Velesto in position to rebound from subdued results

Maybank Investment Bank Research said it has raised its financial year 2023 net profit forecast for the company by 7%.

PETALING JAYA: Provider of services to the oil and gas sector Velesto Energy Bhd may benefit from potentially higher sustained development costs rate (DCR) on strong demand for jack-up rigs.

This is despite the company delivering subdued results in its recent third quarter.

CGS-CIMB Research said other rig contractors had negotiated contracts in the past six months at US$150,000 per day to US$168,000 per day.

“While we do not expect Velesto to secure such high rates for its new umbrella contract with Petronas Carigali, the robust DCRs show just how tight the market is as drilling activities remain robust in the Middle East, India and China,” the research house said.

Velesto had said earlier it was gunning for US$130,000 per day for a new umbrella contract, but it recently announced that it had renegotiated the rate for the Naga 8 drilling contract to US$135,000 per day.

Meanwhile, Maybank Investment Bank Research said Velesto’s third quarter results had outperformed its expectations, given that it expected the group to report a loss.

As such, the research house raised its financial year 2023 net profit forecast for the company by 7% to account for higher overall blended jack-up-rig utilisation rate assumption of 82% for the year from 81% previously.

“Per our understanding, the average South-East Asian demand for jack up rigs in 2024 is estimated to range between 40 and 45 rigs while the industry total jack up rig supply currently stands at only 38,” Maybank Research said.

This, it said, indicates a tight market which will continue to drive prices upward in 2024.

“As at September 2023, the highest DCR recorded for a regional competitor’s rig was US$160,000 compared with an average of US$120,000 a year ago.

“We expect Velesto to ride on higher DCRs next year, as the group wins new jobs or renews its existing contracts in the upcoming quarters,” it noted.

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