Velesto rig utilisation rate likely to drop

PETALING JAYA: Velesto Energy Bhd will likely dip into the red in the third quarter of 2023 (3Q23) before bouncing back in the following quarter as its jack-up (JU) rigs are anticipated to run at full steam.

Hong Leong Investment Bank (HLIB) Research said the company’s JU rig fleet utilisation rate would likely slump to about 50% compared with 88% in 2Q23 – below the breakeven point of 70%.

This was due to some of its rigs undergoing repair and maintenance works as well as periodical inspection.

“Nevertheless, we expect Velesto’s earnings to bounce back in 4Q23 as JU rigs are expected to run at full steam with near full utilisation rate.

“We also expect higher blended daily charter rate (DCR) starting from 4Q23 at US$100,000 to US$105,000 per day (versus 2Q23: US$94,000 per day), mainly contributed by Naga four and six as higher negotiated DCR with Petroliam Nasional Bhd will start to kick in, which is estimated to be at US$105,000 per day,” the research house said.

Velesto is involved in drilling operations, oilfield services, pipe manufacturing and oilfield products.

Despite broad-based improvements in the JU rig utilisation rate and DCRs in 1H23, the research house said Velesto had performed below its and consensus expectations during that period due to higher operating expenditure and overhead expenses partially offset the better fleet utilisation and DCR.

The cost overruns were driven by upward revisions in staff expenses to alleviate its attrition rate as rig employees are increasingly being poached from Asia to the Middle East as well as higher expenses for information technology infrastructure.

Nonetheless, HLIB Research said the expenses are stabilising and should not see a steep increment of the past year.

Hence, further growth in DCR going forward should lead to more meaningful improvements in bottom line, it noted.

The marketed supply of JU rigs in South-East Asia has declined from 50 to 40 over the past year while JU rigs utilisation in the region has increased to 100%, indicating intense competition for the JU rigs.

“We believe that the supply will remain tight over the next few years as demand for JU rigs from Saudi Arabia is expected to increase by 19 new rigs to reach 78 rigs by 2025.

HLIB Research, which is upgrading the stock to a “hold” from a “sell” with higher target price of 25 sen, said the global JU rigs crunch would continue to benefit Velesto by elevating its fleet utilisation and DCR.The brokerage firm has revamped its financial model for Velesto and reintroduced its forecasts for FY23, FY24, and FY25 at RM74.1mil, RM144.7mil and RM163mil respectively.