Velesto Energy Bhd has secured a US$51 million (approximately RM208.4 million) contract from Hess Exploration and Production Malaysia B.V. to provide integrated drilling services for Chevron Malaysia’s North Malay Basin development campaign, strengthening the utilisation of its jack-up rig fleet.
In a research note, Hong Leong Investment Bank (HLIB) described the contract win as positive, noting that the award ensures the Naga 8 jack-up rig will remain employed immediately after completing its current drilling programme.
The contract, awarded to Velesto’s wholly owned subsidiary Velesto Drilling Sdn Bhd, covers the provision of integrated rig, drilling and completion (i-RDC) services in support of Chevron Malaysia’s 2026–2028 North Malay Basin Full Field Development Campaign.
The project is scheduled to commence in August 2026 and will run for 16 to 18 months.
Immediate redeployment
According to HLIB, the latest contract comes shortly after Velesto mutually terminated a four-year contract for Naga 8 with PC Ketapang in Indonesia in May 2025.
The research house highlighted that Naga 8 is currently completing a US$16.5 million (RM66 million) drilling campaign for Jadestone Energy’s East Belumut Phase 9 Infill Drilling Project, which is expected to conclude by the end of July.
Following minor maintenance works in Kemaman, the rig is expected to mobilise directly to the North Malay Basin project.
HLIB noted that Hess is already a familiar client for Velesto, having previously awarded the company a US$135 million (RM552 million) contract for the Naga 5 jack-up rig to support the 2022–2024 North Malay Basin Full Field Development Campaign, during which 14 wells were drilled.
“The latest award reinforces Velesto’s established track record with Hess,” the research house said.
Strategic gas development
The North Malay Basin Integrated Gas Development project encompasses nine gas fields across Blocks PM302, PM325 and PM326B, located about 300 kilometres offshore Peninsular Malaysia.
The blocks are jointly owned by Petronas Carigali and Hess Exploration, with Hess serving as operator.
HLIB noted that the basin contained 40.8 billion cubic metres of remaining gas reserves as of 2021, with annual gas production increasing to 3.0 billion cubic metres in 2023.
Regional offshore activity remains supportive
The research house expects heightened energy security concerns and continued efforts to diversify energy supplies away from the Middle East to support offshore capital expenditure across Southeast Asia.
It also observed that the regional jack-up rig market continues to tighten gradually, although improvements in day rates are expected to materialise over a longer period as contracts are renewed and repriced.
HLIB added that Velesto is currently pursuing two additional third-party rig contracts, supporting the group’s strategy to expand utilisation while maintaining an asset-light approach.
Earnings upgraded
Based on the disclosed contract value, HLIB estimates the implied day rate for Naga 8 at approximately US$93,000 to US$95,000 per day.
The research house raised its FY2026 and FY2027 earnings forecasts by 8.0% and 2.4%, respectively, while leaving FY2028 projections unchanged.
Despite the earnings upgrades, HLIB maintained its “Hold” recommendation on Velesto, with a slightly higher target price of RM0.28, up from RM0.27.
The valuation is based on 12 times FY2027 earnings per share.
HLIB said Velesto’s strengthening balance sheet and improving dividend prospects following the completion of its capital reduction exercise remain key positives, with the stock expected to deliver a projected FY2027 dividend yield of around 11.5%.
However, it believes much of the near-term upside has already been priced in following the anticipated Naga 8 contract award and the earlier termination of the proposed disposal of the Naga 3 rig, limiting further share price appreciation from current levels.
