By Ernest Scheyder and Braden Reddall
NEW YORK/SAN FRANCISCO Aug 23 Apache Corp
faces a difficult choice in Egypt: whether to sell its
substantial oil and natural gas operations in the country or
wait out the recent bloodshed.
The Texas-based energy company has said it is assessing the
value of its Egyptian interests, which account for roughly a
fifth of its global oil and gas production and 27 percent of its
revenue last year.
While production has not been affected so far by the
violence, Apache's shares have fallen 5 percent since July 3,
when former Egyptian President Mohamed Mursi was overthrown.
Many analysts believe the turmoil contributed to the dip.
"The sooner they get the hell out of there, the better,"
Oppenheimer & Co analyst Fadel Gheit said. "Investors have
plenty of risk in the stock market. They don't want civil war
risk in their portfolios, too."
But selling now would likely mean accepting a price undercut
by political uncertainty. At the end of 2012, about 7 percent of
Apache's oil and natural gas assets were in Egypt, worth roughly
$854.1 million. Analysts said it was hard to put a current value
on the operations because of the turmoil.
"Apache is not going to resort to a fire sale," said Gheit,
"But it's a long-term challenge if they decide to stay and
The quandary is not unique to Apache. More than 250 U.S.
companies, ranging from Dow Chemical Co to Citigroup Inc
, operate in Egypt, where the army-backed government has
instituted a month-long state of emergency.
Apache and other Western companies are now weighing whether
the risks of operating in Egypt outweigh the rewards.
Last week, General Motors, Electrolux and
BASF temporarily closed facilities in Egypt, citing
the unstable security situation. BG Group and BP
pulled out non-essential expatriate staff last month.
Kristian Ulrichsen, a fellow at the policy-focused Baker
Institute in Houston, saw less risk in the short term for
companies working in Egypt than later on, when the
reverberations from the government crackdown are felt.
"The longer-term risks are a whole segment of the population
being cut out of the political roadmap. That's something that
will play out over years," he said, citing Algeria's bloody
civil war in the 1990s as a worrying precedent. "I hope Egypt
won't go down that route, but you can see the danger."
Apache, which bought BP's oilfield stake in the western
Egyptian desert for $650 million in 2010, has more than $1.3
billion in insurance policies covering its Egyptian operations
in the event the government confiscates its assets, cancels
contracts or nationalizes the oil industry.
"We're watching the situation closely," Apache spokesman
Patrick Cassidy said.
POTENTIAL VS REALITY
The Texas-based company's 9.7 million acres in Egypt, of
which it so far has only developed 18 percent, promise
"considerable exploration and development opportunities,"
according to securities regulatory filings.
A U.S. Energy Information Administration report last month
singled out exploration by Apache as being responsible for many
of the oil discoveries in Egypt during the past five years.
Apache declined to say how many employees it has in Egypt.
Brokerage Raymond James estimates Apache has roughly 200
expatriates and as many as 10,000 local workers.
"The most important thing about Egypt is it generates a
tremendous amount of cash flow," Apache Chief Executive Steve
Farris said on a conference call with investors this month.
"And we just need to figure out a way to validate that value
without giving up that value," he added. Analysts interpreted
his comments to mean a sale of the assets was probable.
A Chinese oil company could be a likely buyer of Apache's
Egyptian assets given China's long-standing interest in Africa
and need for oil, said Oppenheimer's Gheit. Proceeds from a sale
would allow the company to buy back shares and trim its $12.3
billion debt load, he said.
In a step largely seen as a positive for foreign oil
companies, Egypt's oil ministry on Thursday named Tarek El Molla
as the head of Egyptian General Petroleum Corp (EGPC), which is
Apache's partner in the country. Molla, a long-time EGPC
employee, previously ran the state-run company's foreign trade
and operations unit. Still, he is the third head of EGPC so far
Analysts at Raymond James said the fears about Egypt for
Apache's stock appeared overdone, noting that all parties have
an interest in maintaining stability for oil production.
"Political uprising have happened before and the company has
never lost a single barrel of production," Raymond James said in
a note to clients.