• Velesto’s NAGA 7 secured a contract from ConocoPhillip Sarawak to drill 3 exploration and appraisal wells worth USD8m.
• We estimate the duration for this contract is 4 months. This implies DCR of US$67k/day which is slightly lower than current market rate.
• The company is currently tendering for 17 short term contracts and 8 long term contracts with total bid value of RM3bn.
• Reiterate BUY with unchanged RM0.265 TP based on 1x FY21F P/B. We believe there will be more contract award in future as oil companies are turning more optimistic with their capex plan amidst higher oil price.

Secured jobs for NAGA 7

Velesto announced that ConocoPhillips Sarawak has contracted NAGA 7 to drill 3 wells with a contract value of USD8m. The contract should begin in 2Q21 following the expiry of its charter with Sarawak Shell. We understand that ConocoPhillips is currently appraising oil reserves in Block WL4-00 offshore Sarawak as part of its feasibility study to develop Salam-Patawali oilfield through an FPSO. Based on Upstream report, this will be conducted through the drilling of Salam-3 appraisal well and Gagau-1 exploration well. Besides that, NAGA 7 will also be assigned to drill Mersing-1 exploration well on Block SK304.

Estimate DCR of USD67k/day

We estimate the average period to drill one appraisal/exploration well is 40 days. This is shorter than 60 days required for drilling of development well. Assuming NAGA 7 to commence drilling in Jun 21, we estimate it will complete its contract by end of Sep 2021. Based on 120 days period to drill 3 wells, we estimate the daily charter rate (DCR) for this contract is USD67k/day which is slightly lower to its current average rate of c.USD70k/day (Table 1).

Maintain our earnings forecast

We keep our earnings forecast unchanged as this contract will enable Velesto to meet our utilisation rate assumption of 70% for FY21. The company is currently tendering for 17 short term contracts and 8 long term contracts with total bid value of RM3bn. We believe there will be more contract award in future as oil companies are turning more optimistic with their capex plan amidst higher oil price.

Maintain BUY with unchanged TP of RM0.265

Reiterate BUY on Velesto with unchanged TP of RM0.265 which implies 1x FY21F P/B. We remain optimistic with recovery in offshore drilling projects which should boost the stock price higher.

Source: BIMB Securities Research - 29 Mar 2021