Velesto Energy has received a Letter of Award from PETRONAS Carigali, for the Provision of Jack Up Drilling Rig - NAGA 7. The contract is to drill two firm wells with estimated contract value of USD8 million and is expected to commence in 3Q19. Maintain HOLD and TP of RM0.31 based on 0.9x FY19 P/B multiple.

NEWSBREAK

Velesto Energy has received a Letter of Award from PETRONAS Carigali, for the provision of jack up drilling rig - NAGA 7. The contract is to drill two firm wells with estimated contract value of USD8 million and is expected to commence and end in 3Q19.

HLIB’s VIEW

On track for 80% utilisation FY19. We are overall positive on the contract secured as it would improve Velesto’s rig utilisation in 2H19. Note that Velesto has achieved 70% rig utilisation in 1H19 and is targeting to hit 80% utilisation this year. This award is essentially a farm in contract for Naga 7, before it commences SPS (special periodic survey - rectification and repairs) for 6 weeks before moving on and doing work for Shell in Sarawak in late 4Q19.

Day charter rates improving. It is understood that rig rates regionally are in the USD80k-USD100k/day range; however Malaysian rig rates have yet to converge at this juncture. Note that Naga 4, Naga 7 & Naga 8 will come up for renewal throughout 2020. We remain upbeat on the prospective renewed terms given the rising day charter rates regionally.

Forecast. Unchanged.

Maintain HOLD, TP: RM0.31. Maintain HOLD recommendation with unchanged TP of RM0.31 based on 0.9x FY19 P/B multiple. Velesto remains a good proxy to recovering of oil prices; however at this juncture the share price has priced in the better outlook in 2019.

Source: Hong Leong Investment Bank Research - 5 Sept 2019