Naga 4 is expected to be contracted until 1H21, Naga 2 will be contracted for four to six months in the second quarter of 2021 (2Q21), Naga 5 will be contracted for two months in 2Q21 and Naga 8’s long-term contract is only expected to begin in 2Q21.
KUCHING: Velesto Energy Bhd’s (Velesto) outlook is deemed to be positive despite its weak fourth quarter of 2020 (4Q20) results.
This comes as Velesto announced that it has secured two letter of awards from Petroliam Nasional Bhd’s (Petronas) for Naga 2 and Naga 5 with an estimated contract value of US$20.8 million or RM85.3 million.
The contract for Naga 2 is expected to commence from May 15, 2021 to June 15, 2021 and the contract for Naga 5 is expected to commence from April 1, 2021 to April 14, 2021. The duration for Naga 2’s contract is expected to be from four to six months while Naga 5’s contract is expected to last for two months.
Naga 4 is expected to be contracted until the first half of 2021 (1H21), Naga 2 will be contracted for four to six months in the second quarter of 2021 (2Q21), Naga 5 will be contracted for two months in 2Q21 and Naga 8’s long-term contract is only expected to begin in 2Q21.
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) deemed the current utilisation rates of rigs to be in-line with its expectations of 50 per centin FY21 as it expect Velesto to secure more short-term contracts in 2H21.
“Daily charter rates for the aforementioned contracts amounts to c.USD70-72k excluding decommissioning and technical related costs,” it said yesterday. “We expect to see a pick-up in Petronas’ propensity to spend in 2H21 and we believe that Velesto would be able to secure more short-term contracts in 2H21.
“We believe that its 2H21 utilisation rate will be higher than 1H21 despite only having two chartered rigs (Naga 2 and 8) in 2H21 as we opine that we should see some elevation in capital expenditure from Petronas in 2H21.
“We expect Velesto’s utilisation rate to come in at circa 50 per cent in FY21. Furthermore, its cost savings initiative is expected to mitigate any short-falls in utilisation rates.”
In an earlier report, HLIB Research expected to see a pick-up in Petronas propensity to spend in 2H21 and the research arm believed that Velesto would be able to secure more short-term contracts in 2H21.
“We opine that the recent securement of contracts for Naga 2 and Naga 5 is a good leading indicator towards its better prospects,” the research arm said.
“While we expect its 1Q21 results to be the weakest of financial year 2021 (FY21), the company should see sequential improvements in its rig utilisation and profits towards the end of FY21.
“We forecast Velesto’s utilisation rate to come in at circa 50 per cent in FY21 and expect its cost savings initiative to mitigate any short-falls in utilisation rates.”
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) expected 2021 to be another challenging year, with Velesto potentially seeing lower rig utilisation as compared to 2020.
Kenanga Research gathered based on the latest Petronas Activity Outlook, local demand for jack-up rigs is expected to remain largely flattish in 2021 from 2HFY20 (2021 of 10 rigs, versus 2HFY20 of nine rigs).
“To recap, Velesto recorded an average rig utilisation of only 55 per cent in 2HFY20,” the research arm recalled.
“Being the largest jack-up rig provider in Malaysia, we believe the lowered jack-up rig demand would adversely impact Velesto.”
As for the upcoming quarter, based on the company’s rig schedule, Kenanga Research expected 1QFY21 utilisation to be even poorer, with only one rig which is Naga 4, chartered to Mubadala, working throughout most of the quarter.
“There is a contract at hand for rig Naga 8, but the rig is expected to undergo its Special Periodic Survey (SPS) throughout most of the quarter in preparation ahead of its long-term charter to Carigali-Hess.”
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