moving on to the next slide. There is a significant upward trend in the global offshore E&P CapEx, with total expenditures expected to rise from $180 billion to $260 billion by 2028. And this growth underscores a resurgence in offshore investments after years of [indiscernible]. The complexity and high costs associated with offshore projects are leading more towards collaborations and partnerships between companies to share risks and benefits, thus facilitating a larger and more ambitious projects. So what we see is that we see a lot of joint ventures and strategic alliances that are becoming more common in the market, as companies seek to leverage each other's strength and resources.
And the next slide suggests that the newbuild awards [ all ] remain high and strong over the next 5 years, where operators are eying large FPSOs in South America and Asia Pacific.
With that, I end my presentation. Thank you. Over to you, Faisal.
Thank you. Thank you, Gurkiran. We will begin the Q&A session shortly. [Operator Instructions] We have a question from Mr. Nuur Ashman from...
I'm Ashman from AmBank. Firstly, I would say thank you to the management for committing to transparency and being very open towards...
Sorry, Ashman.
[indiscernible] seen as contentious issue. So my first question is on the announcement. Reading through the announcement...
Ashman, before you continue -- Ashman, before you continue, sorry to stop you there. Could you speak a bit louder, please?
Faisal, can you hear me now? Hello? Hello?
Can you speak louder, please?
Hello, can you hear me?
Yes.
No worries. Sorry for the mishap. First question is on the announcement. I appreciate if you can actually explain what the company is looking at because the announcement is, I think, a bit confusing because you say that you want to -- the unit will remain as listed. So it seems to imply, like I said, you're utilizing an existing vehicle here. So I appreciate if you can explain if you're looking at setting up a different venture and your -- the idea is to inject assets into the unit? Or are you looking to inject asset into perhaps Bumi Armada and make it as pure-play FPSO unit for MISC?
Okay. So that's the first question. And your second question?
Okay. The second question, since you mentioned that it's actually a share-based merger, is that a commitment that it will remain as a noncash transaction? And where share-based transaction means that you would be raising additional cash, I think investors might be concerned that there might be some share dilution post the exercise.
I mean, Ashman, thanks for the question. Let me try to answer some of it. I mean, later my colleague, Azlan and Afendy, can also -- may chip in. I think in -- to clarify on the [ structure ] is in the purposed perception of PCH a merger rather than an acquisition in our Offshore business and Bumi Armada. So it will be on the asset that we have, we'll be putting into the company. So it is a share rather than a cash transaction. So then, that's what we are currently anticipated.
So if I just could just ask one additional question. I think there are concerns that if you have to undertake Bumi Armada's liabilities onto your balance sheet, how do you rationalize that in this exercise?
I mean, there's a lot more details that will come. But at the moment, we those will be the final outcome if we decide to proceed with the transaction.
Next, we have a question from Mr. Raymond Yap.
Okay. So my question is regarding the loss at OBU. And my understanding is that it's probably because you are expensing the interest on the InterCo loan and because you have less and less construction profit, that's why the loss at the bottom line becomes very obvious. It was basically dragged down by the exposure to the interest expense. I think that will be correct. Correct me if I'm wrong. But also just now, I think I heard it was mentioned that there are some additional costs related to the delay. And so I'm not sure whether that contributed to the loss in this quarter as well.
And also, just to follow on from the same topic, there was -- I think it was Raja Azlan mentioned that there are some standby rates that you're entitled to that. May I know from which date, that you are supposed to be entitled to the standby rate?
Thank you, Raymond. Maybe I'll just try to answer first question. OBUs losses is a mix of lower construction progress during the period plus some of the operational costs being picked up because we are currently will be in dispute on the standby rates with our client, and both parties have got deferring interpretations of the entitlement date, and we will need to go through a process to argue around. Both parties have got different dates in terms of their interpretation on a standby rate.
I see. And then the delivery was delayed by 6 months because of COVID. Are there any issues or any implications for you? Or is that settled already and fully provided?
We have provided all of that in 2022, above the LAD's provision as well as the cost overruns, we'll provide it in 2022. As we close out the project, there could be certain plus and minus, which we will seal up over the next 1 quarter or so.
Okay. And just last one, just to follow on from Ashman's question. What will be Bumi Armada's -- sorry, what will be MISC's ultimate stake in Bumi Armada after the merger? And will you be obligated to make a mandatory general offer for Bumi Armada?
I think, Raymond, at the moment because we are still at the early stage we are not able to determine what the final equity percentage that we will have. We might [ usurp them ] as #1. And because of that, I mean difficult to ask second question for the time being. But the intention is that, I mean, the valuation will be confirmed and finalized in the next stage when we do a detailed due diligence on both sides.
Well, just to feedback that I think that if you end up doing a mandatory general offer for Bumi Armada, I think investors will perceive it negatively. So that's just the feedback from my side.
I understand that, Raymond. I think one of our strategic rationale for doing this is try to create a pure-play, a stronger FPSO-focused business. So that is where we see the main strategic benefit by doing the so-called merger proposal with Bumi Armada. By the end of -- at the end of the day, we will look at it, the details in the next few months on how the final transaction is going to be and whether there is a confirmed synergy benefits on both sides before we enter into any kind of binding agreement.
Maybe just to add on, Raymond. This is a merger. It is not an acquisition, so it will be structured as a merger, the pooling of benefits, the pooling of interest to create a merged entity.
I think just to answer your first question on interest on loans, you're correct, that is intercompany [ debt ] we have given to OBU. So therefore, it is interest in the [ color ] that has partly contributed to the losses for the quarter. Similar debt expectation that I gave in the last quarter as well.
We have our next question from Mr. Kong Ho Meng.
Can you guys hear me?
Yes.
Yes, we can.
Yes. Okay. Just first question for me is just to get a sense, what's the likely structure going to be because I mean you do have your major shareholders to consider, especially PETRONAS. So is it quite likely that because in the announcements, you state that the merge entity will remain listed. But is it possible that maybe a pure-play FPSO player, perhaps...
Ho Meng -- Ho Meng, sorry -- Ho Meng, I lost you in the first few bits, can you repeat your question, please for clarity?
Yes. I just want to double-check because to also consider your shareholders' interest, right, is it possible that -- I mean, you did mention that it's not an acquisition, but the -- whatever the deal is going to be, it's going to be structured, in a sense, that perhaps Bumi Armada would be the one taking on the pure-play FPSO combined and MISC will remain as the more pure gas listed player in line with what PETRONAS [ wants ] or so?
I think as I mentioned earlier, I think in the proposed merger is driven by the intention to create value via a stronger combined entity that can capitalize on the anticipated growth cycle in the Offshore segment. So the intention is that in our FPSO asset will be injected into Bumi Armada into different shares. And what is the amount, what the quantity is to be determined in the next few months.
I think what is important here is that it's a merger. And is it certainly, I mean MISC will still have a strong say in the merge entity. So I think we are -- we want to ensure that the FPSO business will -- are able to continue to capture this supercycle that we anticipate coming long because the combined entity, based on our assessment, will be much stronger, able to capitalize on the synergy that we get and in better position to compete in this segment.
Okay. Got it. So my follow-up question is regarding your so-called -- your new relationship with PETRONAS because has reclassify the segment gas and maritime segment. And I think -- I also hear whispers that, this is not a hit at you, also have a position in PETRONAS by way of being a CEO of MISC, right? So I just want to know, aside from the 2 new LNG ships that you're secured, what else is that may be new direction-wise, that PETRONAS they want to work together with you.
Yes. I think if you recall in any session before, we always talk about they do want us to monetize our investment in our Offshore business, especially on Mero-3. And what we are doing now is consistent with that to divest significant stake in Mero-3, in this case, it's the whole of FPSO business. And we want to pursue our business with strategic partners, so that in MISC as a group will not continue to take on the huge investment that we have similar to Mero-3 because we know there will be some limitation in terms of what we can undertake in the FPSO business if we are doing it as the way we are doing it now.
And the question is that, is it what PETRONAS wants9, I think in answer is -- the answer is no. Let me answer that. The answer is no. This is many opportunity for MISC. We always evaluate opportunities of how we can continue to enhance the value and monetize our investment in our assets so that we can continue to create value for our shareholders and our stakeholders.
You may invite you to -- if you recall, all these -- all the while we have been saying that we want to divest 50% of Mero, right? And we will only go into the big FPSO space with strategic partners. So this merger will be a very quick way that we can achieve many objectives in one go.
Yes. I understand on that part. But my question -- my second question was relating to what may be new between your new relationship with PETRONAS. I do know that they want to strengthen the gas value chain. So just -- yes, so I just want to understand from that angle, what could be a new growth path for you that the investors have not considered?
Yes. I think as far as our strategic focus is going to be, we just launched our whole strategy recently that we want to focus on 3 main areas. This is all about delivering more LNG with less emission. I think the first focus is -- or the first pillar is on our resilient core business. So we wanted to ensure that our core business is stronger, able to deliver what the customer wants with less emissions. So this will entail of asset rejuvenation costs and focus on asset uptime.
And then the second area is on profitable new energy. So this is the area where we are purposely getting into on 3 main areas. One is on carbon value chain, talking about the CO2, carbon capture and so on. And second is on the offshore [indiscernible] and the third one on the future fuel like ammonia, hydrogen or methanol.
And the third pillar, in particular, is about decarbonization. As a group, we have committed under our MISC [indiscernible] that we want to achieve 50% reduction on our emission by 2030 and net-zero by 2050. So to me, I mean, what our strategy and our focus areas are consistent with what we are doing now. It's all about monetizing and making sure that we will continue to enhance value across our asset classes, across our businesses so that we can continue to grow and purposely enter into this new energy segment. So that we as a group, we are successful and we can continue to [ enter ] this energy transition challenges that everyone is facing now in our domain.
Got it. Got it. But it so if you leave the Offshore aside, your existing 3 segments, GAS, [ MHE ] as well as the -- especially Petroleum will remain in -- has been a group, right? Or is there a possibility that maybe to be divested off?
I mean maybe I mean -- let me coming back to them one at a time, to merge on the FPSO business. Even though we decide to proceed with the proposed merger, MISC, we still have a substantial interest in that new entity or into the new merged entity. And so -- and because we have a significant interest in that, we will not leave it alone to -- as what Azlan mentioned, that is a bit [indiscernible] on how we're going to capitalize and push and move in this segment because we know we -- it's very difficult for MISC as a group to take on Mero-2, a Mero-3 equivalent project on our own. We always say that if we go ahead, it has to be with partners. And it has to be, I mean, with our balance sheet in mind.
Okay. Just one quick question. The extra costs that incurred for the riser problem, and those were for Mero-3, right? How much was that in the third quarter?
In general, it's about between $5 million to $7 million a months, Ho Meng.
$5 million to $7 million a month.
That's been covered by what Azlan mentioned earlier that we are negotiating to ensure that we are able to recover to get to the standby of Petrobras.
Okay. $5 million to $7 million a month since July or what?
Is around August.
Next, we have Ashman.
My question is on the LNG division, the GAS division. I noticed your revenue drop is less than the drop in the operating profit, and that implies a reduction in margins. Could you perhaps explain a bit more on what happened for the division's operating cost during the quarter? Or was there a significant sharp increase in any of [ components ], bunkering cost or fuel costs and whatnot?
And just to contextualize a bit more on the LNG division. If you could share with us what's the spot-to-term ratio for the GAS division and what was the utilization rate during the quarter?
Ashman, basically, it is really coming from the spot business. Spot business did very well last year. Last year, we managed to get very high rates, very high utilization. But because of the reasons as mentioned just now by my colleagues, the spot market has not been very good at all during these first 3 quarters.
And in terms of the split between term to spot is about 85% to [ 15% ]. 85% term.
Raja Azlan, would it be safe to say that things have normalized? Or do you expect to see some sort of recovery in the coming quarters or...
It's going to continue to be challenging, Ashman, to be honest.
Okay. And on the -- Raja Azlan, with the Petros issue coming into play, right, and Petros wanting to reroute the sale of gas towards their domestic clients in the medium term, and the current soft LNG rate environment -- soft spot rate environment, is there anything for us to look forward to for that particular division?
So Ashman, I think the -- as we are aware, we are not affected by the trust issue as discussion between Petrobras and the [indiscernible] Petros state and federal government, yes. So we -- our contracting -- our contract is very clear. When it awarded Petrobras, our parties and for vessels that we have locked in. So they have an obligation to utilize [ coastal sales ] according to the [indiscernible].
Just to get some sense. These contract obligations for these segments for contracts related to that particular area. How long is the term contract here?
Sorry, can you clarify, what area are you referring to?
The business -- the business that you're making to charter gas to clients from the -- that is related to the [ Tower ] area. How long is the term contract? Is it a 3-year horizon or is it more or...
I mean, Ashman, I think -- returning to the LNG charter that we have with PETRONAS that's serving the PETRONAS LNG complex. I think we have a number of vessels. Each of them have a different active period. In some -- because it's already started, some have the remaining like 5 years, some have 10 years and so on, depending on each of the vessels. The one that we just signed with them recently, that is for the 15 years charter period starting from 2027.
Next, we have a question from Steven Chan.
Steven here from Citi. Yes. I just wanted to ask regarding the announcement with Bumi Armada, just asking more clarity on this and maybe trying to think out loud a bit. Will this merger impact your ability to pay -- or to raise dividends in the next, let's say, 1 or 2 years? Because I'm just thinking out loud, see, because Bumi Armada, the last time they paid dividends was back in 2016, right? And now according to the announcement, you are injecting your Offshore business into -- most likely you'll be injecting your Offshore business into the merged entity, which given that your Mero-3 has just achieved first oil, you have already weathered through the entire construction phase. Why not use the cash flows now that you're getting from Mero-3 to reward shareholders and stakeholders? Why are you injecting your brand-new asset into another entity and most likely paying off their debt? Yes, I just wanted to have a clarity on this, whether or not will it impact the potential raise in dividends.
Steven, I mean, we will definitely structure this merger in a way that there is no negative impact to our dividends because our dividends to our shareholders are the reason why we exist. We are a dividend stock and the market values us based on our dividend yield. So whatever we do, that will be the ultimate test of how we conclude the due diligence as well as the valuation et cetera. Whatever it is, if we are going to do a deal, our core dividends must be sustained.
Okay. Okay. All right. Okay. Yes, that's a bit convincing. Yes. Just trying to get your input as well. You mentioned that you have always been wanting to divest 50% stake of Mero-3, try to improve your balance sheet so that you can bid for, subsequently, an equivalent -- an equally big project like Mero-3, right? I mean in terms of the balance sheet angle, how does Bumi Armada value-add to this? I mean -- because you're doing a share swap, right? You're not -- there is no cash involved. I mean -- yes, how does it value-add to your balance sheet?
Yes. I mean, again, we are going through a process to due diligence, evaluation, of structurally, right? We will only be able to answer that question. If we can structure a transaction that makes sense, yes? I mean if you look at Bumi Armada, it looks like it is in a better financial position as compared to the last couple of years, right? And yes. So those are the questions that will need to be answered in the due diligence stage.
Okay. Okay. Okay. Just a couple of more questions from me. So in your third quarter results, your Offshore business came down, the profit came down and you've mentioned this because of the lack of construction for the Mero-3, right? So given that it has already achieved first oil, in terms of earnings, why should we see a rebound in the fourth quarter?
There would be -- I mean, as we consolidate the Mero asset, the earnings and the cash flow will increase. And also the higher numbers that we see from last year was because there was a one-off insurance recovery in 2023. So that also explains the variance that you see in our segmental reporting.
Okay. Okay. All right. Okay. One last question for me. on your LNG segment, can you just roughly guide how many contracts will be expired within the next, say, 2 or 3 years?
Just one second, I mean, Steven. The next 2 to 3 years?
Yes, let's say, from now to 2027, let's say.
Probably about 10 or so.
Okay. So according to your scheduled there's 4 in 2025, 11 2023 and 2 in 2027. Just comparing the charter risk between the outgoing vessels versus the ingoing vessels, how do they compare?
I think the charter rate has certainly been consistent with the market rate when we signed the deal. So the one -- the current charter that has coming to an end, I think when we signed the deal 10 years ago, the rate was higher compared to what the market rate at the moment. But what is important is that in the new rates that we are getting, but that is basically equivalent to what the market that we need to be for that kind of vessels. And the retail is a framework that we have agreed to do a deal [ with ].
Okay. Okay. All right. Okay. Just one quick question. What's the term-to-spot ratio for your petroleum shipping for this quarter?
90:10.
We have another question from Raymond Yap.
Question on the Bumi Armada merger. Do you envision that there will be a requirement for EGM?
Yes, There will. There will be.
Yes, we anticipate that will be the case.
Okay. And then for the spot LNG vessels. In the past, you had 4. Is it still 4?
We will be having about 6 vessels next year.
Okay. Because of the expiry of the long-term charter for 2 additional LNG, so 4 plus 2, 6, yes. Okay. So in terms of the 4 that you have now, what kind of -- is it occupied? Is it working for the whole year? Or are there some months where it's not working?
I think the utilization is relatively low because the market is not supportive of the current charter. I think we are looking at around about, what, 50%, 60%? 60% utilization.
Okay. That's because -- is it because charters don't prefer this compared to the 2-stroke engines?
I think a combination of a few factors, I think thee one you mentioned is one of them. I mean, others preferred much bigger and more efficient vessels. And second, I think in the whole market during the year is relatively soft. So there's just not enough demand for LNG vessels.
Okay. But when you do actually have a charter, typically, is it 6 months or 1 year or 2 years?
I think when we -- this is difficult to say, Raymond, because depending on -- because we actually did the spot or short-term charters. So difficult to see what charter wants. For us, certainly, we want the longest possible. But realistically, if we can get between 6 to 18 months, that it is good enough for this kind of vessels.
Okay. Okay. Okay. So there are time charters, they are not voyage charters, right? So they're minimum 6 months?
Yes.
I think we have time for 1 or 2 more questions. Next will be Ho Meng.
Just want to refer to Slide 9 of your pack. You -- I mean, before this, you used to disclose nonrecurring items for your segments. This time around, are there any nonrecurring items? I think you have [ an amount ] in this [ balance ] for which segment?
We have about [ $4 billion ] impairment, which is a nonrecurring item in quarter 3 this year, Ho Meng.
Yes. For which segment, is it GAS?
For GAS segment, correct.
Okay. And other than that, are there any other major nonrecurring items?
No, no major ones that is coming.
Okay. Got it. And then one more. Okay, just for your -- you said that [indiscernible] will have early termination, right? So when would they expire again just to [indiscernible]?
So at the end of their 20 years' anniversary, if I'm not mistaken is around 2027 to 2028, Ho Meng.
Okay. But this is the original expiry date, the '27, '28?
No, this is the negotiated outcome, where we have agreed with our charter to bring forward their time charter with comp.
I see. So are you -- as an [indiscernible], they are brought forward. And then an [indiscernible] are extended...
Extended, yes. And over there, we do get the proposition -- financial proposition for the early termination.
Okay. And is it correct that [ Alam ] and [ Amana ], the extension is set until early 2028 or -- yes?
Yes, that's correct.
Okay. Okay. All right. One more question, how to explain the fact that the Petroleum segment had a drop on a quarter-to-quarter basis in terms of profit?
Sorry, can you repeat that, Ho Meng? It was the lower rates, Ho Meng, lower rate.
For the spot side?
Quarter 2. Then really quarter 3 is softer for the petroleum side. So that's why I mean it reflected the lower rates for an average for the quarter compared to quarter 2. Yes.
But I didn't expect that the drop will be this much because your export ratio is really very small, right, for Petroleum side?
You referring to revenue or the profit level?
The profit level, yes.
It's about, what, $5 million -- I mean, $6 million [ per tonne ].
Okay. Just in is also a factor in terms of the rates, the trend price?
Can you repeat that last sentence, Ho Meng?
Your lightering business, does follow that trend as well?
No, I think the lightering business is what is what we do every quarter. So there's no major impact. Generally, I think the market is just softer during this period, Ho Meng.
Okay, we have just enough time for one last question. This is from [ Mitek Goh ].
I'm [ Mitek ] from Manulife. I've got a question regarding the proposed merger. You -- Encik Zahid, you mentioned that you want to create a pure-play FPSO entity through the merger. But Bumi Armada has other businesses in there as well. So if you inject your FPSO business, how do you create a pure-play entity? I mean, does it mean that Bumi Armada will dispose of those non-FPSO businesses?
I think those are the kind of questions that we will need to assess as we go through this the next few months when we have a detailed discussion, [ Mitek ]. I think the extension is certainly we see with the transaction. The new company, the merged company will have much stronger or bigger FPSO asset. And based on what we know now, it's probably been between #3 in the world in terms of size. So I think that's what we anticipate. It's still premature, certainly, on our side to see anything what Bumi Armada wants to do with other assets that we have [ RNA ].
Would you also -- would you consider running a process of going out to the market and see who would be interested to take up maybe 30% to 50% stake in Mero-3? That would relate really to cash inflow to your business rather than having shares in Bumi Armada.
I mean we're certainly not in the process of doing this to undertake an open process. But all this one, we have been talking to any parties that are interested to work with us and to take equity in our Mero-3, and I think we have been mentioning to you in many quarters that our intention is solely to divest on our equity so that we can recycle the capital and into other businesses. And that process has gone through for a number of even -- or a number of months or years. But the feedback that we always get is that the potential investor is always asking, they want to see Mero-3 in operation and they do want to ensure that anything that is the base of doing this construction period is minimized or mitigated before they want to come in. So I think those are the things that where we can see it now. We have certainly passed that stage and that conversation is -- and we're open to any conversation with partners that want to be equity in Mero-3, yes.
Right. So given the choice, would you still prefer a merger? Or if someone, a fund would offer you some money to take a stake, would you go along with that?
I mean at the end of the day, what we're looking at how we can enhance the value and monetize our investment in Mero-3 and whichever give us the big and best value, not just in terms of potential, but are the opportunity to grow in this segment, that's what we will certainly consider. So there's no like easy yes or no kind of answer here with that.
But if, let's say, you were to take a stake in Bumi Armada, then you won't have the money to -- you're not really recycling your capital because you are not really using that -- I mean, the cash inflow to go into some other businesses.
I think this is what Azlan mentioned earlier, this is the period for the next few months. This is the period where we're going to confirm and finalize the section structure. At the end of the day, we'll make sure that we can optimize our balance sheet and ensure that there is -- we are able to benefit from this growth.
I think just to close out, and thank you very much, everyone, for taking time to be with us on this. As I said earlier, we have to deliver consistent financial performance, even though there's challenges in our core businesses, and we are continuing to ensure that we grow the company and the 2 LNG vessels that we signed, I think, is certainly a strong indication that this company wants to grow, and it's the potential [ obsession ] that we want to look at with Bumi Armada. It's another way for us to create value and monetize the asset that we have, so that we can continue to reinvest, and we purposefully in the segment that we have decided. And these are the things that I want to ensure all of you that we don't do this on a piecemeal basis. This is consistent with the strategy that we have highlighted in terms of how we're going to go and how we're going to focus our effort and deliver value to the shareholders. So thank you very much, everyone.
This concludes today's conference call. On behalf of MISC Berhad, we thank you for your participation. The PDF version of our presentation slides has been sent to the attendees of today's call and will be made available on our corporate website to sell-side analysts. Please forward a copy of your published research report with the MISC IR team for our reference. Thank you, once again, everyone, and have a good evening.
Thank you.
