Oil producer Apache to spend $1bn in Egypt

Egypt's oil and gas industry is to get a $1bn boost as it tries to rebuild its economy after the revolution.

Apache has agreed to increase its investment in the exploration and production of Egyptian hydrocarbons over the next two years. Donny McCallum / Bloomberg News

Egypt's oil and gas sector is to benefit from US$1 billion (Dh3.67bn) of investment as the nation tries to rebuild its economy after the revolution.

The US oil producer Apache has agreed to spend that sum developing Egyptian hydrocarbons over the next two years - as much as it has spent on exploration in Egypt in the previous decade.

The Houston company reached a deal with the Egyptian government to invest in exploration and production projects in the country throughthe end of next year, Abdullah Ghorab, the Egyptian oil minister, and Steven Farris, the chief executive of Apache, said this week. Oil and gas assets provide relativestability for investors in Egypt because they are not easy to shut down and are mostly far away from urban unrest, said Catherine Hunter, an analyst at IHS Global Insight in London.

"If you look at how other sectors have been declining, oil and gas investments and Suez Canal revenues have remained the two pillars of the Egyptian economy during the turmoil," Ms Hunter said. "Those oil and gas revenues are the thing that have continued during the political changes."

Egypt's economy, still reeling from last year's revolution, which toppled Hosni Mubarak from the presidency in February, needs $10bn to $12bn of funding over the next year and a half, economists estimate. Foreign reserves have been depleted from a high of $36bn before the uprising to $10bn late last month.

Momtaz El Saieed, the finance minister, said Egypt expected to sign a $3.2bn loan agreement with the IMF next month and was negotiating for an additional $1bn of aid from the World Bank.

The Egyptian government takes in $10 million every day in revenue from Apache operations, said Mr Farris.

His company, which also operates in the US, Canada, the UK, Australia and Argentina, is the biggest concession holder in Egypt's Western Desert.

Of its 4.5 million hectares, 85 per cent is undeveloped.

This year Apache plans to drill 20 to 30 per cent more wells than last year, including in Egypt, the company said in its latest earnings report. Apache did not specify what fields or projects it planned to develop in the country.

Shares of Apache before markets opened in New York yesterday were trading at $109.45.

Although Apache continued operating in Egypt last year throughout the social unrest - including drilling 11 wells and surveying more than 2,600 square kilometres of concession area - Egypt's energy sector has not altogether avoided disruption.

The Arab Gas Pipeline, which transports Egyptian natural gas to Jordan and Israel, was attacked at least seven times last year, cutting supplies for days at a time.

But other oil and gas installations, many of which are offshore, have remained untouched. Before the revolution, Egypt produced 600,000 barrels per day of oil, most of which stayed in the domestic market.

Egypt is courting investors to develop hydrocarbons as well as downstream petrochemical projects in the face of the political and economic uncertainty.

Last month, Ismail Najdi, the chairman of Egypt's Industrial Development Authority, said Saudi Basic Industries Corporation (Sabic) planned to invest $200m in the petrochemicals sector. Sabic has not confirmed the plans.

"What will be concerning investors will be the regulatory stability and the political stability," said Ms Hunter. "The signals have been positive of continuity, but with regime change, that brings risks."

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