Horizon Kinetics Comments on WPX Energy
WPX Energy (WPX) was a December 2011 spin-off from The Williams Companies (“Williams”). Williams was (and remains, at $22 billion) a large capitalization stock. Williams is a natural gas pipeline company, which is a highly stable, high free cash flow generating business that currently pays a 3.5% dividend yield. WPX is a natural gas exploration company, considered a mid-cap stock (at $3.5 billion), and pays no dividend. What one might term the natural Williams shareholder, interested in a blue-chip, large cap, pipeline-type, income oriented equity is not the natural holder of WPX. This is exactly the type of spin-off that is sold from or excluded from mutual funds or ETFs that hold a Williams-type company, and these are some of the classic reasons that spin-off companies trade at low, often deeply discounted valuations. In the case of WPX, by a variety of measures, such as its price relative to its reserves, the shares might be fairly valued at twice the current price. Time will tell.