PETALING JAYA: Coastal Contracts Bhd
is confident of obtaining a contract extension for the group’s Perdiz gas plant in Mexico, according to TA Research.
As one of its key takeaways from the company’s recent analyst briefing, the research house said that Coastal was currently finalising terms with Petroleos Mexicanos or Pemex, Mexico’s state-owned petroleum company, with an indicative extension duration of two to three years.
“The reason for the lengthy discussion in obtaining extension is because of a term in the contract entitling Coastal to an inflation adjustment amounting to about US$500,000 per month as the Mexican peso has strengthened around 20% against the US dollar over the years,” TA Research stated in a report on the company.
Note that the Perdiz contract is denominated in Mexican pesos.
Coastal holds the entire shares in joint-venture company Coastoil Dynamic S.A.De C.V. (CDSA), which owns the Papan and Perdiz projects in Mexico.
The Coastal group is a global integrated oil and gas services and energy infrastructure solutions provider.
Another key takeaway from the briefing was that Coastal could be liable up to US$30.4mil due to the delay penalty in achieving critical construction milestones for the Papan Plant.
“We understand the delay in achieving construction milestones is mainly due to the harsh weather conditions.
“The group is applying for permissible delay, considering that the delay is from a force majeure event.
“If application is not successful, the company is liable up to US$30.4mil.
“Fortunately, no further delay penalty is expected as the group has achieved all the critical construction milestones for the Papan project,” the research house noted.
Furthermore, TA Research said both the Perdiz and Papan plants are expected to ramp up processing capacity once Pemex drills new wells and increases the production capacity of the Ixachi field.
This is expected to materialise by the first half of the financial year 2024 (FY24).
“We are raising our FY24 to FY26 earnings forecasts by 13.6% to 20% after raising our tariff the for Papan plant in line with the revenue breakdown for Papan plant given by the management,” the brokerage said
TA Research added that it was upgrading the stock to a “buy” call with a higher target price of RM2.47 per share from RM2.37 previously.
