MISC Annual Report 2018

MANAGEMENT DISCUSSION & ANALYSIS OFFSHORE BUSINESS RISKS & IMPACT KEY MITIGATION A volatile oil price environment could adversely impact the offshore industry. Final investment decisions for new offshore projects could be delayed or cancelled. Lower oil prices could also lead to early termination of contracts or renegotiation to reduce charter rates • Intensify global footprint by capitalising on growth in deepwater floater projects • Pursue organic and inorganic growth opportunities • Continue close engagement with potential clients for competitive edge thus ensuring business continuity Inability to secure sufficient future projects to sustain and grow our business • The business development team of Offshore Business is in constant engagement with various oil majors in anticipation of opportunities for new business MISC has close to 10 years of experience in Vietnam’s offshore development through its joint venture with PetroVietnam Technical Services Corporation and currently operates two floating assets, namely the FSO Orkid and FPSO Ruby II . In addition, the segment concluded a sale-and-charter agreement to purchase FSO Mekar Bergading from Hess Exploration and Production Malaysia B.V., a subsidiary of Hess Corporation. The FSO was leased back on a bareboat charter basis for a 16-year period. The year also saw the extension of charter period for some of MISC’s existing assets. FSO Angsi obtained a one-year extension until August 2019 whilst FSO Orkid ’s primary term was extended until 31 December 2027 effective March 2019. The FSO Benchamas 2 project between MISC’s special purpose vehicle MISC Offshore Floating Terminals (L) Limited and Chevron Offshore (Thailand) Limited was successfully delivered in the first half of 2018 and commenced its 10-year charter hire and operations and maintenance agreement in April 2018. In line with our strategy to pursue organic growth and build strategic partnerships, we have been - and continue to be - active in Brazil where we participated in the Buzios 5 tender which provided a platform for the segment to fully understand requirements in Brazil. In recognition of our commendable occupational safety and health processes during the previous year’s operational performance, FPSO Bunga Kertas was awarded with a Gold Class 1 Winner under the Occupational Safety and Health Awards category by the Malaysian Society for Occupational Safety & Health in 2018. MOVING FORWARD Going into 2019, the outlook for the Offshore Business segment remains positive. Industry experts and various reports forecast more than 290 greenfield projects globally are expected to reach FID in 2019. This is a contrast to only 67 FIDs for greenfield developments in 2016, the lowest annual record posted since the oil price crash in 2014. In the FPS market, assuming an average annual oil price between USD70 to USD90 per barrel, more than 150 new projects involving FPSO, FSO or MOPU facilities are forecasted to come on stream in the next 5 years. Moving forward, the Offshore Business segment aims to establish ourselves globally as a leading deepwater FPS solutions provider. Our focus will continue to be offshore Brazil, where a sustainable reservoir of FPS opportunities were identified, while we remain open to offshore opportunities in Asia Pacific, West Africa and other areas located offshore Americas. HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 109 MISC BERHAD ANNUAL REPORT 2018 108