KUALA LUMPUR (April 5): Shares in Velesto Energy Bhd declined on Friday, set for their worst day in 10 months, as CGS International told investors to stop buying the stock, amid concerns of Saudi Aramco's broader suspension of jack-up rigs.
Velesto shares dropped as much as 9.84% to 27.5 sen, their biggest losses in a single day since May 25, 2023. The stock was trading at 28 sen, still down by 8.2% or two sen, at the 12.30pm midday trading break, after 200 million shares changed hands. The country’s benchmark index FBM KLCI was 0.02% higher.
A number of jack-up rig drilling companies have had their rig contracts suspended by Aramco in recent days, CGS flagged. “These rigs may find their way to Southeast Asia and other regions, which may cap or even pressure utilisation rates and daily charter rates globally.”
Further, Velesto’s share price has almost quadrupled since mid-2022, the research house said, downgrading the stock to ‘hold’ from ‘add’.
Out of eight analysts covering Velesto, six still have a 'buy' rating, while the other two including CGS have the stock on ‘hold’. The consensus’ 12-month target price is 33 sen, Bloomberg data showed.
Aramco, Saudi Arabia's state-owned oil and gas giant, is now suspending jack-up contracts after it was instructed by the government on Jan 31, 2024 to refrain from expanding its daily oil production capacity from 12 million barrels to 13 million barrels, CGS noted.
Daily charter rates are relatively higher in Southeast Asia than in the Middle East, which may draw in other rig operators to pursue bids and at the minimum cap rates and utilisation, CGS said. “There is a decent probability that they will drop and impact Velesto from FY2025 (the financial year ending Dec 31, 2025) onwards,” it said.
For FY2024, Velesto has already secured 80% of its capacity days, followed by 62% for FY2025, with the potential to raise utilisation to 85% this year and 90% next year if it successfully secures two additional drilling contracts for its Naga 3 and Naga 5 rigs, CGS said.
Since the beginning of this month, Aramco has suspended four Shelf Drilling rigs operating in offshore waters, along with China Oilfield Services Ltd’s four rigs and five of ADES Holding's rigs. Three of Arabian Drilling's jack-up rigs could be affected.
Aramco may end up suspending over 20 to 25 of its rigs, or 5% to 6% of the global fleet of 400 jack-up rigs, RigLogix reported on Thursday.