IMO the recent IMF deal with Argentina gives vpi an opportunity to unload these assets to a larger company such as ECA (the buyer of the Ecuadorian assets); from a risk/reward perspective these assets represent too large a % of total assets for a company vpi's size; proceeds could be used to reduce debt further (I would like to see a debt equity ratio of 35% or less), buy back stock or increase dividends (assuming the Bush package passes)
Why sell them now when it looks like the worm has turned. Say they get $3 per barrel of proven..that's $600 million..buy back debt on open market??? pay more dividends??? not sure E&Ps are big beneficiaries of Bush program due to tax rates??? I'd hold Argentina...it appears to have more upside than downside...sell when your assets are overvalued not undervalued( easy to say hard to do). Are you suggesting VPI would be more effective with just $200 million in debt? I think their plan continues to be one of grow..not shrink...if you want less debt maybe another E&P is better for you as VPI has stated 50% debt would be at low end of their capitalization profile.
I am not saying to use all of the proceeds to reduce debt; based on the Ecuadorian asset sale the debt/equity ratio should be 42-45%; I would use the proceeds to reduce debt/equity to 30-35% and use the rest to buy back stock via a dutch auction and fund north american exploration efforts; I believe mgt is executing well-- perhaps I just believe a company of vpi's size should stick with north america
That presumes someone wants to buy them. The market for Argentine assets is quite low at the moment. ECA bought the Ecuadorian assets because they already have a large presence there and the price was dirt cheap. PBR or Repsol might be likely bidders -- but they'd have to pay cash since their stock prices are so low.