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Sinopec strikes $3.1bn Egypt deal with Apache

The deal comes amid political upheaval in the country

China’s state-run oil company Sinopec will pay $3.1 billion for a 33% stake in US independent Apache’s Egypt operations.

The deal is part of a strategic overhaul at Apache led by chief executive Steven Farris that has seen the company shift its focus from its international and offshore business to its onshore US operations. “We are taking meaningful steps to rebalance our portfolio to better deliver the full potential of our deep North America onshore resource inventory," Farris said.

Shareholders have been pressuring the company to focus on developing its onshore US and Canadian unconventional projects. In July, Apache sold a package of fields in the Gulf of Mexico to Riverstone Holdings-backed Fieldwood Energy for $3.75bn. It followed that with a $241 million dollar deal to sell assets in western Alberta, Canada.

In the second quarter of this year, Apache’s net production in Egypt was 147,551 barrels of oil equivalent a day (boe/d), including 88,000 barrels a day (b/d) of crude and 357,291m cubic feet per day of gas. Apache has 27 rigs operating in the country and has drilled a total of 70 wells in recent months. The company has a stake in a total of 9.7m acres across Egypt’s Western Desert.

"Our successful exploration and development programmes in Egypt have been an important contributor to both growth and cash flow for many years. With today's partnership, we are ensuring they can continue this contribution in the future," Farris said.

Apache plans to use the funds from the sale to pay down debt as it defends its current credit ratings and to buy back shares. Over the past year, Apache’s shares have fallen about 10% from $85 a share to $79/share before the deal was announces.

The deal marks Sinopec’s entry into Egypt’s upstream, and it is exactly the kind of opportunity that China’s state-run companies have sought in recent years. It gives the company a stake in existing production and significant exploration acreage in a proven basin. The $3.1bn price tag makes it Sinopec’s third-largest acquisition to date.

Yet the deal does not come without risks. Egypt’s civil unrest has hit the country’s oil and gas sector. The UK’s BG Group said in July that supply disruptions in the country forced it to divert gas from its liquefied natural gas export terminal to the domestic market. The disruptions weighed on the company’s results.

Apache, though, has insisted that its operations had not been interrupted by protests in the country. “I travelled to Cairo… and had an opportunity meet with the new minister of petroleum and a number of new officials who have reiterated the importance of Apache’s investment in Egypt. Frankly, it was business as usual,” Farris told investors in early August.

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