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Apache’s Deal in Egypt Another Brick in the Wall

Paul Ausick

Independent oil and gas exploration and production company Apache Corp. (APA) announced after markets closed on Thursday that it had launched a global strategic partnership with a subsidiary of Chinese oil giant Sinopec in order to “pursue joint upstream oil and gas projects.” The first deal in this new joint venture will be a payment of $3.1 billion in cash from Sinopec to Apache in exchange for one-third of Apache’s Egyptian oil and gas business.

Apache has been trying to rationalize its portfolio for a couple of years now. The company acquired more than $16 billion in assets over the past three years and said in May that it plans to sell off $4 billion in assets by the end of this year. The oil and gas company plans to use half the receipts from the projected $4 billion in asset sales to pay down debt and the other half to repurchase stock.

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In the company’s second quarter, Apache’s Egyptian production accounted for 19% of its total 790,000 barrels of oil equivalent daily global production. Egyptian production is about 56% oil, and the company reported that oil production was down by about 2,500 barrels a day in the second quarter due to increasing water cuts in some areas. Having a deep-pocketed partner can help Apache make new discoveries that will take up the slack from slower production at existing wells. All in all, Apache did a smart thing.

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Shares trading up about 7.5% in Friday’s premarket at $84.50 in a 52-week range of $67.91 to $94.87.

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