PETALING JAYA: With the global jack-up rig market seeing stabilisation in utilisation, this is the right time for jack-up rig service provider Velesto Energy Bhd
to expand its operations, says UOB Kay Hian (UOBKH) Research.
Leveraging on the improvement, Velesto aims to have regional presence while continuing to adapt to market needs, including embracing automation and robotic arms, according to the research house.
It also noted that regional jack-up day rates seemed to have settled in recent months.
While the demand for jack-up rigs globally will remain soft this year on a year-on-year basis, the market is likely to remain buoyant with over 80% utilisation.
“This (over 80% utilisation) is still realistic versus our base-case 75% assumption. Currently, Vietnam is the most active market in South-East Asia with at least seven tenders over the near term,” stated UOBKH Research in a note.
In the first quarter of 2025 (1Q25), the global jack-up rig market underwent market correction following contract suspensions.
This includes Saudi Aramco’s decision to discontinue its maximum sustainable capacity expansion, which resulted in a suspension of 34 out of 92 Saudi jack-up rigs, by up to 12 months.
Mexico’s Pemex also began temporarily suspending rigs as part of its cost-cutting measures at the end of 2024.
Competitive utilisation in 1Q25 fell to below 80%, while the excess capacity from Saudi Arabia had been mostly absorbed in South-East Asia.
UOBKH Research said Velesto is continuously adapting to market needs.
It has at least four of its six jack-up rigs equipped with enhanced drilling functions. They are Naga 4, Naga 5 (N5), Naga 6 (N6) and Naga 8 (N8).
In August 2022, N5 and N6 completed the upgrades of offline capabilities, which enabled the rig to perform multiple scope of activities while drilling.
This reduced days spent on a well and drilling costs, and also helps to curb emissions.
In 2025, a robotic arm will be installed on N6. The robotic integration and autonomous drilling are likely the progress culminated through a November 2024 collaborative framework with Petroliam Nasional Bhd and National Oilwell Varco.
Meanwhile, N8 is expected to be demobilised by end-April 2025.
“As per management guidance, N8 is drilling the final well at the Bulan-C platform. After April 2025, the rig will be sent for a special periodic survey which costs up to US$20mil.”
The research house also noted that N5 is believed to be close to securing a multi-year contract.
Westwood Global previously reported that Velesto is in discussions with several Malaysian clients for hiring rig N5, including but not limited to PTT Exploration and Production, that has an 18-month development and exploration programme offshore Sarawak in the pipeline.
Previously, Velesto president and chief executive officer Megat Zariman Abdul Rahim had remarked that the US$126,000 day rate was not sustainable.
“However, the recent contract wins by Borr Drilling in South-East Asia and West Africa seemed to imply a clean day rate of US$155,000, which supports our theory that 2026 jack-up rig demand remains high,” said the research house.
UOBKH Research has maintained its “buy” call on Velesto with a target price of 22 sen.
“Current price is a favourable risk-reward investment, with all long-term loans repaid and a high dividend yield of 8%,” it added.
