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.
As an aside – here is an interesting blog post from NYU Prof. Aswath Damodaran about valuing companies in countries where nationalization risk exists. While this is taken from his blog, it’s also worth checking out his main site damodaran.com which is also jam packed with great information
http://www.aswathdamodaran.blogspot.com/2012/04/governments-and-value-part-1.html
What I find interesting here is how management views the APCO stake. On a market cap basis, one could argue 69% of WPX should be APCO. On the other hand, about half of the vast majority of “proven reserves” are undeveloped and are in the US, I believe somewhere around 95%. APCO is vastly overvalued despite the recent drop in price. Much of this was due to the fact that no one, including Damodaran, thought Argentina would nationalize nat gas as the cost to build infrastructure may far outweigh available capital over the next five to ten years.
i dont know what you people are talking about, value WPX without its APCO stake, and its just as cheap if not cheaper than a lot of other natural gas E&P co’s.
This is simple to do do with WPX because International Segment holds APCO and they break out performance between domestic and international out for investors..