O&G recovery to be gradual


Maybank IB Research believes that the worldwide jack-up rigs utilisation has bottomed and is “on the cusp” of a cyclical recovery, fuelled by the strength of the oil price. This, in turn, will benefit drilling and oilfield services such as Velesto Energy Bhd.

PETALING JAYA: Offshore oil and gas (O&G) activities are on their recovery path from the double whammy of the Covid-19 pandemic shock and price war that had hit the demand and crude oil price last year.

Contract flows appear to be picking up. Last week, Velesto bagged two contracts worth US$20.76mil (RM85.27mil) from Petronas Carigali Sdn Bhd for the provision of jack-up drilling services.

Maybank IB Research believes that the worldwide jack-up rigs utilisation has bottomed and is “on the cusp” of a cyclical recovery, fuelled by the strength of the oil price. This, in turn, will benefit drilling and oilfield services such as Velesto Energy Bhd.

“While these are short-term charters, we are nevertheless positive on the development and outlook in the jack-up rigs space globally, ” Maybank IB said in a report.

“We are seeing the start of a recovery in the jack-up rigs space (utilisation-wise). With two job wins in the first quarter of 2021, we expect a continuous uplift in Velesto jack-up rigs’ utilisation over the next 12 months.

“This is key to the financial turnaround beginning the second half of this year, ” it added.

The research house said while Velesto is facing a bottoming of daily charter rates, there is a gradual recovery of jack-up rigs utilisation.

“The outlook is improving but the pace of recovery will be gradual, backed by its continuous efforts to optimise costs and utilisation, ” Maybank IB said.

Meanwhile, BIMB Securities Research has maintained its earnings forecast on Velesto for the financial year 2021 (FY21) and FY22 despite a higher utilisation rate of 70% and 67%, respectively, which is above the utilisation rate for the first nine months of 2020 of 60%.

It said the award of contracts point to a recovery in offshore drilling activities, underpinned by higher demand for development wells owing to the completion of several development projects.

BIMB has reiterated its “buy” call” on Velesto with an unchanged target price of 26.5 sen, which implies 0.8 times FY21 forecast price-to-book ratio, which is a five-year average.

“This is largely in tandem with Petronas’ annual requirement of seven to 10 rigs over 2021- 2023, which is close to a historical five-year average demand of 8.5 units, according to our estimate, ” it said.

Last month, Petroliam Nasional Bhd (Petronas) said that it has earmarked a higher capital expenditure (capex) allocation for its domestic O&G activities to boost the country’s economy and rejuvenate the local O&G sector.

The national oil company has allocated a capex of between RM22bil and RM25bil to its Malaysian operations this year, which is higher than the RM17bil spent in 2020.

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