KUALA LUMPUR (July 14): Notwithstanding Velesto Energy Bhd’s (KL:VELESTO) termination of the sale of jack-up drilling rig Naga 3, retained ownership may display some benefits for the group, CIMB Securities said in a report.
While the research house viewed the new development as slightly negative, it believes the oil company itself would not be substantially affected by the termination.
“The termination is not expected to materially affect Velesto’s FY2026 earnings (for the financial year ending Dec 31, 2026), but the group will no longer receive the proposed US$63 million (RM258.4 million) cash consideration,” CIMB said in a note.
“However, the original disposal plan had earmarked RM251.1 million of the proceeds for potential shareholder distributions, general corporate purposes, and working capital, and the termination removes a potential special dividend catalyst.”
Originally to be sold to PT Indonesia Drilling Energy, the sale of Naga 3 was terminated due to the transaction failing to complete by the agreed deadline at the end of the first half of 2026.
Despite the failed transaction, CIMB noted that Velesto will likely remarket Naga 3 for jobs from the fourth quarter onwards.
Retained ownership would additionally provide upsides to the group’s earnings and offset some losses from the deal termination, as owned rigs provide better margins than third-party rigs.
CIMB has accordingly adjusted its earnings forecasts for FY2027 and FY2028 to increase by 14% and 13.2% respectively, assuming a conservative utilisation of 41.7% and a US$90,000 average day rate for the rig in FY2027 to FY2028.
Given that Velesto is keeping Naga 3, the house has also decided to maintain its ‘buy’ rating on the stock, noting that the deal being terminated does not change its view on the company’s
performance as new rig operations would “benefit from the recovery in local upstream activity and potential tightening of the jack-up rig market”.
A target price of 35 sen per share has been assigned, with the house’s dividend payout assumption of three sen per share also staying unchanged.
Despite renewed tensions between the US and Iran keeping oil prices elevated, CIMB warned that lower-than-expected oil prices alongside the market entry of other jack up rigs could make any new upstream investments unfeasible.