Apache shares are down over 8% this week, with a 4% drop today. The escalating events in the region have brought the oil producers’ status into question
Apache, the largest oil and gas company in Egypt, has been a presence in the region for over 20 years.
As of the third quarter of 2010, 20% of the Houston-based company’s oil and gas production came from its operations in Egypt. It also gets 25% of its total cash flow from its operations there.
If the political unrest forces Apache to shut or slow down production this will be an immediate hit to Apache’s core business unlike other oil companies which only consider Egypt to be a small blip in the global oil market.
Egypt is a major driver for growth and production for Apache. If it loses its cash flow from Egypt it will not be able to reallocate funds. However, it has strong liquidity which will prevent it from having to be sold immediately if it did lose its production in the region.
There has been no operation disruptions so far during the riots but analysts are monitoring for a drop-off in the stock. On Thursday, Apache issued a statement saying operations remain unaffected by current events in Egypt.
However, the company did note that the region represents Apache’s largest property with more than 11 million gross acres in 21 separate concessions. Apache is the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the second largest in Egypt.
Some analysts have the school of thought that if a new government is installed then they would very likely want to work with the oil company.
The stock is expected to drop until order is restored.