This article first appeared in The Edge Malaysia Weekly on March 4, 2024 - March 10, 2024

Last week oil and gas company Bumi Armada Bhd announced its financial results for 4QFY2023 — and what a shocker it was. The company suffered a net loss of RM165.49 million on the back of RM622.98 million in revenue, which dragged down the year’s financial results to a net profit of RM322.06 million from RM2.13 billion in revenue.

This came as a surprise as oil prices were strong in 2023, with the benchmark Brent crude averaging US$82 a barrel.

Interestingly, the main culprit dragging down earnings at Bumi Armada was a massive impairment of property, plant and equipment of RM514.4 million in 4QFY2023, without which the oil and gas outfit would have made a stellar net profit in excess of RM800 million for FY2023.

The impairment is equivalent to about  16% of the company’s market capitalisation. 

Bumi Armada explained in a statement that the impairment was centred on an adjustment to the carrying value of its Armada Kraken floating production storage and offloading (FPSO) vessel, brought about by the impact of accounting depreciation.

With the unexpected loss in the fourth quarter, Bumi Armada’s share price shed 6.5 sen or a tad more than 11% to close at 52 sen apiece the day the financial results were announced.

The question is whether Bumi Armada should have given the market some indication or guidance of its impending half a billion impairment? 

Bumi Armada’s CEO Gary Christenson commented in the press release that its vessels, particularly the Armada Kraken FPSO, performed well during the quarter despite recognition of non-cash impairment of property, plant and equipment, which impacted the company’s quarterly results. 

“Cash generation remained robust, which enabled us to further reduce our debt. Moving forward, we continue to explore ways to enhance shareholder value, including new projects and possible corporate activities,” said Christenson. 

The impairment is an accounting treatment that does not cost any cash, yet it still gave an unpleasant surprise to shareholders who would not have expected it as, like Christenson said, the company’s vessels had “performed well”.

While there is no obligation, the market would certainly have appreciated a warning.

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