SBM Offshore - Petrobras contract finalised

Today, SBM announced that contracts have been executed with BM-S-11 subsidiary Tupi BV the 20-year charter and operation of the two FPSOs: Cidade de Marica and Cidade de Saquarema (formerly known as Lula Aand Lula B). The FPSOs will be owned and operated by a JV owned by affiliated companies of SBM, Mitsubishi Corporation, NYK, and QGOG, in which SBM will hold 56%. Delivery is scheduled for end-2015 and early-2016, as previously indicated. Total (38,6 EUR, 0,26%) capex for the JV is circa $ 3.5bn.

Our view:
The sole surprise is that SBM will have 56% in the JV, compared to preliminary indications of 70%.

Modest impact on fair value:
The lower than expected stake in the JV has a small negative impact on the fair value. This, however, is countered by the fact that we learnt during a recent analyst teach-in that finance lease sales during the construction phase are not entirely phantom sales: the minority partners in finance lease projects actually do pay SBM’s Turnkey division for their share of capex during the construction value. With hindsight, earnings-capacity for Turnkey Systems was understated in our SOTP-model. As we have only one year of historic data (2012: $ 599m understatement), we are waiting for more historic data so that we can adjust our model accordingly with a more reliable estimate. We have adjusted the stake in the new FPSOs to 56% (from 70%) and we have raised valuation for Turnkey Systems’ earnings capacity by lifting its sales capacity a by preliminary $ 300m. On balance, the fair value in our SOTP-model remains unchanged at € 18.