Velesto Energy Berhad has secured a new offshore drilling contract in Thailand for its Naga 6 jack-up rig, strengthening the group’s rig utilisation outlook for 2026.
The contract was awarded by Northern Gulf Petroleum Pte Ltd (NGP) and covers the provision of the Naga 6 drilling rig for a campaign comprising four infill wells and three exploration wells under the firm scope of work, with options for an additional two exploration wells.
The contract is scheduled to commence in the third quarter of 2026. While the contract value was not disclosed, analysts estimate that the firm portion of the drilling programme could take approximately five months to complete.
Kenanga Investment Bank said the contract award was within expectations and aligns with its forecasts, which assume rig utilisation of 85% for Velesto’s fleet in FY2026 and an average daily charter rate (DCR) of US$100,000, broadly in line with prevailing market rates.
The research house maintained its earnings forecasts and target price of RM0.32 for Velesto, based on an unchanged 1.2 times FY2027 price-to-book valuation.
Kenanga said it remains increasingly confident in Velesto’s ability to reward shareholders through dividends that could exceed reported earnings, supported by strong operating cash flow generation of about RM300 million annually.
The research house noted that Velesto’s investment appeal continues to be underpinned by its strengthening free cash flow profile as capital expenditure requirements moderate over the medium term.
It also expects higher year-on-year rig utilisation to help offset potential pressure on day rates in 2026, while the company’s healthy cash position provides flexibility to sustain attractive dividend payments.
However, Kenanga cautioned that dividend payouts above profit levels may not be sustainable beyond the next two years unless earnings improve further, as such distributions could gradually erode retained earnings.
The research house maintained its “Market Perform” recommendation on the stock.
Key risks to the outlook include a potential global economic slowdown that could weaken oil prices, operational disruptions arising from Velesto’s ageing rig fleet, and softer-than-expected demand for jack-up drilling rigs in the Middle East, one of the company’s key markets.
