The big news out of South America this week is that on Monday, the government of Argentina pulled a Chavez and nationalized YPF, its largest oil and gas company. YPF had been majority owned by Spain’s Repsol (look at that Euro clout). The Argentinian government appears increasingly less investor friendly and now it looks like the energy industry, an area of “national public interest”, is right in its crosshairs. This could be a problem for WPX Energy (WPX), the recent spin out of Williams. As we noted in our earlier posts, in addition to its shale assets in the US, the company also has a 69% ownership stake in Apco Oil & Gas International (APAGF) which operates mainly in…you guessed it Argentina. According to its recent 10-K, the company also “hold[s] additional international assets in northwest Argentina that are not part of Apco’s holdings.”
Both YPF and Repsol were obviously crushed on the news, but the entire Argentinian market has been suffering as well. Here is a table examining Apco’s recent performance looking at the Friday close prior to Ms. Kirchner’s Monday announcement:
|Company Name||Shares Outst. (M)||4/13 Share Price ($)||4/13 Market Cap (M)||Current Price ($)||Current Market Cap (M)|
|Apco Oil & Gas International Inc.||29.4||51.5||1,516.22||42.7||1,237.42|
|WPX Energy, Inc.||198.6||16.0||3,168.12||15.6||3,086.68|
Not surprisingly, Apco has taken a nice hit to its value, losing about 20%. However, it doesn’t look like WPX’s shares have responded in kind:
|Apco Market Cap Loss (M)||278.8|
|WPX 69% Stake (M)||192.4|
|WPX Actual Lost MC (M)||81.4|
The discrepancy isn’t all the great (maybe another -3.5% of value), but the possibility that Apco is a complete zero or highly overvalued cannot be ignored anymore. Now this doesn’t mean anything in and of itself as other things affect WPX’s value and WPX shares might have already been heavily discounting its Apco stake, which is still worth ~$853m. It’s worth noting that Apco currently represents only a very small amount of WPX’s reserves and revenues and WPX really seems to view itself as a domestic producer. This could also become a significant distraction for management which would also hurt the company.
I hope to dig into WPX a bit more in the coming days to come up with some type of valuation and see if something can be constructed here (on either side or maybe a stub) – with a quick glance maybe the Apco stake is even being discounted too much? What do you think?
Disclosure: Author currently holds no position in any stock mentioned.