A recent contract win with Malaysian oil and gas giant Petronas could spell good news for listed software provider Dug Technology Ltd (ASX: DUG).
Dug earlier this month said it had signed a multi-year software-as-a-service and computing-as-a-service deal with Petronas with a minimum total contract value of US$23.8 million over the initial three-year contract period, "with further upside potential once the scope is finalised".
The project is expected to be fully commissioned around the first quarter of calendar 2026, with interim phases expected to be delivered during calendar 2025. This is subject to signing the formal contract, which is expected to be completed by the end of this month.
The company later said on September 16 that it had subsequently received the first purchase order under the deal and upgraded the total contract value to US$43.3 million.
Wilsons Advisory analysts, in a note to clients, said the contract win "underscores the quality of its compute and software stack".
The initial three-year term is now expected to generate at least US$43.3m in total contract value (up 82% versus US$23.8m previously), implying roughly US$10m per annum net to Dug and about US$8m of EBITDA per annum on our assumed 80%. This is meaningful upside versus the US$15m of EBITDA Dug produced last year. With the seismic analysis industry likely at its trough, we see the balance of risk as being skewed to the upside.
Wilsons said it was factoring in strong long-term demand from the oil and gas sector, which followed "an underinvestment in exploration and production work over the last several years".
This should be supportive of improved demand and pricing for Dug's processing work. We see Dug as in a strong position to leverage its increased compute power and advanced geophysics models.
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Stock cheap at current prices
Analysts at Wilsons Advisory have an overweight recommendation on the stock. Wilsons has a 12-month target price of $2.86 on Dug stock compared with the current price of $2.49. The stock has appreciated off lows of 85 cents over the past year.
Risks to the company include the cyclical nature of the oil and gas sector "and reliance on oil prices which influence seismic pricing rates''.
There was also the potential for competition from existing companies in the sector, and over the longer term, the risk of a shift in energy markets to renewable sources of power.
