China's Sinopec Group Bids for Apache's Subsidiaries in Egypt

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Researched by Industrial Info Resources (Sugar Land, Texas)--China's China Petrochemical Corporation (Sinopec Group) (Shanghai, China) has signed a preliminary agreement with Apache Corporation (NYSE:APA) (Houston, Texas) to acquire a 33.3% stake in Apache's operations in Egypt. Apache holds 23 production sharing contracts (PSC) and material exploration acreage in Egypt. The contracts have durations of 20 years and are extendable for 5-year periods for a total of 35 years.

Apache began operating in Egypt in 1994, and the company acquired BP's (NYSE:BP) Western Desert operations for $650 million in November 2010. Production to Apache from its 23 PSCs was approximately 100,000 barrels per day of oil and 354 million cubic feet of natural gas per day in 2012. Assuming the deal closes as reported, Sinopec will pay $3.1 billion for 273 million barrel of oil equivalent of proven reserves, which are split 52%:48% oil to natural gas. The operations will add daily output of about 130,000 barrels of oil equivalent to Sinopec Group's production, the company said in a statement.

"Sinopec is an ideal partner for us, and we look forward to the growth and value generation ahead for both companies through the expansion of our collaboration to other projects," Steven Farris, chief executive of Apache, said in a company statement. Apache is either the direct operator or joint-venture operator with Egyptian General Petroleum Company (EGPC) (Cairo, Egypt) in all but one of its PSCs, which is operated by Shell Oil.

Egypt has been an area of material exploration for Apache. The company drilled approximately 60% of its exploration wells in Egypt in both 2011 (48 wells) and 2012 (51 wells), with a success rate of 58% and 56% respectively. The company said its exploration and production operations are in remote areas unaffected by current political risks surrounding the country.

Last July, the military coup toppled Egyptian President Mohamed Morsi, which sparked protests that have caused 1,000 lives. Morsi become the first democratically elected president in 2012 after Hosni Mubarak's three decade long governance ended in 2011 in the sidelines of the "Arab Spring."

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