Velesto expects challenging year as 4Q hit by impairments

At present, the group is continuing to tender and negotiate for new contracts for 2021 and beyond

by HARIZAH KAMEL / graphic by TMR

VELESTO Energy Bhd expects its financial performance for 2021 to remain challenging due to the slow pace of recovery in the global economy and the oil and gas industry.

This comes as the rig owner posted a net loss of RM493.3 million for the fourth quarter ended Dec 21, 2020 (4Q20), due to RM460.6 million in impairment provisions on its rigs made in the quarter.

In a bourse filing yesterday, the company stated only two of its seven jack-up drilling rigs are currently working and another rig is scheduled to commence a three- year contract in Malaysia-Thailand Joint Development Area by early April 2021.

“Two more rigs are being mobilised to start contracts in offshore Malaysia in April and May respectively. At present, the group is continuing to tender and negotiate for new contracts for 2021 and beyond,” it said.

On its oilfield services segment, it said the demand for workover and plug and abandonment activities is improving in line with Petroliam Nasional Bhd’s Activity Outlook 2021-2023.

The group is currently bidding for a number of available contracts being floated, while a gradual recovery in demand is also seen for its oilfield services operation in China.

Velesto’s 4Q20 revenue declined by 44.38% year-on-year (YoY) to RM99.1 million due to lower activities in both the drilling and oilfield services segment.

The group reported RM484 million loss before tax in the current quarter against the corresponding quarter’s profit before tax of RM14.6 million due to the impairments, as well as the impact from the volatility in oil prices and global economy and compounded by the Covid-19 pandemic.

The loss before tax includes foreign-exchange (forex) gain of RM14.2 million and additional expense for Covid-19 of RM1.7 million.

The drilling services segment registered a 42.3% decrease in revenue to RM95.7 million in the quarter, mainly due to lower average jack-up rig utilisation of 50% compared to 86% in the corresponding quarter.

The oilfield services segment recorded a 75.2% decline in revenue to RM3 million in the quarter due to lower revenue from workover services resulting from lower utilisation of hydraulic workover units in the current quarter.

Despite the lower revenue, the segment recorded lower loss before tax of RM900,000 against RM1.3 million reported in the corresponding quarter due to reversal for overprovision of accruals of RM1.1 million made in the current quarter.

Velesto’s other segments, which include corporate expenses, recorded higher loss before tax of RM10 million in the current quarter against RM8 million previously mainly due to higher forex loss by RM1.7 million.

For the full financial year, Velesto made a net loss of RM491.7 million or loss per share of 5.99 sen on RM546.9 million in revenue.