Norway’s Nexus Plunges on Philippine Contract Risk

Transocean, the world’s largest offshore oil and gas driller, said on Monday January 12, 2009 it had cancelled a contract with Burgundy Global Exploration Corporation because the Philippines oil exploration firm did not post escrow.
Transocean’s cancellation raised doubts about whether Nexus’ preliminary deal with Burgundy to provide services for a project off the Philippines would be confirmed.
“I’d be surprised if the contract is made firm,” Carnegie analyst Frederik Lunde said.
Nexus said last July it had a letter of intent from Burgundy for a seven-year job worth about $800 million to provide a floating production, storage and offloading (FPSO) vessel for the Camago Malampaya Oil Leg project, where Burgundy has an 84.9 percent interest.
“The status of our agreement with Burgundy doesn’t change, but we will try to see if this (Transocean’s cancellation) has implications,” Nexus Chief Financial Officer Arild Baardsen said.
“It was as surprising for us as for everyone else,” he added.
By 1320 GMT shares in Nexus traded down 38.8 percent to a life-low of 12 crowns, leaving the company with a $33 million market capitalisation.
Nexus said it had expected the Burgundy letter of intent to be firmed up as a contract in the fourth quarter.
“That was our plan and presumably Burgundy’s as well, but we have not succeeded. We’ve had a dialog, but that was before the Transocean release,” Baardsen said.
Nexus Floating Production, located in Singapore, has ordered two FPSOs from Samsung Heavy Industries in Korea.
The first FPSO is set for delivery in June, but the second has been postponed to late 2012 with an option for Nexus to terminate the contract due to the global financial turmoil.
Under the deal for the first FPSO, Burgundy was granted a right of first refusal which allowed Nexus to continue promoting the vessel in the market.
“It’s clearly a source of uncertainty for the company that the ship has no agreement for employment at the moment,” Baardsen said.
“We knew there was risk with the letter of intent, but we are quite free to pursue other options. We’re interested in getting revenue on the ship as soon as possible,” he said.
Shares in Norwegian oilfield services company BW Offshore, which owns 49.7 percent of Nexus, fell 3.9 percent against a 2.0 percent drop in the Oslo bourse benchmark index, giving it a market cap $324 million.

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