Overnight, Velesto announced that it has secured a USD135m (~RM640m) contract for Hess’ North Malay Basin Full Field Development Campaign. The contract entails drilling 14 wells – specifically procured for Velesto’s Naga 5 rig. We gather that the job is expected to commence in 4Q22 for an estimated duration of about 18 months. We are mildly positive on the job win as it will keep Velesto’s Naga 5 rig occupied until mid-April 2024. With this job win, we highlight that all of Velesto’s rigs are now utilised and chartered until at least end-2022. We make no changes to our earnings estimates. We maintain our BUY recommendation with an unchanged TP of RM0.15/share.

NEWSBREAK

Overnight, Velesto announced that it has secured a USD135m (~RM640m) contract for the provision of Integrated Rig, Drilling and Completion (“I-RDC”) Services for Hess’ North Malay Basin Full Field Development Campaign. The contract entails drilling 14 wells – specifically procured for Velesto’s Naga 5 rig. We gather that the job is expected to commence in 4Q222 for an estimated duration of about 18 months.

HLIB’s VIEW

Mildly positive. We are mildly positive on the job win as it will keep Velesto’s Naga 5 rig occupied until mid-April 2024. With this job win, we highlight that all of Velesto’s rigs are now utilised and chartered until at least end-2022.

Daily Charter Rates (DCR). We estimate the DCR for the job to range from USD70- 75k.

Status of rigs. All of Velesto’s rigs are currently chartered, as follows:

Naga 2 – contracted until 1Q2023. 
Naga 3 – contracted until 4Q2022. 
Naga 4 – contracted until 1Q2023, will undergo upgrade works after – till 2Q2023. 
Naga 5 – contracted until mid-2024 with this job win. 
Naga 6 – contracted until end-2022 for Petronas Carigali. 
Naga 8 – contracted until 1Q2024 for Carigali-Hess operating company.

3Q22 earnings preview. From the rig schedule mentioned above, we remain optimistic and believe that Velesto should more or less breakeven in 3Q22 – slated for release on 29 November 2022. We should also expect the group to turn profitable in 4Q22 as all of its rigs are chartered until at least end of the year.

Forecast. We make no changes to our earnings estimates.

Maintain BUY; TP of RM0.15. We maintain our BUY recommendation with an unchanged TP of RM0.15, based on 0.6x (unchanged) FY22f P/B – which is in-line with its 3-year historical mean P/B. From the rig schedule showed above, we are expecting an improvement in earnings in 2H22 after a weak 1H22 given its improved utilisation rates for its rigs (blended utilisation rate in 1H22 stood at 40%).

Source: Hong Leong Investment Bank Research - 8 Nov 2022