KUALA LUMPUR (Nov 6): Shares in Velesto Energy Bhd rose 6.94% in active trade early today after its unit bagged a contract worth US$131 million (RM541.17 million) from Carigali Hess Operating Company Sdn Bhd.

At 9.02am, Velesto added 2.5 sen to 38.5 sen, valuing it at RM3.16 billion.

Carigali Hess, an oil and gas joint venture between PCJDA Ltd and Hess Oil Company of Thailand Ltd, is involved in gas production in the joint development area administered by the Malaysian-Thailand Joint Authority.

Velesto said in an exchange filing that the contract, awarded to its indirect wholly-owned unit Velesto Drilling Sdn Bhd, is for the provision of a 10K jack up drilling rig.

The contract will commence in the second half of 2020 for a duration of three years, with three extension options of six months each.

Meanwhile, Affin Hwang Capital Research downgraded Velesto to “Hold” at 36 sen with an unchanged target price of 37 sen after Velesto received a Letter of Award for its Naga 8 jack up rig which has secured a long-term charter with Carigali Hess Operating Company valued at US$131 million and expected to commence in 2H20.

In a note today, the research house said it was positive on this new contract, but Velesto will need to secure further extensions and another new win for Naga 4 to lock in 2H20 utilisation rates.

“We maintain our DCF-based target price at RM0.37 but downgrade the stock to a Hold rating in view of the recent strong run up in share price.

“Velesto is set to release its 3Q19 result on Nov 28. Upside/downside risks to call hinges on utilisation and daily charter rates.

“Given the recent run up in share price, we downgrade the stock to a Hold with an unchanged target price at 37 sen,” it said.