AsianOil: Velesto wins drilling contracts from Petronas

Malaysia’s state-owned Petronas has awarded drilling contracts for up to six shallow-water wells to local service provider Velesto Energy.
Velesto said in a stock exchange filing on March 19 that wholly owned subsidiary Velesto Drilling had won two contracts worth more than $20mn for the NAGA 2 and NAGA 5 jack-up rigs.
NAGA 2 can operate in water depths of up to 350 feet (107 metres) and is capable of drilling to a depth of 30,000 feet (9,144 metres), while NAGA 5 can operate in up 400 feet (122 metres) of water and drill to 30,000 feet.
Velesto said NAGA 2 would drill three firm wells, with work to begin between May 15 and June 15, while NAGA 5 had been assigned one firm well with an extension option of one plus one well, with work to start between April 1 and April 14. The value of the four firm wells amounts to $20.76mn.
The contract wins have raised analyst expectations for the service provider’s short-term prospects, with Maybank Investment Bank Research suggesting they represented the start of a turnaround for the beleaguered company.
“For that, we raise our EV/replacement value to 1x (mean valuation) vs. 0.7x previously (-1SD) to reflect a cyclical recovery outlook. This equates to a higher TP of MYR0.30 (vs. MYR0.13 previously),” local daily The Star quoted the bank as saying on March 22.
The research house noted that Velesto was expected to release a poor set of financials for the fourth quarter of 2020, owing to low utilisation of its drill rigs, with that weakness likely to drag on through the first half of this year. Maybank has predicted that the company will record utilisation rates of 64%, 60% and 74% for 2020, 2021 and 2022 respectively.
Industry observers are increasingly upbeat about the Malaysian upstream’s prospects, after the coronavirus (COVID-19) forced developers to slash their capital expenditure budgets in order to survive the downturn. 

Outlook optimism
MIDF Research, for one, upgraded the sector to positive on March 11 while noting that the sector’s recovery “remains on track”.
This sense of optimism is being driven by both macro and micro factors. For example, the global economy is slowly recovering, helping to buoy oil prices, which have also received support from the recent OPEC+ to keep production cuts in place. At a local level, Petronas is expected to expand its domestic capex for this year to MYR22-24.75bn ($5.33-6mn) from MYR17.3bn ($4.19mn) in 2020.
MIDF Research said: “We are expecting O&G players to register stronger year-over-year earnings growth in 2021, after a series of commendable earnings recovery recorded from [Q3-2020] onwards.”
AmBank Research, meanwhile, pointed to the sanction of MYR1.5bn ($363.7mn) worth on new projects in the fourth quarter 2020 as cause of cheer after noting that new project rollouts had fallen to a three-year low of MYR569mn ($137.95mn) in the first quarter of last year. The research house said at the start of this month that the recovery in new projects indicated that worst of COVID-19 was behind the sector, given “prospects of stronger order flows in 2H21”.
Indeed, local daily The Edge reported earlier this month that Petronas had invited 10 local shipyards to participate in a tender to build 16 offshore support vessels (OSVs), with a combined estimated price tag of $180-220mn.