KUALA LUMPUR: Velesto Energy Bhd's overall jack-up rig fleet utilisation in the first quarter of 2024 (1Q24) and 2Q24 is expected to stand above 90 per cent following its two-year contract extension from Petronas Carigali Sdn Bhd.
Velesto Energy's subsidiary, Velesto Drilling Sdn Bhd, has received a two-year contract extension for the use of three of its jack-up drilling rigs, Naga 2, Naga 4, and Naga 6, from Petronas Carigali.
The company said that, inclusive of its current drilling campaign assigned between 2023 and 2024, the jobs are worth a collective RM1.25 billion.
The contract extension starts on Feb 7, 2024, and runs until Feb 6, 2026.
"Barring any unforeseen downtime, we expect the overall JU rig fleet utilisation in 1Q24 and 2Q24 to stand above 90 per cent (vs 94 per cent in 4Q23), although we note that Naga 2 was "waiting on weather" from January until early February.
"Velesto expects relatively lower utilisation in 2H24 due to the special periodical survey (SPS) for Naga 2 and 5 in 3Q24, as well as Naga 3 and 6 towards the end of 2024.
"We estimate full-year utilisation of financial year 2024 (FY24) to stand at 85 per cent (vs 83 per cent in FY23)," said Hong Leong Investment Bank (HLIB) Research in a note.
The firm said the umbrella contract extension for the aforementioned rigs with Petronas Carigali was within its expectations.
It estimated the renewed development cost rate for these rigs to be about US$140,000, which is reasonably higher than the current rate of US$100–110,000.
"Based on guidance from its rig schedule, we understand that the higher development cost rate will only contribute meaningfully to Velesto from 3Q24 onwards for various reasons.
"Firstly, Naga 2 is currently working until mid-2Q24, and thereafter, it only starts a brief job with Carigali between end-Q2 and early-3Q24. Following that, it will undergo a special periodical survey until early 4Q24 before resuming work with Carigali.
"Secondly, the existing job for Naga 6 with Carigali will only lapse by the end of 2Q24, and thereafter, a new notice of assignment will become effective from 3Q24 onwards.
"This makes Naga 4 the only jack-up rig that will see the renewed development costs rate from 2Q24 onwards following the completion of the existing job with Carigali in 1Q24," it said.
The firm maintained its "buy" call on the stock with an unchanged target price of 35 sen.