Energy Prospectus

The only significant risk for TGA in Egypt is that the new government will cancel or try to renegotiate concession agreements. I doubt that will happen. The new government will have enough to deal with and can't afford to cause a reduction in their oil & gas revenues. - Dan

On Monday January 31, 2011, 12:14 pm EST
Turmoil in Egypt has sent a message to rulers through the region that they need to get "ahead of the curve" or face similar destabilizing problems, Pimco's Mohamed El-Erian told CNBC.

While El-Erian, co-CEO of the world's largest bond fund manager, dismissed comparisons to the Iranian revolution of 1979, he said the unrest is nonetheless important for what it signifies regarding the mood on the Arab street.

"What happens is the rulers in the Middle East will understand that the combination of unemployment, high prices and the demonstration effect are such that they need to get ahead of the curve," he said. "It's the same for US foreign policy-understanding that you need to get ahead of the curve and that people matter."

Egypt exploded last week with violent protests against the government of President Hosni Mubarak.

At the center of the unrest were soaring food prices that triggered the large, impoverished population into protests similar to those that had happened in Tunisia, Yemen and elsewhere over the past several weeks.

In the US, the stock market sold off aggressively on Friday as concerns about trade disruptions worried investors.

But El-Erian said Egypt will remain an ally and a friendly trading partner, even as it charts a new direction.


"It is both possible and probable that the strong relationship with the US will remain. There is tremendous respect for the US there," he said. "Don't forget, Egypt relies on tourism, Egypt relies on the Suez Canal. I think you will see a continued ally for the US in the region, but it will be an ally that is moving forward and will look different than what it looked like before."

As for investors, El-Erian urged caution but said a market overreaction could create opportunities.

"We think of it as having to play both defense and offense," he said. "On the defense side, we have a concept at Pimco of safe spreads-make sure you understand where your real purchasing power is coming from as investors. On the offense side, we're starting to see some pretty indiscriminate selling. At some point Egyptian instruments in themselves will offer some value."

I just talked to TGA's IR manager. He said they should be putting out a press release later this week. So far, there has been no impact on TGA's field operations as a result of the protests.

From the Pritchard morning report:

APA ($114.84-B-$126) – Egyptian risk overdone, buying oppty
• Stock reflects 45% loss of Egyptian asset value
• Estimating value of Egyptian assets at $7.3 billion on NAV basis
• Expecting Egyptian assets to generate 2.2 billion of cashflow in 2011
• Revising Q4 2010 and full year 2011 and 2012 EPS/CFPS estimates to $2.50/$5.55, $10.84/$24.20 and $11.88/$25.84 from $2.44/$5.52, $10.87/$24.27 and $11.48/$24.97

BEXP ($28.63-B-$33) – Raising NAV, PT, and estimates
• Raising NAV to $33 from $31
• Increasing price target to $33 from $28
• Q4 2010 EPS/CFPS estimates go to $0.24/$0.43 from $0.19/$0.36
• Raising 2011 EPS/CFPS estimates to $1.30/$2.30 from $1.24/$2.21
Per my model, BEXP has a shot at $3.00 CFPS in 2011. - Dan

APA – Egyptian Risk Overdone, Good Buying Opportunity – We believe that the reaction to the turmoil in Egypt is overdone and creates a good buying opportunity for those who felt like they missed the boat when the stock hit its 52-week high on January 18. Street protests and political turmoil in Egypt have taken almost $3.3 billion off APA's market value reflecting a 45% loss in estimated NAV for APA's Egyptian assets. In fact an almost 70% asset loss was built into stock at one point on Friday. Egypt is no Venezuela and an assumption of a 45% loss of asset value looks overdone despite the volatile political situation in the country. Although it is very hard to predict how the Egyptian political landscape will look like over the coming days, it looks more to us like a step forward than a step backward and could potentially mean more economic openness in the country. APA's operations in Egypt are primarily based in the western desert, far from the turmoil in the major cities. APA maintains only a minimal level of staff (less than 75 expatriates) in the country and the field operations are conducted by its Egyptian partner Khalda Petroleum. As the second biggest producer in the country, APA is a critical part to the Egyptian E&P industry. APA not only drills almost half of the wells in the country but also is the driving force behind the badly needed onshore exploratory efforts in the country. We estimate that APA will report EPS/CFPS of $2.50/$5.55 for Q4 2010. EPS would have been about $0.12 higher had it not been for the Van Gogh downtime in Australia. More details in our APA note published today. We maintain our Buy rating on the stock.

Eqyptian Unrest Has TransGlobe Energy Shares Off 10% 01/31 01:20 PM


02:20 PM Eastern Standard Time, 01/31/2011 (MidnightTrader) -- TransGlobe Energy Corp (TGA:$12.15,00$0.00,000.00%) is now more than 10% as traders weigh the potential impact of civic unrest on the company's projects in Eqypt and Yemen. TransGlobe currently operates two wells in the Gulf of Suez basin southeast of Cairo along with an exploration well also in Eqypt in the East Ghazalat concession near the Western Desert and two more exploration wells in Yemen. The company also had contracted a rig to start drilling on the Nugra Block in Epypt during January although it has not said whether that work has been affected by the turmoil in Cairo and other cities. TGL.TO shares are now down more than 15% since Thursday, when demonstrations against the current Eqyptian government escalated. Price: 12.03, Change: -1.38, Percent Change: -10
http://www.midnighttrader.com