Velesto to gain from new Carigali rig contract

by S BIRRUNTHA / pic credit:

VELESTO Energy Bhd’s recent contract win from Petronas Carigali Sdn Bhd for its Naga 2 rig is mildly positive for the upstream rig operator and owner.

Hong Leong Investment Bank Bhd (HLIB) has thus maintained a ‘Buy’ call on Velesto with an unchanged target price of 18 sen.

“We understand that utilisation is generally low for jack-up rig players in the first quarter annually due to two key reasons, namely the monsoon season from December to February and clients’ capital expenditure planning cycle.

“Therefore, we are mildly positive on the job win as it will keep Velesto’s Naga 2 rig occupied until at least end-April 2021, with the possibility of further extension for another one plus one months,” HLIB analyst Jeremie Yap wrote in a research note yesterday.

In a Bursa Malaysia filing last Friday, Velesto stated its indirect wholly owned subsidiary, Velesto Drilling Sdn Bhd, has received a contract from Petronas Carigali for the provision of jack-up rig, namely Naga 2.

Under Petronas Carigali’s drilling programme, Velesto will assign its Naga 2 rig to drill five firm wells, with the extension option of one plus one well.

The contract is expected to commence from Dec 1 to 31 this year.

Velesto stated the provision of the rig services is expected to contribute to the group’s earnings and net assets during the contract period for the financial year ending Dec 31, 2021.

Based on the new contract value, HLIB has not made any changes to Velesto’s earnings estimates.

The investment bank expects Velesto to record better earnings in the second half of 2021 (2H21) after recording a weak 1H21.

“This was given its improved utilisation rates for its rigs, in which its blended utilisation rate in 1H21 stood at 33%,” he added.

Velesto shares were last traded at 14.5 sen, up half a sen for the day.