The Star Malaysia - StarBiz

Velesto buoyed by new Hess contract


PETALING JAYA: Velesto Energy Bhd has plenty of work lined up for next year after winning a new contract last week, while it still renegotiat­es its two-year umbrella contract daily charter rate (DCR) with PETRONAS.

Velesto last week won a new contract from Hess Exploratio­n and Production Malaysia BV worth Us$135mil (Rm619mil), which will bode well for the group.

The work lined up for next year could help it achieve a minimum utilisatio­n rate of 70% to 80% if all the available days are filled.

It is also seen as a potential re-rating catalyst with strong upcoming third quarter 2022 (3Q22) and 4Q22 financial results, said CGSCIMB Research.

The new contract from Hess is for an integrated rig, drilling and completion (I-RDC) work scope for Hess’s North Malay Basin Full Field Developmen­t Campaign, in offshore Terengganu.

Velesto will use the Naga 5 jack-up rig (JU) for the drilling portion of the contract, which CGSCIMB Research expects to last one-and-a-half years from late-october 2022 to late-april 2024. The I-RDC contract is significan­t for Velesto for three reasons, said CGS-CIMB Research.

The JU contract is its first long-term contract since the three-year Carigali-hess contract in 2019.

The rate being paid for the daily charter is significan­tly ahead of its own average. The contract is the first for Velesto where it is taking on the role of project manager to manage other contractor­s, in addition to Velesto’s own drilling services for those 14 wells, it said.

Based on the developmen­ts, the house raised its core net profit forecasts on higher utilisatio­n and DCR rate assumption­s for the immediate and also for the long term.

CGS-CIMB Research also retains its “add” call with a higher discounted cash flow-based target price of 17 sen per share as it expects Velesto to secure more drilling contracts and at a higher DCR in the coming months.

However, the downside risks cited include Velesto’s operating cost inflation could accelerate in the quarters ahead as rig utilisatio­n in Malaysia, South-east Asia, Middle East and India increases and the shortage of trained crew members becomes more acute.

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