Very good evening, ladies and gentlemen. Thank you for participating in our third- quarter financial year 2023 analyst briefing. I am Faizan from MISC's Investor Relations team. We have with us today R ajalingam Subramaniam, President and Group CEO. R aja Azlan Shah Raja Azwa, Vice President, Finance, and Interim Vice President of Corporate Planning. Khairul Fadhli, Head Financial and Statutory Compliance, Group Finance. Ms. Kiran Kaur , General Manager of Corporate Planning. Before we start with the analyst briefing proceedings, I would like to bring your attention to the disclaimer slide. This presentation contains some forward-looking statements with reference to our plans and expectations, whereby actual results could differ due to unknown risks, uncertainties, and other factors that are, in many cases, beyond MISC's control. I would like to invite Raja Azlan for his introductory remarks on the quarter's key highlights and business updates.
Thank you, Faizan. Assalamualaikum and a very good evening to our dear analysts, both from the sell side as well as the buy side. Welcoming you again to the third quarter analyst briefing. I will take you all through the highlights, then I'll pass over to my colleagues to take you through the presentation in greater detail. Insofar as the third quarter highlights, revenue, we are reporting revenue of $726 million, which is 8% decrease quarter-on-quarter and a 10% decrease year-on-year. Year-to-date, we are reporting about $2.2 billion, which is about 1% decrease compared to year-to-date of 2022. So far as the profit after tax, we are reporting profit after tax of $86 million U.S., which is a 23% increase quarter-on-quarter and a 54% decrease year-on-year.
If we look at the year-to-date results of about $295 million, we are 8% higher as compared to the corresponding year-to-date of 2022. In terms of cash flow from operations, we are reporting $294 million of cash flow from operations for the quarter, which is a 48% decrease quarter-on-quarter and also a 22% decrease year-on-year. If we look at the year-to-date results, we have got a cash flow from operations of $1.19 billion, which represents about 30% increase compared to the corresponding year-to-date results of 2022. For the quarter results, if we strip off the one-off items, you will see that between the third quarter and second quarter, it's comparable. There were one-off items in the third quarter of 2022, which was a one-off prepayment, which was amounting to $50 million in AET.
Once we equalize for that and some additional one-off items that we incurred in the third quarter, roughly we would have got a profit of about $130 million for the third quarter of 2023. In terms of other highlights, we are very honored to announce that on the 26th of September, Marine Money has named MISC the winner of the Sustainability-Linked Deal of the Year award for Asia. Just as a recap, we raised a sustainability-linked loan of about $527 million Senior Secured Term Loan for six of our VLECs. This is a significant impact in the maritime industry, while it is also aligned with our strategic priorities for MISC 2030.
We are very proud that on the 2nd of November 2023, the Singapore Registry of Ships Forum 2023 has recognized our two new LNGCs, the Seri Damai and the Seri Daya, with the prestigious Green Ship status under the Maritime and Port Authority of Singapore Green Ship Programme. Seri Damai and Seri Daya stand as the pioneering vessels in our fleet to attain Green Ship status, making them the second and third vessel within the group, following our dual-fuel Very Large Crude Carrier, the Eagle Valence. Let's go to the next slide. Some other notable updates during this third quarter. On the 20th of August this year, AET delivered its first of three new VLCCs, the Eagle Vellore, to Shell. This is a state-of-the-art crude tanker powered by dual-fuel liquefied natural gas engines, and it's on a long-term charter to Shell Tankers Singapore.
On 30th October 2023, AET delivered its second VLCC, the Eagle Ventura, to Shell. On the 19th of September, MISC entered into a new partnership agreement with Nissen Kaiun for the sale and charter of two existing energy carriers. This is a strategic transaction for us to unlock value and maximize returns for our gas assets and to monetize and realize returns upfront. On the 22nd of September, MISC signed a Term Sheet with PETRONAS CCS Ventures, as well as Mitsui O.S.K. Lines, for a potential incorporation of a JV entity to invest and develop as well as monetize LCO₂ carriers. This is a strategic initiative under our green energy thrust, and we hope that this will yield more opportunities going forward.
On the 30th September, MISC secured. Sorry, 30th August, MISC secured an Approval in Principle from DNV for our innovative floating CO₂ storage concept that was jointly developed with Samsung Heavy Industries. This aligns with our long-term vision of safely, efficiently, and sustainably moving energy. Lastly, on the 31st of October, we entered into a heads of agreement with Coral Energy for the supply and operation and maintenance of an LNG FSU. This also is a strategic initiative to enable the longevity of our LNG steam carriers. We hope that we'll be able to enter into more of these going forward. Next slide, please. This is an update on our MERO 3 project. As at the third quarter, the project has achieved a physical completion of 91.7%. Based on accounting, we are recording about 87% percentage of completion based on the accounting standards.
We made good progress during the quarter, and we are on track to sail away during the first quarter of next year. That is an update. I'll pass over to my colleagues. Firstly, Khairul Fadhli will take us through a bit more detail on our financials, and then after that, Kiran will take us through some of the strategic updates for the analysts. Please go ahead, Khairul.
Thank you, Raja Azlan, and the investor relations team. Good evening, ladies and gentlemen. My name is Khairul. I shall walk you through the financial highlights of MISC Group for the third quarter ended September 2023. The group revenue for Q3 of $726 million was lower compared to Q2 this year and Q3 2022, largely due to lower construction revenue from the FPSO MERO. This is in line with the current phase of the project, which, as explained and briefly mentioned by Raja Azlan earlier, is already at the tail end of the construction phase. The reduction in this revenue is partially offset by the higher revenue in the Heavy Engineering segment from the new and ongoing projects. The group's PBT from operations for the quarter of $ 100 million was also lower than Q3 last year.
Apart from the lower revenue and construction gain from the FPSO MERO 3, the decrease was also due to a one-time recognition of compensation from a contract renegotiation in the Petroleum Segment last year. In this current quarter itself, we have further recognized cost provisions in the Heavy Engineering Segment, as well as in the OBU, Offshore Business segments, costs relating to incident involving one of our assets earlier this year. From cash flow perspective, we have recorded $294 million adjusted net inflow from operations. This is lower than previous quarters under review because of the one-time inflows recognized in the respective quarters as earlier mentioned by Raja Azlan. In Q3 last year, we received that one-time compensation from the contract modification, while in Q2 this year, we have received approximately above $200 million from charter prepayment for our FSU assets. This was announced earlier in Q2 this year.
Stripping off these one-time payments, we wish to reiterate that our cash flow from operations in the current quarter would have been comparatively similar to the previous quarter's cash flow from operations. Moving on to our financial position, balance sheet as of September, page nine of our deck. We have continued to show a strong financial position, with total assets as at September this year of $14.2 billion was comparable to the position at the beginning of the year. As shown here, we have improved our gearing ratio from 0.47 to 0.44 due to net repayment of borrowings during the year. In page 10 of the deck. You will also see that our cash balance remained at $1.6 billion, despite we have net repayment of borrowings during the year. As you see, lower level of debt for MISC Group as of September 2023.
Moving on to the performance in the core businesses. Page 11 of our deck. The profit from the Gas Assets & Solutions Business is comparable with the corresponding quarter, as well as Q2 this year. This is largely because the segment's profit is underwritten by the segment's long-term contracts portfolio. In the Petroleum Shipping Segment, the segment recorded lower profit compared to Q3 last year. This is again due to the one-time concession recognized last year. Shipping out this one-time gain, the segment performed operationally better on the back of contributions from the new deliveries in the segment since last year. Moving on to the Offshore Business Segment. In the current quarter, the business recorded lower construction gain and revenue from the FPSO MERO 3, again, as mentioned earlier. As briefly mentioned, the segment also recorded certain cost provisions relating to an asset incident earlier this year.
Last but not least, in the Heavy Engineering segment, despite recognizing higher revenues from the new and ongoing projects, unfortunately, the segment was affected by the cost provisions that was made by the segment in the current year. This concludes my presentation. I am handing it over to Ms. Kiran Kaur, who will walk you through the market environment. Thank you.
Thank you, Khairul. Thank you. Good evening, ladies and gentlemen. Thank you for joining us. I shall take you through the market environment of the businesses that we are in. Let me start off with the LNG shipping segment. The LNG rates are expected to strengthen in quarter four. In quarter three, what we saw was rerouting of shipments on longer routes simply because of the geopolitical situation, which has also affected the vessel availability in the market. To add, we have the winter demand that's coming up that will also definitely put up the rates moving forward. As you can see, the spot rates are currently hovering between $90,000 to $120,000 today. This means that for the gas business, we will continue to available opportunities in this segment, underpinned by the portfolio of long-term charters.
Also in the LNG segment, what we see is that there is a tight LNG shipping supply, which is expected as project FIDs outlook remain bright. These are also depending on some of the challenges that the segments foresee, such as the recession in the U.S., for example, as well as competition, and also the funding options. As you know, the green initiatives is gaining prominence before we can FID. The slow in new orders or new ordering has expanded the order book to fleet ratio to over 51%. The pace of newbuild orders has been low, in comparison to last year, for example, where we only saw 42 LNGCs ordered in January to August this year. The tight shipbuilding capacity will continue to strengthen newbuild prices, which will retain the fleet growth in this segment.
We also expect in the LNG segment that new ordering book to be steady, featuring the Qatar LNGC orders, as well as the new export projects, and not forgetting the fleet renewal programs that's ongoing. The shipbuilding capacity remains tight, with no slots available up to 2027. That's how we see the LNG segment. Moving on to the Petroleum Shipping segment. We have seen a period of softer conditions since last quarter, with the average rates declining due to the weak demand. As again, it's all based on the autumn refinery maintenance as well as the prices. This has impacted the price of market rates, sorry. The market rates are expected to strengthen moving forward from the strong Chinese oil demand, firm Atlantic exports, acceleration in refinery runs, as well as the seasonal trends for quarter four.
For this segment, we are continuing to improve the quality of our secured income and balance sheet through our shallow tanker business and asset rejuvenation with dual-fuel ship buildings. New buildings, sorry. Moving on. On the petroleum side, in terms of the utilization, we see that the Chinese utilization will remain high simply because truncated supply. The tanker fleet is likely to shrink, and this sharp decline will be seen throughout this year and up to next year as well. Despite an increase in new orders for 2023, the order book is still very much weaker at just 3.5% of the fleet. We have seen no demolition activity in the petroleum segment as of today, as there is a tight Chinese supply currently.
The Offshore Business, Asia Pacific and Latin America will drive half of the E&P spending for the offshore segment. This increase in spending is seen in the drilling and well services, as well as investments in new technologies. There will be an upward trend in the higher number of FPSO awards from this positive outlook. As a conclusion, the offshore segment remains to be positive, where oil is still very much relevant, and the demand for FPSOs is expected to stay firm in the next 12 months. With that, thank you.
Thank you, Kiran Kaur. Khairul for leading and Kiran for your presentations earlier. We will begin the Q&A session shortly.
For participants with questions to pose, please use the Raise Hand function to ask your questions. We will then read out your name, and kindly introduce yourself before asking your question. Please take note that each participant may only ask two questions for the first round. Should you have further questions, you will have to use the Raise Hand function again to ask your questions. We will now begin the question- and- answer session. Firstly, we have Ben Chin from Macquarie. Go ahead, Ben.
Hi. Good evening. Thanks for taking the questions. My first question is just around what we should think of as one-offs, particularly for the O ffshore and Heavy Engineering. You mentioned that these were cost provisions. They're probably one-off in nature. Could you give us the quantum and whether there'll be any more to come in the next quarter?
Yeah. In the Offshore segment, as my colleague mentioned just now, we had to incur some repair costs relating to an incident that we had in the earlier part of the year. These costs, eventually we will be claiming insurance for these costs. Those are for the offshore unit. In terms of the MHB, there has been some additional movement in the cost of completion for one or two of the projects, mainly because of cost escalation or price escalation within certain areas, such as the marine spread and all that. We believe that we have captured the bulk of these costs. Our efforts are focused on the recovery efforts from the client. In addition to that, there was some additional one-off tax provision that we booked in the third quarter, given certain notices that we had received from a certain jurisdiction.
For conservative sake, we have booked in certain provisions relating to those notices of assessment. However, we will be working with the industry associations to challenge some of those claims or notices of assessment.
What would the quantum be for these one-offs? Maybe you can talk them through one by one.
For the first item, I think during the quarter, the amount was about MYR 20 million. For the MHB additional cost, I think we're talking about maybe about MYR 30 million-MYR 40 million movement in the cost of completion. Whereas in terms of the additional tax provision, which we are booking in, is probably about $10 million-$12 million.
Okay. Just checking, I can't remember now, for your offshore, that will not involve any minority interest impact, right? Is that straight to your bottom line?
Correct. Offshore is straight to our bottom line. These are things that are covered by insurance. You will see the recovery coming in next year also. There's no cash flow impact other than we had to incur the cost this year, the recovery will come in next year.
Okay. That's clear. My next question is just around your oil tankers. I don't think term to spot ratio was mentioned, or maybe I missed it. Yeah, what's the term to spot ratio? The majority of your fleet now, your spot fleets, Sorry, your trading fleet, right? As opposed to maybe your DPSTs. When will the charters be rolling over? Just want to understand what pricing you're pegged to and when that will change.
For the term-spot ratio, it is now 85% term and 15% spot. In terms of the expiry of the DPST, do you have?
Sorry for that. Excluding the DPSTs, sorry.
I see. I think you're talking about the VLCCs.
The crude tankers. Yeah.
The VLCCs will be only renewing, expiring in 2027. About will be in 2027. One of them will be in the latter part of this year. The remaining four will be in 2027.
What about the Aframax that will typically be rotating back to spot? I just want to understand how much of them are still riding on the high rates that you locked in earlier this year.
Yeah, those are normally durations about one to two years.
Okay. Maybe I ask the question differently. Should we expect to see the spot ratio pick up significantly in the coming quarters? Will there be more volatility for your tanker segment as some of these Aframax come off their time charter?
I think we are quite confident that at least 75% of our income is secured, given that we have now invested in a lot of DPSTs as well as the dual-fuel environmentally friendly assets, we should be seeing at least 75% secure.
Okay, thanks. Those are the two questions from me. I'll jump back in the queue.
Thank you, Ben. Next.
Next, we have Mr. Raymond Yap from CGS-CIMB. Go ahead, Raymond.
Yes. Hi, good evening, gentlemen and Kiran. I have a couple of questions. Let me go one by one. I think for the dividends, I noticed that you dropped the dividends from MYR 0.10 last quarter to MYR 0.07. I'm a bit confused now. I was expecting the third quarter to be also MYR 0.10. Could you give us some guidance on what you're thinking behind lowering the dividend this quarter, and what do you expect the fourth quarter dividend to be?
Last quarter was basically a surprise for the market, and we need to conserve cash as well for our growth going forward. We have got a mission to deploy capital into our green and new energy sector. Therefore, we need to be measured in the way that we increase our dividends. I think for now, that's what it is for this quarter.
Okay.
I would also say, Raymond, we maintain historical dividend payouts rather than reducing dividends.
Okay. I shall treat last quarter as a special surprise for the investors. One-off special surprise. Can I say that?
That's up to you to decipher. As an organization, we are responsible in terms of future growth and balancing it with return to shareholders as well. That's the position that we take.
Okay. In terms of the taxes, which jurisdiction was this that sent you the special tax notice? Also on the shipping tax exemption in Malaysia, it's lasting until end of this year only. What do you think the position of the Malaysian government is going to be going forward?
In terms of the jurisdiction, we'd rather not say because we are actually challenging, and we wouldn't want you to write it in your analyst report. If you don't mind, Raymond, we wouldn't want to actually reveal which jurisdiction it is. Insofar as the Malaysian shipping tax, we have cited the letter from the MOF and the MOT to say that there is an extension up to another three years, subject to certain conditions to be met in 2024. We are happy with that, and we'll be working towards, or the government will be working towards meeting conditions, and we will be assisting them wherever we can.
Okay.
Probably it leads to the implementation of tonnage tax as soon as possible.
Implementation of tonnage tax. Okay. How does that work relative to income tax?
Tonnage tax is actually the industry standard globally, that all the major shipping nations, they do not charge corporate income tax. They charge tonnage tax, tonnage tax is a fraction of corporate income tax.
Okay. Assuming that Malaysia introduces tonnage tax in 2024, how do we calculate that? Is it based on a per deadweight ton basis?
Yes, it's based on the deadweight tonnage. You can see in certain other jurisdictions, it's probably 10% of what corporate tax would be.
Okay. If corporate tax is 24%, this tonnage tax is probably around 2.4%, yeah?
Yeah. It's a small number.
Okay. Sure. Okay. I've already finished my two questions, and I've got 10 more to go. Never mind. I will jump back into the queue.
Thank you, Raymond. Thank you. Next, we actually have Mr. Ben Chin again. Ben, go ahead.
Hi. Yeah. Seems like no one else wants to ask questions. I'll go again. I want to follow up on what Raymond asked around the dividends, and I want to understand this in the broader sense of your capital management and your CapEx appetite. Firstly, I believe your order book win that you sort of put out there is about MYR 1 billion per year. Secondly, you've also pointed out to us that your balance sheet is stronger. Thirdly, you say you have this, it's not explicitly progressive dividend policy, but you say no worse off than last year. What I'm trying to understand is, are you saying that you increase your CapEx appetite or there's something that you're eyeing in the near term that will require more balance sheet commitment from you?
Is it a case that you are just being conservative for a longer-term project? Also, just want to be clear, it would be helpful if you can be more explicit on the second- quarter dividend, that it's not just a special that you will aim to match this next year.
As a listed entity, we can't make for. Yeah. Let's be clear about that. As an organization, that historical dividend, we've been maintaining a certain historical dividend consistently. Our balance sheet is strong. As you would know that in quarter two, we also had one-off gain. We also balanced it in terms of what sort of balancing in terms of future CapEx and how much value that we can add on to shareholders. The decisions were a very balanced decision in that light. As far as CapEx is concerned, you also know historically what is our CapEx appetite. As an organization, we always want to maintain a fort-like balance sheet while maintaining our financial ratings, both S&P and Moody's. To us, that's very critical. It is an overall balance.
At the moment, the team is of course prospecting for both conventional CapEx plus also future-focused CapEx in being more environmentally green in our portfolio. That's the balance that we are making. We would be very careful in our approach, and we will also be looking at how do we balance our CapEx for our conventional business, our new future-focused business, which I've explained to both the buy side and the sell side previously and also in the last quarter. We stay focused on that progressive journey. That's where we are balancing overall. That would be our take at this stage, Ben.
Thanks. I appreciate you pointing to the historical track record. It's just, of course, difficult to build our forward assumptions on the historical track record, especially when your dividend behavior changed a little bit in the second quarter. If I may just follow up on that. Again, tying back to short-term sort of expectations on order book wins, right? Is the decision to hold off the CapEx in this quarter more short term or long term in nature? Just want to understand that from a capital management perspective that whether it's a bit more short term and reactive or the posture for your capital management is really going to be like this longer term, and you may need to have a stronger balance sheet for the green energy transition.
Shall I take?
I'll take it.
All right. No issues.
To be perfectly fair to everyone, we did not hold back any CapEx allocation or CapEx spend this quarter for any reason. No, we did not. Right? It's just a natural progression. You can see that in some of the slides that the team has put in just now. We have progressively put in, and there is CapExes, like for our PLNG-2 in Pengerang. There is a CapEx there. Team is progressing. We cannot dictate the timeline of when clients make their CapEx decisions in terms of the bids. It is just taking a natural progression. It is not a holding off, right? We have CapEx appetite for the right reasons, and we are prospecting in our conventional business, and we are also prospecting for our future-focused business, especially in the decarbonization field. That's what the team is doing at the moment.
We can't control the timeline of when our clients will make their decisions in the bids that we are putting in.
Okay. Thanks for that. I'll jump back in queue.
Thank you. Thank you, Ben. Next, we actually have a question from Lim Sin Kiat from Penang. The question that was put through the chat is that, we would like to know what is the MERO 3 EPCIC profit for this quarter.
As I mentioned before, for the whole project, it is going to be a low teens construction profit before finance cost. That is what we have guided. A very low teens, based on the accounting standards, the way it's calculated.
Thank you, Raja Azlan. Next is Raymond. Mr. Raymond, please go ahead with your question.
Yeah. Hi. Okay. I wanted to ask a couple of questions about the LNG segment. Two LNG vessels were disposed to Nissen Kaiun , and you're going to lease it back. Can I make a guess that you're probably making this disposal in order to manage your residual value risk, especially in relation to the fact that the environmental rules like the EEXI and CII are going to affect the steam turbine carriers a little bit more. Given that you're going to complete this in the fourth quarter, could I also understand if you are going to make a gain on disposal?
Yeah. Based on the accounting, it is going to be more or less breakeven based on the book value. This is basically part of our strategy to monetize some of our assets and redeploy the capital to some of the growth areas.
Okay. Is Nissen Kaiun buying a steam turbine carrier, or are they buying an X-DF, or are they buying the DPDF?
The steam vessel.
Okay. Captain, I don't know why you're smiling, but it's a genuine question.
Yes. You're trying to hone in in terms of which is the asset, right? Which we have not named. You're exactly right. One of the factors taken into consideration is definitely the residual value risk of the asset. Management has just to be responsible in managing that.
Okay. Sure. What's the attraction for them then? Because everybody knows that this technology is legacy and it's falling out of favor. What's the attraction to the buyer?
As far as the buyer is concerned, if you've done your research on the Nissen Kaiun , they're not a small player, all right? In Japan. Their attraction has also been in terms of wanting to partner with a reputable partner like ourselves in LNG space, and also taking positions in LNG carriers. In terms of their residual value risk appetite, we can't say what is their appetite and if there's any other future conversion that they are looking at, et cetera, which is information that we do not have. At the end of the day, it's a credible partner. It is not a partner that we have not partnered before. It is a partner that we have partnered previously in our container vessel space a very long time ago. It is reestablishing that partnership.
In terms of exactly why they are coming into this space, et cetera, we have a general idea, but that's about all that we know.
Was this transaction initiated by them or by MISC?
The proposal came from them.
Okay. It's interesting. All right. Anyway, we'll talk more about this the next time we meet, the FSU Lekas, the two FSU Lekas, I noticed that you still have it on your vessel list. Is it still contributing charter hire to your P&L this quarter? And when exactly will it be transferred over to PETRONAS Gas?
We are still the owner. It's just that they have prepaid the charter hire for the remaining period. Therefore, the profit contribution will be minimal going forward.
Okay. They prepaid from May onwards, right?
Yeah
From May onwards, basically, there was very little contribution to your P&L.
Correct.
Okay.
It helps us to realize the returns upfront now.
Okay. One last question on your LNG division. You announced recently that you're going to supply an FSU for the Pengerang LNG two. May I know when in 2025, which month exactly do you expect it to come online? Could you give us some idea what the CapEx cost will be for you? Is it very minimal, like single digits or more than that?
We can't. Yeah, quarter one 2025. In the CapEx, again, we can't give you the number, Raymond.
Okay.
This one is subject to NDA with our client.
Right.
PETRONAS is also a listed entity, we have to honor our commercial and contractual obligations.
Okay. Sure. All right. Thank you.
Thank you, Raymond. Next, we have Mr. Kong Ho Meng from UOB Kay Hian. Go ahead, Ho Meng. Ho Meng?
Hi, can you hear me? Ho Meng here.
Yes, we can. Go ahead.
Yep. Okay. I just have a follow-up question. You commented on your capital management. It seems like, unlike some other ship owners who are ordering new ships, like what you've mentioned previously, the new build prices are quite expensive now, things like that. You have been very careful. It's also being shown again in how you dished out the dividends and all. You're taking a different path, you're actually breathing new life into your expiring vessels via the sea- leased agreements and also the Pengerang FSU. My question here is, how many of your existing fleet that previously they will expire and most likely they may not get a redeployment chance. How many of them that you now see strategically that they can fulfill another sea- leased agreement or another redeployment project like that?
Would it be meaningful into future earnings forecast by way that previously they are not expected to continue on to contribute earnings? Yeah.
There were-
Right. What we've mentioned through our earnings briefing, et cetera, we've said two as far as extension of life of this asset. Because we want to evaluate it from this asset which we believe still has value. When we do that, the approach that we take is very simple. The approach that we take is, we take a very conservative approach in terms of how we try it out. Then we know that the number of assets which is falling due out of their contract in future years, that's the information which is already available to you. The team is trying to maximize value from those assets. That's as much that I can say at the moment. We do not have a definitive plan in terms of how many assets that we're going to posture and put through for the market.
We still want to evaluate each asset on its own merit before making future decisions on those assets which are falling due of contract. At the same time, we will also look at, in terms of prevailing commercial market conditions, in terms of gas is seen for long rather than short-term. If there are opportunities for us to extend the commercial life of this asset on its own merit, we will do so as well. At the moment, it is still a conservative approach in terms of how we are looking at this. We are prospecting for conversion opportunities, et cetera, for those assets, but we do not have any definitive plan as such. Firm two for the time being.
Ho Meng, do you have a next question?
Hi. Sorry. Yeah. Ho Meng here again. In terms of the LNG side. Qatar has rolled out their next phase of LNG new builds requirements. How many are you going to bid for, vessel-wise? Another question from me is, in terms of the transition and the new carbon vessels and new ammonia vessels, so forth. If the requirement for the CapEx is going to be huge for that, do you have partners to co-share the CapEx or would you consider spin-off like how PETRONAS and Gentari, that kind of a structure?
Could you elaborate, Ho Meng, on what you mean PETRONAS and Gentari sort of structure? Are we talking about PETRONAS with Gentari?
More like say that they don't wholly bear the CapEx burden of Gentari because Gentari is independent, right? In a way. Yeah.
Yeah. Understand. As far as for the QatarEnergy tender. Yes, we are bidding. In terms of number of vessels, et cetera, those are commercially sensitive information, so we would not be able to divulge that. As far as volume assets, we are also looking in terms of because we have asset rejuvenation that we need to do. Plus, we also need to look at future-focused zero-emission fuel. You know about our gas initiative on the ammonia fuel vessels. We are also looking at that area. In terms of partnership, definitely we look at partnership. If there is any credible partner who would want to come and partner at the asset level, we are looking at partnership at the asset level that we want to do. We don't need to own it all at the asset level. We welcome partnership.
That's the sort of model that we are looking.
Got it. One last question from me. In terms of the Carbon Intensity indicator, the CII, which would be effective next year, right? Have you done your studies? What would be the financial impact on your existing vessels from the CII?
Yes. We have done that. As you know, IMO have also revised their targets on CII. We have evaluated in terms of technology CapEx that we need to push on those assets. We have also evaluated in terms of contractually, how this is going to be shared with the clients and for assets on short-term charters, how the market will price it. All that has been done.
How should we see it? Is there a range of additional CapEx or likely are we seeing a missed impact from this CapEx?
There are some operational CapEx that we will need to incur, it is not very big. It is probably no more than $20 million-$30 million per year, over the next few years to cover all of the ships. In terms of the impact on operations, also it is not a very big impact as well.
Okay. Roughly $20 million-$30 million per vessel per year.
Not per vessel. In total.
I know.
Per year in total.
All right. Okay.
We have to incur dry docking, other operational CapEx and all that. For this particular item, maybe you can put MYR 20 million-MYR 30 million in your financial model.
Got it. Thank you very much.
Thank you, Ho Meng. Next, we have a question from Mr. Nashman from N Investment Bank.
Hi, everyone. Firstly, congratulations on the results. Second, my first question is, with regards to the MERO 3 project, how have you been able to meet the local content requirement? And where are you at, in that area at the moment?
As far as the local content penalty, that's something that we've already factored into all our accounting. We have visibility as far as that is concerned. There's no major movements compared to what we have advised our analyst. That's that. There's no new points per se.
Note taken. Secondly is, with regards to your energy segment, do you guys have any order book win targets for the rest of the year or for FY 2024?
Win rate for this quarter. Like we've said, we are in the process of bidding. All right? We are in the process of prospecting. We are hopeful that we will be awarded, but we don't know when and what sort of amount that we are talking about. As always, we will not breach our financial covenants. We will not go above the debt headroom that we need to maintain as far as financial ratings is concerned. We will only do it with clients who are strategic and for areas which is, number one, decarbonization, future- focus fuel. If there are opportunities for the new energy pivot, CO2s, ammonia- related ecosystem, those are the areas that we will be looking at. At the moment, we do not have visibility in terms of what that amount is going to be for the rest of the year.
Thank you.
Thank you, Mr. Nashman. Next, we have Raymond in the queue again. Go ahead, Mr. Raymond.
Okay, sure. I'd like to ask about the FPSO/FSO business. The first one is the FSO Benchamas 2. The contract is until 2028, there's supposed to be another five years. The asset was offline since, I think, earlier this year. My question is that after you repair the vessel, will the remaining five years still be intact? Will the asset be replaced totally, decommissioned? What's the outlook for the remaining charter period?
Yes, that is the intention, Raymond. It will be used until expiry.
Okay. Is it going to expire on the original Sorry, I think I was muted for a while. Okay, my question is that will the contract still end on the original expiry date in 2028, or will it continue for a couple more months since the past couple of months it hasn't been working?
Yeah, Raymond, I'll answer your question. Basically, you were asking about what is going to happen for FSO Benchamas 2. Basically, there are extension options after the expiry period in 2028. The client may choose trigger those extension options if required.
Okay. All right. Okay, that's fine. Okay, on the MERO 3, you mentioned, Raja Azlan, that physical completion is about 92%, but accounting completion is 87%. Does this mean that from a P&L point of view, you still have 13% to recognize in terms of revenues and profits?
That's right.
Okay. In terms of the sail- away date, it was supposed to be middle of next year. Is that still on track?
Yeah. Basically, it will sail away in the first quarter.
Okay
It will reach the site towards the second quarter.
Okay. When do you expect first oil?
First cash flow is towards the fourth quarter.
Okay. First cash flow means after the 72-hour test?
Yep.
Okay. All right, sure. On FPSO Kikeh, I understand that the charterer wants to replace the vessel, according to news reports. Will you be agreeable to participate in the tender there?
This is for the next renewal, right?
Yeah, I understand the FPSO Kikeh contract is actually ending in 2028.
Yeah.
I think Upstream reported that PTTEP has initiated a prequalification exercise to replace the vessel.
Yes, that's right. It's beyond that period. We are evaluating, and we have not made a decision at this stage.
Okay, sure. Last question is just a follow-up on what Ho Meng asked just now about the CII requirements. Raja Azlan, you mentioned that the CapEx is about MYR 20 million-MYR 30 million per annum for the next two years. This is, I presume, you're retrofitting some kind of energy-saving device on some selective vessels. Is that right?
That's right. Basically across the fleet.
Okay. Are these going to be retrofitted primarily on the oil tanker side or on the LNG side?
I mean, both.
Okay. Sure. Okay, I am sure that we'll have opportunity to talk more about these ESG things on 30th November.
Sure, thank you.
Okay, that's it. Thank you.
Yeah. Thank you.
Thank you, Raymond. We have one more question from the chat.
Take about five minutes before.
This one is a question from Mr. Ho Meng on the spot mix for the VLCC, Suezmax, Aframax in quarter three 2023.
Yeah, that's all.
Yeah. VLCC is 75/25, Aframax is 93/7, whereas Suezmax is 78/22.
Okay. That would be the last of the questions. I think this will take us come to a close. Our apologies again for the technical glitch.
That's it.
Yeah.
Yeah. I mean, first and foremost, apologies for the glitch just now. It's from our side. Secondly, when we look at our quarterly results, what I would say is that it's healthy performance, comparable. When you take off the once-off, operational performance is decent, comparable and healthy. The questions that you have posed to us, to me and my team, we just have to bear in mind that any available information that we provide, we have to be, as a listed entity, whatever information that we can provide, which would not make a market-leading statement that we have provided. Client confidentiality, we have to maintain. Professional sensitivity and confidentiality, we have to maintain. Especially on your questions about dividends, we always have to balance dividend returns to shareholders against future growth of the organization. I guess that's quite basic in terms of what an organization have to do.
All right? It's always in that balance. I look forward to on the ESG briefing on the 30th. Please come prepared. We have loads of information to provide you will see for a fact how much progress the organization has actually made in all aspects of our business, I look forward to our future analyst briefing and engagement. Stay safe and catch up soon. Take care. Thank you.
Thank you.
Thank you.