The Arab Spring, which began early last year and swept eastwards across Africa’s Magreb, has completely upended the region’s politics. Responses range from the relatively benign outcome in Tunisia, where it all began, to Egypt, where President Hosni Mubarak was forced from office and now faces trial by the military government that succeed him, to Libya, where former leader Muammar Gadhaffi was killed following his capture. The final result in Syria has yet to emerge.
Seeing opportunity where others see risk, Houston-based oil and gas exploration and production company Apache Corp. has announced its intention to invest $1 billion in Egypt.
During a stopover visit in Cairo en route to Australia, Apache Corp. Chief Executive Officer Steve Farris told reporters, "We are going to invest a billion dollars (in Egypt) in 2012. We invested about $1.1 billion in 2011."
According to the Apache Corp. website, “The Egypt region represents Apache's largest acreage position with more than 11 million gross acres in 21 separate concessions (18 producing). Apache is the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the second largest in Egypt. Apache's production is operated under two joint ventures, Khalda and Qarun Petroleum Company. In addition, we have production from non-operated properties at Northeast Abu Gharadig (NEAG).”
So certain is the company of success that under its employment website section Apache corp. notes, “Egypt is a rapidly growing segment of Apache’s international portfolio with rising production and reserves and an extensive exploration program. Historically, our growth in Egypt has been driven by drilling; we are the most active driller in Egypt.”
That said, the company seems to be having some difficulty in recruiting experienced American personnel for its Egyptian operations, hardly surprising given the country’s instability. So, Apache Corp. is currently seeking five engineers, including a reservoir engineer; a production expert for field operations and four Geology and Geophysics specialists, including a senior geophysicist. Underlining the difficulty of locating suitable personnel, the senior geophysicist position was first posted on 13 June 2011 and is apparently still vacant.
Apache Corp. has been developing its presence in Egypt over the past eight years, when in 1994 it drilled its first Qarun discovery well.
So, how secure are Apache Corp.’s investments under Egypt’s new government?
That remains to be seen, as eight years of in-country operations indicates that Apache Corp. had significant dealing with the Mubarak administration, as nothing substantial happened in Egypt without its blessing.
But Farris’s comments indicate a determination to stay whatever the company’s relations with the new government turn out to be, and its track record of development may well prove a significant factor in determining its future, as they are hardly insignificant. According to the company, “Only 15 percent of our gross acreage in Egypt has been developed. That 15 percent produced an average of 189,000 barrels per day and 799 million cubic feet per day in 2010, 99,000 barrels per day and 375 million cubic feet per day net to Apache, making Apache the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the third largest in all of Egypt. The remaining 85 percent of our acreage is currently undeveloped, which provides us with considerable exploration and development opportunities for the future. We have 3-D seismic covering over 12,000 square miles, or 68 percent of our acreage. In 2010, the region contributed 28 percent of our production revenue, 24 percent of our production and 10 percent of our year-end estimated proved reserves.”
According to the authoritative U.S. government Energy Information Administration, Egyptian energy production in 2011 was about 660,000 barrels per day (bpd) of oil production and roughly 6.4 billion cubic feet (bcf) per day of natural gas production, leaving Apache Corp. responsible for producing 28 percent of Egypt’s oil output and roughly 12 percent of its natural gas output.
Will the new government be happy with Apache Corp.’s previous arrangement with the Mubarak administration, which left it with 52 percent of its oil and 47 percent of its natural gas output, or will the new government seek to renegotiate the terms of its joint ventures with the Houston-based company?
What is beyond doubt is that Egypt’s new government is marginally more responsive to public opinion than the Mubarak administration, and much hangs on the trial in an Egyptian court of 16 Americans and 27 other employees of foreign non-profit groups. The trial, which began on 26 February, has plunged relations between Cairo and Washington to their lowest level since last year’s ouster of Mubarak, and the Obama administration has warned Egypt’s military rules that if the trial proceeds, Cairo could be risking the $1.3 billion it receives annually in U.S. military assistance.
Will Apache Corp.’s investments suffer “collateral damage” should the trial go forward? After all, one of the few things that the Middle East is not short of is oil and natural gas companies and specialists, any number of which would doubtless be happy to take over Apache’s concessions.
Right now, the answer would seem to lie with Egyptian Judge Mahmoud Mohammed Shoukry and his unknown proclivities both to the rule of law and his nation. While Farris seems to have no doubts, many inside the Beltway do as to the future direction of the Egyptian revolution.
By. John C.K. Daly of Oilprice.com
Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…