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Energy Winners: Apache Reverses Egypt Loss

Stocks in this article: APA BP

(Apache Corp., Egypt political risk story updated for Monday trading, analyst commentary) NEW YORK ( TheStreet) -- Between cyclones in Australian and Egyptian political upheaval, it was a bad news cycle for Apache Corp. (APA) last week, but amid a major rally in energy stocks on Monday, Apache has reversed its big losses.

Shares of Apache were up 2.7% on Monday as the protests in Egypt continued -- and continued to highlight the biggest company-specific risk in Apache shares: more than 20% of total production and roughly 30% of revenue from Egypt.

Apache shares began to sell off last Thursday and lost 8.5% last week. The shares weren't all the way back on Monday, but clearly some investors read last week's dip as an opportune entry point.

On Monday, Goldman Sachs reiterated a buy on Apache and said that fears related to its Egypt exposure were overblown. Raymond James also made the bullish case for Apache on Monday and reiterated its overweight rating, contending in its Monday report that even in the event that President Mubarak is ousted, an Islamic takeover in Egypt is not likely; regime change in Egypt carries a limited read-through for the Persian Gulf; and the risk to foreign oil and gas assets in Egypt should not be overstated.

Raymond James also argues that market fears that Egypt's turmoil could spread eastward, toward Saudi Arabia and the rest of the Gulf oil producers, are misplaced. "This is the modern-day equivalent of the Domino Theory. During the Cold War, especially in the early years, western geostrategy was based on the idea that if one country falls to communism, its neighbors will be at risk of following suit. So, for example, if Vietnam turned communist, then it would be Thailand, then Indonesia, and finally Australia and even the U.S. West Coast would be threatened. Of course, as we know from history, things didn't actually work out that way. The same is true of Middle Eastern politics. A power shift in Egypt -- even in the remote scenario of an Islamist takeover -- does not mean that Saudi Arabia will be next," Raymond James analysts wrote on Monday.

The selloff that began on Thursday, weren't just triggered by Egyptian political unrest. Apache announced last week that cyclones in Australia had caused a production shutdown to major oil fields, but by the weekend the company announced that the shutdown had ended.

Between the bad weather and the headline risk in Egypt, Apache couldn't catch a break last week, yet it caught the tailwind of the energy sector rally and major Street endorsements on Monday.

Egypt will continue to be a major mover for Apache shares (see chart above). While the Australian cyclones could lead to a weaker first quarter than the Street had modeled, the Egyptian political unrest, and the existential crisis for Mubarak's regime, can dovetail with an existential crisis for Apache's core production in the country.

Crude oil continued its rally on Monday, too, with Brent crude above $100 and U.S. crude trading above $92.

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