MISC-Bumi Armada merger slipping away

AT the end of last year, talk of a proposed merger between MISC Bhd and Bumi Armada Bhd involving the former’s offshore business was all the rage. However, the discussions are now believed to be losing momentum.

Sources say there is a decline in enthusiasm on the part of MISC and its parent company, Petroliam Nasional Bhd (PETRONAS) with just three months remaining to complete due diligence.

“Interest has waned ... there is little engagement, at best, from the PETRONAS/MISC side,” a source familiar with the potential merger says.

“The deal may already be off the table, if not it will likely be soon,” the source adds.

In a reply to StarBiz 7, MISC says discussions between the parties and the due-diligence exercise is “in progress, and an appropriate announcement will be made if there is any material development”.

MISC and Bumi Armada entered into a nine-month, non-binding memorandum of understanding (MoU) to jointly explore a potential share-based merger of MISC’s offshore business in mid-November last year.

The deal was strategically significant for Bumi Armada, especially after the death of its major shareholder, T. Ananda Krishnan, not long after that.

Under the proposed merger, MISC would transfer its offshore business, which comprises a fleet of 12 floating production storage and offloading (FPSO) and floating storage and offloading (FSO) units to a new entity via a share swap arrangement.

While the deal could create a formidable regional player rivalling Japan’s Modec Inc, it is not without challenges, particularly when integrating the two companies’ offshore operations, assets and management structures.

With Bumi Armada’s seven vessels, the combined entry would have a fleet of 19 FPSOs.

However, limited synergies are expected between the two Malaysian FPSO players, for now at least. This is because FPSOs are typically designed and built for specific fields, with configurations tailored to the unique conditions and requirements of that location.

“FPSOs are custom-engineered for specific fields. As a result, synergy or redeployment is difficult, requiring substantial adaptation, including retrofitting, which can be time-consuming and costly too,” says the source.

He adds that opportunities where the combined entity could pool expertise are likely in new projects, such as in Indonesia where Bumi Armada is growing its footprint.

An industry player points out that Malaysia has three major players in the FPSO scene, namely MISC, Bumi Armada and Yinson Holdings Bhd, with each operating within their market niches.

“There’s an overconcentration of Malaysian players in this capital-intensive industry.

“Given the lack of overlapping capabilities, consolidation may not yield enough value to justify the complexities involved in merging operations,” the industry player adds.

Based on fleet size, MISC and Bumi Armada are ranked as the fourth- and fifth-largest FPSO lease contractors in the global oil and gas (O&G) industry, respectively. Yinson is close behind, ranking sixth.

Sources say global uncertainty due to the ongoing tariff war and the shift in the O&G market dynamics may also be causing MISC to re-evaluate its priorities.

This comes as the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) appears to be recalibrating its strategy amid its waning market dominance and the surging non-OPEC supply.

Reports indicate that OPEC+ is prepared to allow oil prices to ease into the US$55 to US$60 per barrel range, from US$65 currently, in a bid to introduce uncertainty into the investment plans of rival producers.

Notably, OPEC’s share of global output has dropped from over 40% a decade ago to below 25%, while US production has climbed from 14% to 20%.

But with its cost advantage, Saudi Arabia is positioning itself as the price setter of last resort, targeting high-cost producers to regain lost market share. If this strategy gains traction, analysts reckon oil prices will likely face continued downward pressure into the US$55 to US$60 range.

While existing contracts would remain stable due to their long-term lease structures, this development may affect future FPSO projects should upstream players curtail capital expenditure or defer some FPSO investments.                  

Locally, PETRONAS is turning cautious too and on Thursday announced that it will cut about 10% of its workforce as part of a major restructuring to reduce costs amid falling crude oil prices. The national oil company had based its budget on Brent oil prices at around US$75 to US$80 per barrel.

If the merger talk falls through, attention will turn to what lies ahead for both companies.

This is especially so for Bumi Armada, which would have otherwise been able to leverage on MISC’s stronger balance sheet.

Observers say the company remains strategic due to its assets and post-Ananda Krishnan ownership scenario.

In the first quarter ended March 30, 2025 (1Q25), Bumi Armada reported lower top and bottom lines due to reduced contributions from two of its FPSO vessels. However, its vessel contract order book remains firm at RM10.1bil with optional contract extension at about RM9.7bil.

During its 1Q25 briefing with analysts, Bumi Armada guided that the impact of the ongoing tariff war would be minimal, but cautioned risks tied to oil prices and the overall global economy.

Analysts note that the group’s upstream portfolios in Indonesia are progressing well.

Unlike peers like Yinson and MISC, Bumi Armada has adopted a different long-term objective, which is to maximise its expertise across the FPSO, energy transition and upstream sectors.

It has a head start in the floating liquefied natural gas and carbon capture space when it delivered the world’s first FPSO with hydrogen sulphide processing, the FPSO Karapan Armada Sterling II, in Indonesia.

Last year, it also surprised the market with a debut investment into upstream concessions via a strategic collaboration on the Akia block. Later, it secured the Kojo block – its second Indonesia concession.

As for MISC, the deal was viewed as largely neutral for the government-linked company, whose main business is shipping liquefied natural gas (LNG) and is one of the world’s largest operators of LNG carriers. It also transports crude oil and petroleum products through its tanker fleet.

Following news of their November MoU, Bumi Armada shares had risen on expectations of strategic upside.

However, with the broader market uncertainty weighing on sentiment, the stock has since fallen nearly 25% over the past six months to 46 sen at the time of writing.

In contrast, MISC’s share price has remained relatively stable, rising about 3% to RM7.56 over the same period.