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Egyptian Oil Operations Abandoned as Protests Disrupt Energy Industry

By , Contributing Writer, Money Morning •

Several large oil companies are shutting down operations in Egypt as six days of protests against President Hosni Mubarak's regime have disrupted the oil and gas industry.

The nation's military closed ranks with the government leadership but allowed protestors to continue mass demonstrations in defiance of a curfew as further unrest spread through the streets of Cairo. Mohamed ElBaradei, the former head of the United Nations' nuclear watchdog agency, has emerged as the favorite among opposition leaders to replace Mubarak.

Statoil ASA (NYSE ADR: STO), Norway's largest oil company, halted drilling in Egypt as other companies, including Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) and BP PLC (NYSE ADR: BP), shut down local offices and started evacuating the families of expatriate workers as well as non-essential staff.

BP, the largest foreign investor in Egypt, began relocating workers, as did Russia's OAO Novatek and OAO Lukoi. Italy's Eni SpA (NYSE ADR: E) is repatriating 250 employees from Cairo.

Statoil stopped drilling yesterday (Monday) due to the growing political unrest, Baard Glad Pedersen, a company spokesman told Bloomberg News. Statoil has "a few dozen" employees in Egypt, he said.

Statoil in October started drilling with Transocean Ltd.'s (NYSE: RIG) Discoverer Americas rig in the El Dabaa area, west of the Nile Delta.

"Due to the uncertainty tied to the current situation and how long it will last, we've chosen to reduce activity offshore to a minimum," said Glad Pedersen. "We're in the process of halting drilling operations."

Meanwhile, Shell has evacuated "non-essential" staff and their dependents from Egypt, company spokesman Kim Blomley said Monday in an e-mailed statement.

"Given the development of events over the weekend, it was decided to temporarily relocate expatriate staff, dependents and some non-essential expatriate staff," said Blomley. "A number of senior and key personnel, including the Shell Egypt country chair, remain in the country."

Egypt has Africa's third-largest gas and sixth-biggest oil reserves. The country pumped 742,000 barrels of crude a day and 62.7 billion cubic meters of gas in 2009, according to BP data.

Egypt's oil and gas production based in the Western Desert, Nile Delta, and Gulf of Suez, has not yet been affected by the protests, according to western oil companies Bloomberg surveyed.

An estimated 1 million barrels a day of crude and refined products moved north through the Suez Canal to the Mediterranean in 2009, while 800,000 moved daily southbound into the Red Sea, according to the U.S. Energy Information Administration.

"The real concern from an oil and gas perspective is the risk of political unrest extending to other parts of North Africa," Bank of America Corp.'s (NYSE: BAC) Merrill Lynch unit said in a report.

The shares of oil and gas producers with operations in Egypt and North Africa dropped. BG Group PLC (PINK: BRGXF), fell as much as 1.4% in London. Eni, Italy's largest oil producer, fell by as much 1.7% in Milan.
Circle Oil PLC, an exploration company with fields in Egypt, Morocco and Tunisia, dropped for a third day, declining as much as 4.7% in London.

Investors continued to be concerned that the turmoil may spread to other countries in the Persian Gulf, which controls more than 50% of the world's proven oil reserves. Egypt's benchmark EGX 30 Index plummeted 16% in its last two trading sessions. The stock exchange was closed Monday.

Other big international companies outside the energy business also began to halt operations in Egypt yesterday but appear ready to resume production as soon as law and order is restored. Shipping in the Suez Canal remained unaffected.

Chemicals company Akzo Nobel NV, Dutch brewer Heineken NV (PINK ADR: HINKI), consumer-products giant Unilever NV (NYSE ADR: UL), Japanese automaker Nissan Motor Co. (PINK ADR: NSANY), French building materials company Lafarge SA (PINK: LFRGY) and General Motors Co. (NYSE: GM) were among companies suspending operations, according to The Wall Street Journal.

Lafarge's production in Egypt had been "temporarily stopped because of the situation," a spokeswoman for the company told The Journal. The company, which has six quarries and 62 ready-mix plants on top of six cement-production sites in Egypt, will resume production as soon as conditions in the country allows, she said.

Lafarge evacuated about 30 Cairo-based expatriates and their families on Sunday. It employs 8,172 workers in Egypt. Its Egypt operations account for about 4% of its annual revenue, The Journal reported.

Heineken suspended production, evacuated its 25 expatriate employees on private planes and instructed its local employees to stay at home. It wasn't clear when operations will be resumed or what the cost will be to restart them, a spokesman said.

SNS Securities analyst Richard Withagen told The Journal the country is Heineken's most important market in North Africa with estimated sales of more than $220 million (160 million euros). The brewer employs 2,040 people in Egypt.

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