Bimb Research Highlights

Velesto Energy - Hit a USD100k DCR!

Publish date: Fri, 02 Jun 2023, 05:28 PM
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Bimb Research Highlights
  • Velesto Energy (Velesto) announced that it has secured a short contract from Vestigo valued at USD10.9mn.
  • The company managed to secure a higher DCR of USD100k thanks to shortage of rigs. The contracted DCR is in line with our initial assumption, hence no change to our earnings forecast.
  • More importantly, this could be harbinger of rigs DCR in the near future.
  • Maintain a BUY call on Velesto with unchanged TP of RM0.30 pegged at 1x P/B to FY23.

NAGA 2 Hired by Vestigo

Velesto announced that it has secured a short-term drilling contract from Vestigo Petroleum Sdn Bhd for a contract value of USD10.9mn. Velesto will assign NAGA 2 asset for this contract which involves the drilling of 5 firm well. The job is expected to commence in 4Q23 for a duration of about 3 months.

DCR of USD100k/day

We are positive with this contract as the company managed to garner a higher daily charter rate (DCR) thanks to shortage of drilling rig. Note that all marketable rigs in the SEA region are fully contracted. Based on our estimate, the effective daily charter rate (DCR) for this contract is USD100k/day which is 16% higher than average DCR of USD86k/day in 1Q2023. As this is in line with our DCR assumption, there will be no change to our earnings forecast.

Rig Status

After posted a strong utilisation rate of 90% in 1Q23, it is expected that this will continue in 2Q23 as all rigs remain occupied with existing contract. To recap, NAGA 5 and NAGA 8 are contracted to Hess and Carigali-Hess respectively for the whole year. The contract for 3 rigs – NAGA 3, NAGA 4 and NAGA 6 – will expire by end of 2Q23 before it will be hired by Petronas Carigali for 5-12 months beginning mid of 3Q23. Meanwhile, NAGA 2 will complete its contract with Roc Oil (also in 2Q23) before it will undergo repair and maintenance. This will be followed by another short contract before proceeded with Vestigo’s contract in 4Q23. Based on current rig schedule, utilisation rate of 75% is attainable for FY23.

Tendering for Jobs in FY24-25

Velesto’s drilling orderbook currently stands at RM797mn. Meanwhile, its tenderbook stands at RM3.7bn which are for jobs in FY24-25. This consists of 14 short term contracts (mostly in SEA region) and 5 long term contracts (outside SEA region).

Maintain a BUY with Unchanged TP RM0.30

We maintain Velesto as a BUY with unchanged TP of RM0.30 pegged at 1x P/B to FY23F. As the stock price remains at below pre-Covid level, we think it has not fully reflected the prospect of rising DCR.

Source: BIMB Securities Research - 2 Jun 2023

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