KUALA LUMPUR: SapuraKencana Petroleum Bhd will not be affected by the cut in expenditure by Petroleo Brasileiro SA (Petrobras), said its president and group chief executive officer Tan Sri Shahril Shamsuddin.

“We are not affected as we do work for the development activities which are already sanctioned,” Shahril told The Edge Financial Daily.

“We are progressing ahead of schedule in Brazil and being paid for our work, and we are being paid on time for our projects,” said Shahril who — via its private investment vehicle Jurudata Sdn Bhd — bought an additional 5.25 million shares last Friday.

Bloomberg reported on Tuesday that Petrobras was curbing its refining and exploration spending in response to the collapse in crude oil prices and difficulties in tapping debt markets in a corruption probe.

SapuraKencana’s share price has rebounded since Wednesday, gaining four sen or 1.82% to close at RM2.24 yesterday, after it hit a 2½-year low of RM2.08 on Tuesday. Its market capitalisation stood at RM13.42 billion.

According to AllianceDBS Research analyst Arhnue Tan, contracts secured from Petrobras are for the long term and they are projected to make up 7% of SapuraKencana’s earnings in financial year 2016 (FY16).

In addition, she noted that SapuraKencana has RM26 billion in outstanding order book to support earnings.

A TA Securities analyst concurred, saying there are no clauses for termination in these contracts, and viewed that they will have 4% to 6% bottom-line contribution from FY15 to FY17.

“Though the reduction in capital expenditure from Petrobras would translate into risk in future contract replenishment, but (SapuraKencana’s) business is diversified enough,” she said when contacted.

However, the recent slump in crude oil price would put some pressure on SapuraKencana, both analysts informed, as this involves its upstream business.

“Assuming all other factors remain constant and when crude oil prices fall to US$55 (RM194) per barrel, SapuraKencana should see a 3% to 4% negative impact on its earnings in FY16 to FY17,” said an analyst.

Taking advantage of the sharp fall in SapuraKencana’s share price, its vice-chairman Tan Sri Mokhzani Mahathir, through his investment vehicle Khasera Baru Sdn Bhd, acquired five million shares in the oil and gas group.

According to theedgemarkets.com, SapuraKencana’s valuation score stood at 1.80, on a scale of 0-3, with 3 suggesting a company gives higher than market average returns and is trading at a lower than average valuation.

Its fundamental score stood at 1.30 on a scale of 0-3, with 3 suggesting that it is profitable and has strong balance sheet. SapuraKencana’s stock also has a volatility rate of 2, which measures the volatility of a stock based on its share price movements relative to the whole market over a period on a scale of 1 to 5, with 1 being the least volatile.

This article first appeared in The Edge Financial Daily, on December 19, 2014