PETALING JAYA: Velesto Energy Bhd’s performance is expected to be dragged by the lower utilisation rate of its rigs, which will result in reduced earnings in the upcoming quarters, say analysts.

       TA Research said it expected some of Velesto’s jack-up rigs to undergo special periodic survey or underwater inspection in lieu of drydocking throughout most of the third quarter of 2023 (3Q23).

       CGS-CIMB Research expects drilling utilisation rate at the company to fall to between 50% and 55% in 3Q23 compared with 88% in 2Q23.

       “Five of Velesto’s six rigs will not be working for at least part of 3Q23, with only Naga 5 working continuously,” said CGS-CIMB Research.

       It said the daily charter rate (DCR) will likely climb from US$94,000 (RM436,000) per day in 2023 to roughly US$95,000 (RM441,000) in 3Q23, helping partly offset the probable quarter-on-quarter (q-o-q) decline in Velesto’s jack-up utilisation.

       Based on the research house’s calculations, this would lead to significantly lower q-o-q revenue and profit.

       “We think Velesto’s share price may flatline in the absence of new information,” said CGS-CIMB Research.

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       On a good note, Velesto’s 4Q23 will likely be very strong as CGS-CIMB Research expected the utilisation rate to rise to almost 100% and the DCR to climb to between US$97,000 and US$100,000 (between RM450,000 and RM464,000) per day.

       However, it said it is possible that the market is already aware of this prediction.

       Meanwhile, TA Research said major oil producers will likely continue to increase their capital expenditure in the future because the price of benchmark Brent crude oil is predicted to remain over US$80 (RM371) a barrel through the end of 2023.

       There is also an increased competition for jack-up rigs globally, which should benefit the average DCR.

       “The jack-up rigs’ utilisation rate in South-East Asia remains at 100%,” TA Research said.

       Velesto recorded a revenue of RM279.3mil and net profit of RM17.4mil or earnings per share of 0.21 sen for 2Q23.

       Despite net profit increasing by 22% q-o-q, its quarterly performance was underwhelmed mainly because of higher-than-expected costs.

       The company’s pre-tax profit soared by 46.7% q-o-q on the back of higher average DCR for jack-up rigs, which was the result of its successful renegotiation with Petroliam Nasional Bhd of its rates for new contracts.