A very good evening, ladies and gentlemen. Thank you for participating in our first quarter financial year 2023 analyst briefing. I am Navina from MISC Investor Relations team. We have with us today Encik Zahid Osman, Vice President, Corporate Planning. Encik Raja Azlan Shah Raja Azwa, Vice President, Finance. Cik Eslin, Head of Financial Reporting, Governance and Budget Finance. Mr. Cheong Wye Kong, Senior Corporate Planner, Corporate Planning. Before we start with the presentation, 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. With that, I would like to invite Encik Zahid for his introductory remarks on the quarter's key highlights and business updates.
Thanks, Navina. Assalamualaikum and good afternoon, everyone. Welcome to MISC quarter one 2023 performance briefing. I hope you had the chance to look at the announcement that we made to Bursa on our financial performance. What we will do today is that what we have done in the past, is just to give you a bit more insight on some of the numbers and some of the business environment that we see in the last quarter, as well as potentially in the next few months. Look at the next slide. In summary or overall, MISC deliver a strong set of financial results for the quarter compared to a year ago. Revenue, profit after tax, and cash flow from operations are all showing a higher number.
This strong performance align very much with the current market environment, where rates for shipping in the short term remain high due to high demand that positively impacting the ton-miles for these vessels. We are as a group, continue to make progress in the quarter to grow the business sustainably. Some of this opportunity will underpin MISC ambitious and commitment to pivot into a cleaner asset solutions provider. If you look at the slide here, you can see that our subsidiary, MHB, working with partners to develop large-scale electrolyzer facilities in Asia Pacific. MISC is also working with partners on offshore oil and gas field decarbonization. The latest, if you can see that, the latest sustainability link financing that we did for our very large ethane carriers demonstrate MISC commitment to ESG agenda. Thanks.
In addition to that, in February, via our subsidiary MHB, secured a new EPCI contract with PETRONAS Carigali and PTTEP International joint venture or operating companies, to provide five wellhead platforms, subsea pipelines, and all the tie-in works. It just shows that MHB is able to continue to grow its order book, and that will help them to continue to grow their financial performance going forward. We also secured new customer in February that interested to deploy zero emission vessels. The MoU with PETRONAS Trading Corporation was signed in February this year for one ammonia fuel FMA tankers. These are some of the positive steps that will help us to achieve our ambitions for the 2030 and 2050 decarbonization targets. Next slide, please. I would like to just briefly touch on Mero 3.
I know this is one of the project or topics that you always have interest, and you continue to show interest in the progress of the project. Mero 3, as at quarter three has completed at least about 85% in term of physical completion at the yard. You can see the photos there. A lot of activities have taken place up to now. I think all the lifting campaigns has been completed. Now we are doing a lot of work in term of tying in to ensure the facilities is ready for the next phase. I think that's what I have with regards to the overall outlook, I mean, results in term of financial as well as business growth for quarter one.
Let's go into the more detailed presentation on the financial highlights, then later on the business highlight, where we can share with you a bit more insight on the individual businesses. Thanks.
Thank you, Encik Zahid. We will now proceed with the presentation on financial performance by Cik Eslin, followed by market outlook by Mr. Cheong.
Thank you, Encik Zahid, for the introduction section. Good evening, everyone. Thank you to the participants for joining the MISC Berhad quarter one 2023 analyst briefing. As mentioned by [inaudible] earlier, we are pleased to announce positive quarter results, which I'll explain as per the following. This is the key financial highlight. Revenue higher as compared to corresponding quarter, mainly due to revenue received from the petroleum segment, mainly due to the higher freight rates, as well as the higher revenue from the heavy engineering segment, mainly due to revenue from ongoing heavy engineering projects as well as dry docking services.
As for the profit before tax from operations was also higher compared to corresponding quarter, mainly due to the higher freight rates that I mentioned earlier, and higher profit before tax from operations from the offshore segment, where previously in the corresponding quarter it was affected by the increase in construction costs arising from the global supply chain issue and lockdown in parts of China, which affected the movement of the project personnel as well as the materials and engineering activities. For the profit after tax, it improved in line with the higher revenue and profit before tax from operations mentioned above. For the cash flow from operation, this quarter showed a strong cash flow from operation, mainly from the higher collection received from the client from the Petroleum segment, in line with the improved operating performance mentioned earlier. Moving on to slide nine.
This is our statement on financial position. As at quarter one, 2023, where we have a solid balance sheet with prudent risk management. As we can see, the assets, equity and liabilities, as well as the gearing, is more or less for what we had for the previous last financial year. Minimal movements only. Our total assets will close at $14.2 billion. Our gearing ratio remains at 0.47x , supported by strong balance position, which we can say we are better or lower than the competitors for now. For the debt composition as at March 2023, we have more fixed loan as compared to the floating, which will lead to the better rate management in view of the interest rate hike that we have for now. That's for our statement of financial position. Moving on to slide 10.
Our cash balances remains healthy at $1.4 billion, despite slight decline as compared to previous quarter due to the higher capital expenditure that we need to incur. There is minimal movement of debt balances in the current quarter. We wish to share for the earlier presentation that we secured our sustainable link financing facilities for our VLAC vessels, which bodes well with our ESG agenda. Moving on to slide 11. This is the financial performance by business segments. I'll go through one by one. I start off with the gas segment. Revenue and profit before tax was slightly lower as compared to corresponding quarter, mainly due to vessel disposal as well as contract expiry. We also took into account the impairment charge in quarter one, 2023.
For the petroleum segment, higher revenue and profit before tax recorded as compared to the corresponding quarter, mainly due to higher freight rates achieved in the current quarter for the VLCCs and MSV segments. However, the freight rates as compared to the preceding quarter were slightly lower, hence the decrease in both revenue and profit before tax that we can see in the presentation slide. Now we are looking at the offshore segments. Lower revenue as compared to preceding and corresponding segments, mainly due to lower construction revenue based on project progress for each quarter. Lower profit before tax in corresponding quarter, mainly due to the construction cost of an FPSO arising from the global supply chain issue and lockdown in parts of China that I explained earlier.
Lastly, for the marine and heavy engineering segments, higher revenue as compared to preceding and corresponding quarter, mainly due to higher revenue from ongoing projects, coupled with higher dry docking and repair activities in the marine segment. Profit before tax we can see are in line with the revenue mentioned above. However, this was offset against the unabsorbed overhead as compared to the preceding quarters. That's all from me. Thank you. Pass to Cheong for the business and market outlook.
Thank you, Eslin. On the market environment for LNG shipping segment, spot freight rates, which is represented by the blue line on the graph, continued to dip in the first quarter of this year due to weak seasonal demand. The winter was mild, inventory level was as planned, and vessel availability was high on both sides of the swath on the first quarter of this year. As for the three years term charter which is represented by the gray lines on the chart, it remains stable as charterers preferred to lock in vessels for the short-term periods. Having said that, both the spot and the three years term charter are still higher compared to the corresponding quarter in 2022 quarter one. Moving to the next slide, which is on the demand side for our vessels. This year may be potentially a record year for LNG project FIDs.
Three FIDs totaling 25 MTPA has already taken place as at quarter one this year. There's another 23 projects which is competing for FID in 2023 and may flow over to 2024. The positive outlook in FID will generate additional demand for LNG vessels. Qatar is expected to confirm 40 vessel orders under phase 2 of its LNG order this year. Moving on to the supply side on the next slide. The positive economic outlook and the EEXI and CII regulation has caused the surge in new building orders with the order book to fleet ratio currently standing at 49%. Eight LNG carriers were delivered as of quarter one, and 41 is to be delivered for the remainder of the year.
For the second half of the year, the view is the speculative orders is expected to decline due to high new build prices and fears of recession. Coming to the next segment, which is on the petroleum shipping. Next slide. Similar to LNG shipping, tanker rates has also corrected in quarter one due to weakness in the demand. OPEC latest announcement on production curbs has also impacted because it likely to squeeze oil supply in the near term. Having said that, the current rate is still relatively high compared to the past few years. The current rates are expected to be well supported by the new trade patterns arising from the Ukraine-Russian war. Moving to the next slide, which is on the supply side.
From the supply perspective, the order book is at its lowest in the history, as it currently stands at 22.5% of the total fleet. This is generally due to the higher asset prices and uncertainty over the sustainable fuels to be used in the future. The record low order book will curb fleet growth over the next two years and will push utilization of the existing fleet higher. Next. As a result of the low order book, 2024 will have the lowest deliveries in record. As for the vessels order this year, it will only be joining the fleet earliest in 2025. Interestingly, on the demolition side, there's no scrapping as of today due to high charter rates. Moving to the next slide. In the offshore segment, the market environment for offshore floaters remain positive.
Upstream CapEx is expected to grow by 12.5% this year. Half of the growth will be from Latin America and Asia-Pacific. This signals potential huge demand for offshore floaters, especially in Brazil and West Africa. 20 floaters is expected to be ordered this year. Out of the 20, six FPSOs are expected to come from Brazil and another two from Angola, despite cost inflation and rising interest rate, as the economics for those projects are still quite robust. That's what I have on the market environment for quarter one. Over to you, Navina, for the Q&A session.
Thank you, Cik Eslin and Mr. Cheong. 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. 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 Q&A session. Firstly, we have Ben Shane from Macquarie. Please go ahead.
Hi. Thanks for the presentation. My first question is around the exceptionals. I can see you've got impairments about $96, and I believe of that, $47 is from intangibles. Could you give a bit more color around what's driving the impairments in this quarter?
Thank you for the question, Ben. We did impairment for our gas vessels in the first quarter, about $10 million to $12 million. We also made an impairment in one of our startup ventures, digital ventures. That was the remaining $10 million or so that we impaired in the first quarter. This impairment of the startup ventures is what you see in the intangible asset impairment.
Okay, sorry, what was this digital venture doing? Any reminders?
There were three initiatives. One was in relation to emissions, the other one was in relation to safety, the third one was in relation to the management of spares.
Okay. Should we expect more impairment on your gas assets in the second quarter? Normally you do your impairments of your gas assets in the second and fourth quarter. Is this all clear for the second quarter?
I'm not sure whether you'll see it in the second quarter, but we expect there will still be some more in the remaining part of the year.
Okay.
Far we've taken in about $10 million. If you look at the historical trajectory, last year was unusual because there was some adjustment given the impending environmental regulations that are coming out. I think if you follow the longer-term trajectory, there should be some more, but not as much as last year.
Okay. That's clear. My second question is around the one-off payment from PETRONAS gas on the FSU. You're going to get a cash injection, if I understand correctly, about $200 over million, correct?
That's right.
Does this change your CapEx sort of new project bid appetite for this year? Will you be able to go for more projects because it will help your balance sheet? Is there anything specific that maybe you can update us on your bid book, whether that complexion is changing given this cash injection is quite significant?
Maybe I'll answer the cash flow management part of it, and I'll pass it to my colleague to talk about the future pipeline. Certainly, this will be good for our cash flow management because it will enable us to report a lower net debt over EBITDA for the whole year. This will be either deployed to reduce our debt at a time when interest rates are very much elevated, or it can serve as a war chest for future growth activities. I'll pass to Zahid to comment on the second part of the question.
Maybe, Ben, can you just repeat again the second part of the question, please?
Yeah. I'm not sure how much lead time you had on this cash coming into the company. Does this change the way you're looking at your bid book and some of your CapEx pipeline for this year? I think the message to the market you gave at the start of the year was, we're going to take it easy this year. We're digesting Mero 3. We're not going to be so aggressive, with our new orders. Does this change that, should we still expect a more subtle, a more muted news flow on new projects this year?
Ben, thanks for the question. I think you can expect the same stand that we will take as what we mentioned in quarter one. We are focusing on delivering all the projects that we have now, especially on Mero 3, and then on our subsidiary, MHB, is also focusing on delivering their order book. However, I think we also mentioned that we will continue to assess opportunities that are coming in as long as the opportunity meets our strategic objective, especially when we try to pivot the organization to a more sustainable and greener asset solutions. It will be on a case-by-case, Ben.
Thanks for that. If we can just sneak in a follow-up on that. What's the P&L impact of this one-off payment?
It is negligible because it's counted for as a finance lease receivable. The transaction will be done more or less based on the book value. There's going to be negligible impact on the P&L.
Thank you. That's my two questions.
Thanks, Ben. Next up we have Raymond.
Yeah.
Go ahead.
Yeah, thanks. Ben, your counting of two is very liberal. Yeah, I'd like to follow your example. Okay. I just want to follow up on Ben's question about the FSU prepayments. My question is, why is the Chartra prepaying it?
The Chartra has got certainly some forex management reasons why. The Chartra reports in ringgit, whereas the contract is in USD. In an environment of increasing exchange rate, there could be some adverse forex. I guess that's one of the reasons that they are doing this transaction. Far as our rationale, it helps us to quickly crystallize the project returns in a very short space of time. Certainly, this transaction was at a very relatively good project ROE.
Okay. Yeah, that's good enough. Thanks. A couple of questions on the Mero 3. You mentioned that it's more or less on schedule. Would you reiterate your guidance that the delivery will be in May next year? Also I'd like to get a sense of whether you have updated your CapEx estimate and what that number actually is. If you could remind us.
Insofar as the delivery date, all hands are on deck to still meet whatever date that we said, which we said is towards the end of the first half of 2024. That one is still intact. We have not made any further cost provisions or cost overruns or whatever for Mero 3. It is still the same CapEx estimate.
Okay. In terms of the construction revenue run rate, the first quarter only saw about $100 million in construction revenue, whereas in the fourth quarter last year, immediately preceding the fourth quarter, it was about $300 million. Should we expect $100 million to be the approximate quarterly run rate from now onwards?
No. It was slightly muted during the first quarter because of certain construction negative activities coupled with also our contract management. Because we are dealing with some of the contractors and managing some of our contractual rights. The way that we do the accounts, it is based on the input method, which is based on cost recognized. We would deliberate some of the payments that we are not paying some of the creditors or the vendors because of some of the contract management that we're trying to manage in this period.
Was there an actual slowdown in the pace of the work, or is it just that you're managing the payments to the contractors?
Partly the contract management and also relative to the fourth quarter, there was a slower progress on the ground.
I think if you notice that we have a big long holiday in China in quarter one for the new year. I think those are the things that we have some of the impact, Raymond.
Okay.
I think maybe if I can just add to that, what we have seen so far that the teams, with all the mitigation that they have put in place, have managed to close the gap on the delay on the original schedule. We are still looking at the six months that we have advised you all a bit earlier, the progress they have made is good to close the gap even further.
Is there any update on the guidance in terms of cost recovery from Petrobras or a waiver of the LDs?
No update, Raymond. Discussion is very much in progress, so I think it's a bit premature for us to give any guidance or update on the position.
Okay. Final question from me is on the construction profit for Mero 3 in the first quarter. Raja Azlan, could you give us a guidance on that, please?
Yeah, it's less than $20 million. It's between $10 million-$20 million.
Okay. That's a big gap.
Closer towards 10.
Okay. Sure. All right. Thank you.
Thank you, Raymond. Next up we have Yan Jin from Maybank. Please go ahead.
Hi. Good afternoon. Thanks a lot for the briefing. My first question is just a regular question. What's your term to spot ratios for your petroleum tanker?
I think for quarter one, we're looking at 84% term and 16% up for spot.
Can we have the breakdown for your.
Okay. VLCC, we are looking at 47%, 53% term versus spot. Suezmax is 86% versus 14% for spot, and Aframax is 96% versus 4% on spot. For the rest of the fleet that we have is all fairly on term.
Okay. Are you expecting to maintain this or will you convert more to long-term, especially in this year or the next few quarters?
I think overall for the petroleum business, I think we are looking around 75%-80% term. I think that's where we are quite comfortable in our portfolio. Between the quarter, there will be some movement on that number, Yan Jin.
Okay. The next question is on your JV. Can I know which unit contributed to the jump in earnings?
This is our JV in Vietnam. There was a contract extension, that is the main contributor to the jump.
Can we expect the same level for the remaining of the year, or it's just a seasonal?
Yeah, that was one-off nature.
Okay. It won't be the same level for the next quarters?
It won't.
Okay. What kind of expectations can be or what kind of earnings can we expect from your JVs? Is it going to be flat year-on-year or?
It should be a lot better than last year, last year, our Brazilian JV had incurred a lot of repairs, and that really brought down the numbers. If you strip that out, you can probably work out what would be the profits that we can recognize in JVs.
Okay. Is it going to be in the black or will it still be loss-making? If we strip that out, I will assume it's going to be.
Yeah. That was a negative number last year.
Yeah.
It should be black.
Okay, got it. That's all from me for now. Thank you.
Thank you, Yan Jin. Next up, we have Ho Meng. Please go ahead.
Hi. Thanks for the call. Several questions. Just to follow up. Maybe I didn't hear all the information. The JV and associate line, right? Can you explain or maybe explain again, why it is so strong in this quarter? Or if there's any one-off items, how much is that?
One-off item. Is that right ?
Go ahead. Yeah.
The JV and associate line.
Yeah.
It's about MYR 10 million-MYR 12 million, around there, in the first quarter. The one-off item.
In US dollar?
That's right.
For what project?
For the Vietnamese JV under the offshore business?
It represents an extension, is it?
An extension, you're right. Contract extension.
Okay. Related to that, I recall there was an incident in the Benchamas FSO . What is the update on this FSO? I think if I hear correctly on the update on the FSO, it is going to be idle for a while. Can you confirm that? How does that impact your earnings from this particular FSO?
Yeah. This is a very unfortunate incident where during a routine maintenance, seawater entered into the engine room and unfortunately resulted in some casualties there. However, there is no impact to the environment or sea life. Work is underway to remove all the water out from the engine room, and we are currently cooperating with the charterer as well as with the authorities in terms of coming to the conclusion on this incident. Yes, you're right. Production has been temporarily suspended. There will be some commercial impact. We are in discussions with the charterer. Whatever it is, we do not expect the impact to be very material.
I see. I want to double-check on this, if I'm not mistaken, PTT actually told their investors that this FSO will be idle for at least 9-12 months. Assuming if this is true, this 9-12 months impact, do you need to recognize the impairment for that? And on financial-wise, will you still earn lay-up rates or something like that for this particular situation?
Yeah. There could be some impact to the off-hire. As I said, it is not going to be material to our accounts. It is going to have no greater than MYR 10 million impact.
Okay. Just to quickly move on to my next question, the impairment for the gas vessels, that MYR 10 million you mentioned earlier, how many vessels is that represented?
It's about five or six vessels.
Five to six. Okay. The prepayment for the regasification of [Pulang] right, what is the forward rate that is locked in when you concluded this prepayment?
No, the transaction is done in USD.
Yeah. Yes. How much ringgit does that translate to?
No, they will settle in USD. Therefore, there's no impact to us because our functional currency is USD.
On the P&L impact, there won't be much P&L impact, right? For whether it's a gain or loss.
Negligible.
Negligible impact to the P&L because as I said, the transaction will be done close to the book value. The book value is a big number because of the finance lease accounting, where we discount it at a low discount rate.
To double-check on Mero 3 again. If we talk about construction profit during the first quarter, how much is that again for the first quarter alone?
As I mentioned to Raymond just now, it's between $10 million-$15 million.
$10 million-$15 million. Okay. Just to check on the refinancing that you have recently done for the VLAC. I think it's mentioned there because it's a green financing. If you achieve some sustainability targets, then you will get rewarded with some discount on the interest rate, something like that. Can you share, what is the KPI like? Is it on the project only, or is it on the MISC as a group level?
Yeah.
How do you monitor what you are seeking?
It is not on the project alone. It's on the gas vessels. Emissions relating to the gas vessels.
Right.
That is one of the KPIs. Another KPI is in relation to governance, where if there were to be some governance KPI to be breached, then it will trigger the thing.
Governance will be on the group level.
Correct.
This KPI.
That's right. The emission on the gas side, whereas the governance on the group side.
Okay. Right. What kind of range of interest rates, assuming if whether you achieve the KPI or whether you penalize on the KPI? Yeah.
This one is not much. I think the kicker is between 5- 10 basis points.
Sorry, say again.
The incentive.
Yeah.
Is somewhere between 5- 10 basis points.
Oh, I see. Okay. Thank you. That's all I have for now.
Thank you, Ho Meng. Next up, Raymond, please go ahead.
Hi, yes. Okay. Zahid, I think just now you mentioned that for Suezmaxes, the term portion is 86%. Do you count the 17 shuttle tankers as term or not? This 86% refers to just six Suezmaxes or refer to six plus 17 including the shuttle tankers?
It includes all of them.
No, I think our DPST is separate. DPST is 100% term, Raymond.
Okay. 86% just refers to the six Suezmaxes.
That's correct.
Operate on voyages. All right. Okay. I want to ask a bit about the LNG profits. I think in the first quarter, the LNG profits came to, let me see, $61 million. I think if you average out last year, the average quarterly LNG profit was about $71 million. $61 million seems a bit low. I do understand that you disposed one vessel, but at the same time, you did take delivery of two vessels, the Seri Damai and Seri Daya, on the 31st of January. I think the quarterly performance for LNG seems a bit on the lower side for me.
Yeah. Overall, the earnings this are lower, notwithstanding the deliveries there. There have been one or two assets which have been laid up for a couple of months, that have also contributed towards that.
What are those assets?
Those are the Puteri Satu class.
Okay. Why are they laid up? Because the contracts are still in place, is it?
No, the contract expired in January. They were laid up.
You're talking about the PUTERI INTAN SATU?
PUTERI INTAN SATU is sold. This is another, Puteri Delima Satu, hang on a second.
Oh, I see. You mean the contract ended in the first quarter?
That's right. In first quarter. In January, actually.
Oh, I see.
Also, the new vessels. The second vessel, one of them started operations only in late February, whereas the second one only started operations in April. You can't really see the impact in the first quarter.
All right, I see. Okay. Just talking about expiries, Raja Azlan, could you give us a sense of how many? Well, one contract already expired in January, as you mentioned, the Delima Satu. How many should we expect for the rest of this year and next year?
One. You guys have those there?
Based on the data we have here, it will be two vessels this year, three vessels in 2024, Raymond.
Okay. The two vessels this year is inclusive of Delima Satu or excluding?
I think the two vessels, we're looking at Puteri Nilam Satu and then [Letici]. They are exclude the Delima Satu.
Okay.
Talking about how many more, right? We are talking about two more this year.
Okay. Given that the Delima Satu has been laid up, does PETRONAS intend to reimburse it and re-charter it? Are they happy to let it go and then leave you to decide what you want to do with it?
I think the vessel has ended its long-term charter with PETRONAS. At the moment, MISC is considering what options available for the vessels. I think the discussion with PETRONAS is no longer on the table. They concluded, and they decided not to progress with chartering the vessels.
Okay. PETRONAS still has LNG cargoes to export. How are they managing that? Are they using spot LNG charters?
I do not know, to be honest with you, Raymond, how they decide. From what we understand is that within the current portfolio of LNG vessels that they have, they're still able to move the LNG cargoes that they have. I think we also know that they have gone to the market on a shorter basis to charter additional vessels also.
For the Nilam Satu and the additional three expiries next year, do you expect that the same situation will prevail as for the Delima Satu, as in PETRONAS will just let it go and not re-charter it?
We do not know, Raymond. The discussion is ongoing because there are a lot of factors that will come into the picture, whether the decision to extend or not. One of them is what alternative they have, whether the vessel continues to meet the emission requirements, and what kind of refurbishment that we need to do to the vessel so that it can continue to trade for the longer term. Those are the elements that we are discussing with PETRONAS, Raymond.
Okay. Just a final question, Zahid or Raja Azlan.
Sorry, Raymond, let me just say. You remember, if you recall, that we also mentioned that the extension of the contract is only one option that we're looking at, but we're also looking at alternative usage for these older vessels in terms of converting it into floating storage unit and then so on.
Yeah. Okay. Are there any developments in that regard that you can share at the moment?
The other options for us for this vessel, not yet. We certainly have been working on a number of opportunities, and certainly one of them is quite promising. I think for now it's a bit premature to say anything, Raymond.
Okay. Just one final question from me. The three LNG expiries next year, Raja Azlan, could you share the names of those vessels, please?
Next year?
Yeah.
We have got the small-scale Proto Venere. That is already 25 years old. We've got Zamrud Satu and Firus Satu.
Okay. Yeah, I got it. All right. Thanks so much.
Thank you, Raymond. Next up, Ben, please go ahead. Okay, Ben.
Sorry. Raymond asked the question that I wanted to ask. Thanks.
Okay, sure. Raymond, your hand is still raised. Do you want to ask something? Okay, thank you. Ho Meng, yes, please go ahead.
Hi. I'm a bit surprised on the Delima Satu because in your fleet, you have the Delima, which is older than Delima Satu, but Delima is still working, I believe. How does PETRONAS manage the fleet of the LNG tankers, because I would assume that the oldest one would get retired first. Yeah, can you share a bit on that?
Sorry. You're saying that the Delima Satu. I think what we mentioned to you is according to the end of the charter for each of these vessels. It's based on that sequence, Ho Meng.
Okay. For the Delima, right, the Delima itself, the charter is still ongoing, is it?
Delima Satu, yes, it is still.
Delima.
Delima.
This is Puteri Delima, not Puteri Delima Satu, right?
Yeah, Puteri Delima, which is older than Puteri Delima Satu, actually.
I know. I think for the Puteri class vessel, the Delima, Nilam, et cetera, at that time when it reached the 20-year charter, we managed to agree with PETRONAS on the extension for another five years for all the vessels. As I've mentioned earlier, when we agreed to extend the charter, we also agreed what kind of a capital investment that we need to refurbish the vessel so the vessel can continue to trade. Unfortunately for the Puteri Satu class, so far we're not able to do that. There are a number of reasons because especially now, the regulation with regards to emission and competition with much more efficient and environmentally friendly vessels are a lot tougher, Ho Meng. There's many factors to it.
That's why we are focusing our effort also to find alternative usage, rather than to trade the vessel, but reuse it and convert it into something else.
I see. For Delima Satu, is it earmarked for disposal or you are still keeping it for potential, like what you mentioned earlier, to redirect to other kind of project? It could be floating storage or whatsoever. Or do you plan to dispose it?
No, I think that's the option that's heavily been discussed at the moment, Ho Meng.
Okay, I see.
For us, the option to dispose is always the last option that we want to take. Because if we can find alternative usage that can provide better value to the company, we certainly want to pursue that before we decide to dispose it.
Got it. Just one last question from me.
We lost you, Ho Meng.
Including the part for Mero 3 that was parked under the operating cash flow, but if you consider that as CapEx, right? Let's say in your Bursa announcement, in your investing cash flow, your CapEx is MYR 1.2 billion. So far, the working capital incurred for the FPSO is around close to MYR 700 million. Can we safely say that your total CapEx related to all your projects for the first quarter itself is close to MYR 2 billion?
Yeah, you are right.
Okay.
We adjust the cash flow for management reporting purposes, where the FPSO CapEx, we add it back. You should treat that as CapEx.
Then under your capital commitment paragraph in the Bursa announcement, the amount of MYR 1.8 billion versus previous quarter was MYR 2.2 billion, is for the capital commitment for the FPSO, I think. So that MYR 1.8 billion is the remaining CapEx outstanding for this Mero 3?
Yes, you're right.
Okay.
Which need to add it back.
Okay, got it. All right. Thank you.
Thank you, Ho Meng. Next up we have Lucas Tan from AmInvest . Please go ahead.
Hi, Lucas here. Thanks for the presentation. I have two questions on Mero 3. First, I remember you mentioned last time that you were considering this mitigation plans to switch the topside fabrication integration parts to other shipyards. Are you still considering this plan? My second question is, what are the current stage of construction for Mero 3? I just want to know the progress update on Mero 3. Thanks.
Yeah.
Okay.
Basically, we keep that option open because when we came up with the option last time, the pandemic and the lockdown in China was a big risk, but now it is no longer a big risk, right? For whatever it is, we still have an option to move the tail end of the activities to another yard, and we keep that option in case we need to do so.
I think in term of the physical progress, Lucas, I think I mentioned earlier, I said end quarter one, the physical progress is at 85% completion. Up to now, we know all the lifting campaign for all the big topside modules has been completed. All these modules will be on top of the vessels. Now it's all talking about the integration and so on, cable pulling and stuff like that.
Okay.
I think we show some of the photos in our presentation. I think we need [Anuar], can you just go back? You can see here how the vessel look like now. It doesn't look like a vessel anymore. It look like very much a floating oil and gas infrastructure there.
Okay. For the alternative shipyard, I assume you still need to notice the ship builder in advance, right? That they can prepare the yard for the switching of topside integration works.
Yeah. Certainly, you are right. There is a narrowing down mechanism for us to go and work with the yard to narrow down if we decide to so call send the vessel to the second yard. We are still at that stage. We still doesn't need to really confirm whether to go ahead or not. Having that option really help us in ensuring that if anything happens or anything situation in China change, at least we can use these options to complete the project as per plan.
Okay. I see. Okay, got it. Thanks.
Thank you, Lucas. Our last question. Raymond, please go ahead. Okay. It's Ben Shane now, please go ahead.
Sorry, Ben. Can I just jump in? I forgot to unmute myself. I just want to ask about the 5-10 basis points change in the financing costs under the sustainability-linked financing. Is that a 5-10 basis points uplift in the interest rates or 5-10 basis points discount if you achieve certain metrics?
I believe it's an uplift if we do not achieve the KPI.
Thanks. Over to you, Ben.
Thank you, Raymond. The last question will be from Ben Shane. Please go ahead.
Hi. The question I'm going to ask is a bit circumstantial, but it sounds like you have some issues with some of your contractors, which is why you're withholding payment. At the same time, you're also dangling this potential move to another yard. Are you having some operational issues with execution on the ground? How significant are these issues? Are these sort of more BAU contractual disputes or? Yeah, I just want to understand because individually these don't sound that bad, but collectively it sounds like you have some sort of more significant issues with Mero 3.
Yeah. There's two things here, Ben. Number one is basically trying to mitigate the risk of the lockdown in China. That is the option that we have on the second yard. Insofar as our contractual discussions with our vendors, you'll notice that we have made a huge additional provision in the first quarter of last year. Basically, we have gone ahead to make those provisions, but at the same time, some of these provisions are related to our vendors, and we want to ensure that they also take their part. Now we are in the execution mode of trying to manage those contracts. It really is linked back to the additional cost overrun that we booked in last year.
If I can just add to what Azlan mentioned. COVID really affected negatively the global supply chain. Some of our vendors having problem to deliver their goods and services according to the timeline that we have. That overall has impacted our own project schedule. From the contract side, I think we are just being prudent. Instead of paying everything, we also want to withhold some of this payment for the LD, liquidated damages, because of delay claims. In a way that we are bringing with our vendors, our suppliers. At the same time, we are also in a time to recover some of this delay from the charters. I think we mentioned earlier the discussion still ongoing with Petrobras.
I don't think there is issues on the supply chain and program other than the one that is caused by COVID-19 and as well as the war in Ukraine that affected everyone in that chain.
Okay, this is sort of like an ongoing hangover from previous issues. Nothing new, right? It's nothing incremental here for us to worry about.
Yes. That's how we read it here, Ben.
Okay. All right. That's clear. Thanks.
Thank you, Ben. This concludes today's conference call. On behalf of MISC Berhad, we would like to 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 in our corporate website. To the sell-side analysts, kindly forward a copy of your published research report to the MISC Investor Relations team for our records. Thank you once again, everyone. Stay safe and have a good evening.
All right. Thank you, everyone. Take care. Bye-bye.