PETALING JAYA: An improvement to oil and gas drilling operator Velesto Energy Bhd
’s outlook will depend on the company’s success in turning opportunities into contracts, says TA Research.
It remains constructive on the company’s jack-up rig utilisation outlook as drilling activity improves across South-East Asia in recent months, underpinned by sustained exploration and production investments.
“However, the extent of improvement will depend on the successful conversion of these opportunities into firm contracts,” the research house said, noting that the company had potential contracts across four rigs that provide opportunities to sustain or improve fleet deployment.
According to the latest S&P Global data, South-East Asia’s marketed jack-up rig utilisation has increased to 89.5% from 80% a year ago, reflecting a tightening rig supply- demand balance as a greater proportion of marketed rigs secure employment.
However, the research house believes the recovery in daily charter rates would remain gradual over the next 12 months as competition from available rigs continues to constrain pricing power.
“According to industry sources, jack-up rig contractors from outside South-East Asia have been seeking employment opportunities in the region amid ongoing uncertainty in the Middle East.
“We believe this influx of competing rigs could constrain day-rate recovery across South-East Asia, despite improving drilling activity,” TA Research said.
The research house expects competitive pressure to persist into the company’s first half of financial year ending Dec 31, 2027 (FY27) with newly awarded contracts likely to reflect prevailing market rates of around US$90,000 to US$100,000 a day.
“While we previously expected Velesto to secure new contracts at rates slightly above prevailing market levels, we adopt a more conservative assumption pending clearer evidence of sustained market tightening,” the research house said.
TA Research said a resumption of Middle East drilling activity could eventually tighten global rig supply as units redeploy to the region, but the timing remains uncertain.
It has adopted a more conservative daily charter rate assumption for contracts awarded to the company’s rigs in the house’s FY27 to FY28 forecasts.
While a “buy” call has been maintained on the stock, the target price has been lowered to 25 sen from 36 sen after earnings revisions that have been lowered by 30.2% for FY27 and 26.5% for FY28. This reflects a slower-than-expected recovery in day rates.
