Will Oil Production in Argentina Be Able to Follow Brazil?

Includes: APA, REPYY, TGS, YPF
by: Emerging Money

Argentina is home of some truly impressive untapped onshore oil reserves, but the lack of investment capital has pushed production into a decline. That may turn around soon.

TGS: Transportadora De Gas Del Sur transports gas across Argentina and should be considered a small-cap blend play.

Valuation seems inexpensive with a P/E value of 10.2512, well below average peer P/E of 16.33. Margins are strong and the company has a debt to total capital ratio of 31.79% -- in line with industry norms. With an interest coverage ratio of 4.28 and a quick ratio of 2.44, the company should be able to easily repay debt.

Short interest is nearly nonexistent at 0.06% because it would be very unpleasant to be caught in a squeeze on this very illiquid stock. Institutions own 17.28% of the float.

Bottom line: This small-cap stock just has too much risk with virtually no ADR volume.

APA: Apache is a U.S. company with significant interests in Argentina.

APA seems inexpensive with a PEG value of 1.6831 and a P/E of 13.6334, both well below the industry averages. The company is richly profitable, with an operation margin of 43.62%, and has a debt to total capital ratio of 22.09%. With an interest coverage ratio of 25.89 and a quick ratio of 1.82 the company should be able to comfortably repay its debt. Short interest is 2.77% and institutional interest is deep -- 78.58% of all outstanding shares are owned by pension funds and other large investors.

Bottom line: This U.S. company owns 1.55 million acres of Argentina and is already producing 100,000 barrels of oil a day in that country. This is a significant play on the country and its hydrocarbon assets.

YPF: YPF is technically a subsidiary of Spain's Repsol REP, but some shares still trade independently.

In itself, YPF seems fairly valued with a P/E value of 10.9949, somewhat cheaper than the industry median of 12.92. As an independent operation, the company would be considered one of the more profitable players in the industry with a net margin of 14.17%. Debt to capital ratio is in line with peers.

Given that the company's operating profits are 11.9, greater than interest payments, there should be little difficulty in repaying debt. Short interest and institutional float are a minimal 0.33% and 0.02%, respectively. REP owns most of the shares outright, although there have been rumors of a fresh offering.

Bottom line: YPF is one of Latin America's biggest oil producers and even an outright sale to China, much as the company recently struck with its Brazilian subsidiary, presents a significant share of its corporate parent's reserves and production.

Disclosure: No positions