US oil company considers withdrawing from Egypt

Texas-based Apache Corporation has announced that it is assessing its Egyptian interests as it considers pulling out of the country. The US company has large oil and gas operations in Egypt which make up around one-fifth of its global production and generated almost a third of its income last year.

The company’s production has not been affected by the turmoil in Egypt so far, but its shares have fallen 5 per cent since July 3, when Egypt’s elected president Mohammed Morsi was ousted. Many analysts believe that the turbulent events since Morsi’s ouster contributed to the economic dip.

“The sooner they get out of there, the better,” said Oppenheimer analyst Fadel Gheit. “Investors have plenty of risk in the stock market. They don’t want civil war risk in their portfolios too.”

He predicted that Apache won’t resort to selling its operations in Egypt in a “fire sale”, but noted that the company will face long-term challenges if it chooses to continue to work in Egypt.

Apache is not alone in facing this dilemma; more than 250 US companies, such as Dow Chemical Co and Citigroup Inc, operate in Egypt, where the army-backed government has instituted a state of emergency. Such companies are considering whether the risks of operating in Egypt outweigh the benefits. Last week, General Motors, Electrolux and BASF closed facilities in Egypt “temporarily”, 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 the long term, when the repercussions of the state’s security campaign start to become obvious.

“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 civil war in the 1990s as a worrying precedent that brings bad memories. “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 that the government in Cairo nationalises its assets. It declined to say how many workers it has in the country, although analysts estimate the number at 200 expatriates and 10,000 locals.

According to Gheit, a Chinese oil company would be the most likely buyer of Apache’s Egyptian assets due to China’s need for oil and its long-standing interest in Africa.