Velesto Energy back on the profit trail

PETALING JAYA: Velesto Energy Bhd returned to profitability despite the plunge in crude oil prices in March.

This came following a higher rig utilisation rate and a corporate restructuring exercise to reduce its debt last year.

The oil and gas (O&G) service provider posted a net profit of Rm16.2mil for the first quarter ended March 31, 2020, compared to a loss of Rm22.2mil a year ago.

Its revenue for the quarter jumped almost 40% to Rm176mil from Rm127mil previously.

In a filing with Bursa Malaysia yesterday, the group attributed the growth in topline and bottomline to the higher jackup rig utilisation rate of 89% as compared to 66% in the previous corresponding quarter.

Velesto owns seven jack-up rigs, of which five are being utilised.

However, the group warned that the lower demand for O&G activities could affect the group’s potential extension of its current jack-up rig contracts.

“Many oil companies globally have started to reduce both capital and operational expenses to conserve funds and prepare for the challenges in the near future.

“This has resulted in reduced activities, including in the drilling sector,” it said.

Velesto pointed out that the impact has yet to be fully felt in Malaysia, as a number of existing drilling contracts are still ongoing.

“However, fewer drilling activities are expected in the near term as oil companies review their drilling programmes.

“There is no guarantee that the options under the contracts will be exercised upon expiry of the primary terms,” Velesto said.

Nonetheless, it will continuously tender for new contracts to partially mitigate potential softening of the market, which may affect contract renewals, it said.

Shares in Velesto closed at 17 sen, higher by 3.03%.

The counter topped the Bursa Malaysia volume list following the release of its quarterly results.

In April, analysts had said that they expected Velesto to be loss-making in the next two years as it faced disruption to its operations following cuts in capital expenditure by oil companies in a cyclical downturn.

Maybank Investment Bank Research said then that the rigs market segment would inevitably suffer from the oil crisis, which had led to an austere cut in offshore capital expenditure.