Energy investor EnCap Investments withdrew a stake in the U.S. shale business this month. The $2.5 billion sale of oil producer Felix Energy to competitor WPX Energy, reaching a contract at a time when energy mergers have all but dried up.
EnCap’s big payday, 153 million WPX shares worth $1.6 billion-plus $900 million in cash, proved short-lived as tanking oil and stock markets shed about two-thirds off the worth of WPX stocks within days of the closing.
Shale firms and their investors have been divesting operations to raise money for a number of years, often cultivating the proceeds into drilling and share buybacks. However, sellers who took and held onto stocks for those assets are facing yet one more hit from the oil market fall.
Many already are suffering from oil prices that last week dropped the most in ten years, to around $31 per barrel, and plummeting demand from a global economy worsened by the coronavirus. The magnitude of the price plunge will hurt the companies’ ability to borrow against their newly-less-valuable reserves of oil and gas.
Those that held shares in other energy corporations face potential multi-million-greenback hits to earnings when they reconcile the value of acquired shares to the latest price.
EnCap’s 153 million stocks in WPX Friday had been valued at about $688.5 million, down some $911 million from the original price. As a private equity agency, it is going to distribute shares to investors.
Firms could have some discretion over when they take the write-down, stated Pirrong, and will probably wait a quarter to see if the stock recovers from its slump.