State-owned Chinese oil giant Sinopec has taken its first step into Egypt's upstream sector with a $3.1 billion deal to buy a 33% stake in US-based Apache's assets there.
The deal is the first under in a new global strategic partnership with Sinopec to pursue joint upstream oil and gas projects, the independent said in a statement issued late Thursday.
Apache, which has been looking to reduce its exposure to Egypt's political upheaval, said it will remain operator of the assets. The company's net production in Egypt averaged 100,000 b/d of oil and 354,000 Mcf/day of gas last year, accounting for 20% of the company's global output.
Gross production during the period from the Egyptian projects averaged 213,000 b/d of oil and 900,000 Mcf/day of gas, Apache said.
In a separate statement Friday, Sinopec said the deal with Apache marked its debut in Egypt and would add 130,000 b/d of oil equivalent to its production.
Apache's Egyptian projects had recoverable reserves of 1.27 billion boe -- comprising 641 million barrels of oil and 3.79 Tcf of gas -- at the end of last year, Sinopec said.
Apache has announced plans to divest $4 billion in assets by the end of 2013 and previously indicated that the political unrest in Egypt was a significant factor in its poor stock performance in 2012.
However, Apache, the largest acreage holder in Egypt's Western Desert, said its exploration and production operations, which are in remote, unpopulated areas, remain unaffected by political events in the region.
The deal with Sinopec supports the view that oil operations, away from the main urban centers, are insulated from political risks and events, according to Sector Investment Managers, a London-based fund adviser to The Junior Oils Trust which holds a significant stake in Egyptian producer Circle Oil.
"We expect that Egyptian oil assets will be re-rated as a result of the Sinopec deal and that if investors are selective, attractive opportunities can still be found in the region," Sector's CEO Angelos Damaskos said in a note.
ASSET SALES
Apache said it intends to use proceeds from the asset sales to reduce debt and enhance financial flexibility and to repurchase Apache's common shares under a 30-million-share repurchase program authorized by the Board of Directors earlier this year.
Apache is the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the third largest in producer in the country. Apache's production is operated under two joint ventures, Khalda and Qarun Petroleum Company. It also has production from non-operated properties at Northeast Abu Gharadig.
In its 2012 annual report, Apache said it planned to spending some $1.1 billion drilling up to 270 gross wells, including 60 exploratory tests and other upstream work in Egypt this year. It subsequently announced 10 oil and gas discoveries in May and August.
Apache Chairman and CEO Steven Farris said in the statement Sinopec was an ideal partner and its "technical expertise complements our 20 years of experience operating in Egypt and creates an alliance that will continue to explore and deliver the tremendous hydrocarbon resources in the Western Desert".
The deal is subject to government approvals and is expected to close during the fourth quarter, but will be backdated to January 1 this year.
Last month, Apache agreed to sell its US Gulf of Mexico Shelf properties to Fieldwood Energy, an affiliate of Riverstone Holdings, for $3.75 billion.