Losing Egypt won't be a disaster for Apache
Egypt has become a major focus of attention and sore point for Apache (APA) investors due to political instability. At the company's recent investor day, CEO Steven Farris stated that he fielded more questions about Egypt than about any other single topic, highlighting the importance of the issue to investors. The company generates some 25-30% of its cash flow from Egypt, making a change of regime quite risky due to the possibility of higher tax rates or a confiscation of assets. Even with the loss of a substantial portion of Egyptian cash flow, the company remains at worst fairly valued and at best significantly undervalued, in my view, and the market does not need to recognize the discrepancy for investors to benefit over the long-term.
Recent political trends in Egypt are not giving investors much in the way of positive news. The country's recently elected parliament, dominated as it was by the Muslim Brotherhood, was dissolved by the nominal order of the country's high court, a move supported and enforced by the ruling military government. The dissolution occurred on the brink of a presidential election which some are saying was likely won by the Muslim Brotherhood candidate Mohammed Morsy. From Reuters:
...at least one electoral official privately endorsed Morsy's claim to be leading by 52 percent to 48 with the bulk of votes counted...
Further, the military government preemptively constrained the powers of the new president in a decree issued on Sunday June 17th as reported by Reuters. Seeing the possibility of both a Muslim Brotherhood controlled parliament and presidency, it is possible the military government put the brakes on the process to tilt the playing field in its favor. The Muslim Brotherhood suffered for decades under the rule of Hosni Mubarak, who was aligned with the current members of the military government and previously was Commander of the Air Force. Morsy himself was a political prisoner under the former regime so it should be clear that the two sides are diametrically opposed.