XCO - EXCO

[RRJ]

I just noticed that Prem Watsa and Wilbur Ross and Price and others all have bought into this onshore North American oil and gas producer recently, Ross in a big way, and it is 15% or more below most of their entry points.  I share Myth's skepticism as to how long it might take natgas to recover, but at the Fairfax dinner, Tom Ward said something that made me think.  He said that many gas drillers were forced by leases to keep drilling even though it was a slow collective suicide of sorts, though gas prices he felt would eventually recover at least somewhat (others please correct me if I heard him wrong on this-- I sat in the back). 

 

XCO is now relatively well financed, and seems positioned to be a survivor, potentially without having to issue much new stock or debt (famous last words).  Lots of insider buying too.  93% Nat gas, so this is close to a pure play.  Jus wondering if anyone has already looked at this one before I start researching in earnest.  Thanks in advance for any headstarts.   

[nwoodman]

Try a google search on the following

 

Dealpolitik: Exco Shows How Not to Run a Management Buyout

 

 

The CEO Miller fails one of my key tests "Do I trust management?".    I would suggest a double helping of "margin of safety".

 

FWIW it is quite possible Ross ended up holding a 10% merger arb position and is licking his wounds now that the deal has fallen over

 

Cheers

 

Nwoodman

[Myth465]

I think CHK is the best way to play nat gas. I am kicking myself for not buying and may liquidate some SD for some. The new play they discovered could be worth the market cap. They have alot of assets and will have to find a way for the stock to trade at intrinsic value sooner or later...

[rijk]

with natural gas at a 50 year low (relative to oil) and exco being a low cost producer, wouldn't it be nice to be in the company of ross and watsa with a 50+% lower cost basis?

 

regards

rijk

 

http://www.cnbc.com/id/41965572

 

http://www.cnbc.com/id/46885001

 

http://www.theglobeandmail.com/globe-investor/a-natural-gas-disconnect-bargain-bin-prices-surge-in-supplies/article2368417/

 

Grantham’s comment, from his Q4 Letter:

 

At the opposite end of the resource spectrum to record-priced Iowa farmland is natural gas. Natural gas is, for most purposes like home heating and electric utility plants, a better and cleaner fuel than oil or coal, but is for technical reasons in distress: there have been several recent decades in which the BTU equivalent price for natural gas did, at least for a second, reach parity with oil. But now it is at just 14% of BTU equivalency, the lowest in almost 50 years. Everyone who has a brain should be thinking of how to make money on this in the longer term.

Buffett’s comments, from the February 27th transcript:

 

 

BECKY: Does the price of oil make since given that economic recovery? Or is this something where people are just a little too worried about what's happening in the Middle East? Or is this a situation where you have speculators playing in the commodities markets again?

 

BUFFETT: You know, I've got no position in oil, so I don't — I don't really have a view. The one thing that's extraordinary in oil, which we've never seen and which has probably caused some people to go broke, is you have this — you have 100-plus dollar oil, $108 oil the other day, whatever it was, with $2.50 for natural gas.

 

BECKY: Right.

 

BUFFETT: Nothing like that's ever existed, and I mean, the BTU equivalent, you know, people say that can't happen. So people that have gone long natural gas and short oil are really feeling the pain. I wouldn't be surprised if even the unwinding of some of those positions could cause some of what goes on in both markets, but this is — this is extraordinary. I mean, and you would've said it couldn't happen, but that's like saying before Long-Term Capital Management, you know, you couldn't have had 30-year Treasurys and 29 1/2-year Treasurys with 30 basis point spread. You never — you want to be very careful in markets saying something can't happen.

 

BECKY: In your annual letter, you actually said that you had guessed wrong on where natural gas prices were going to be headed and that was one of the issues that you wish you had done.

 

BUFFETT: Did I ever? Yeah. Yeah. Like a billion dollars worth plus.

[rijk]

ross admits that he is early on natural gas but thinks the bottom is near

 

thinks ireland has a better future than "club med countries"

 

http://www.valuewalk.com/2012/04/wilbur-ross-bad-times-ending-for-nat-gas-just-starting-for-bonds/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

 

[link01]

revisiting nat. gas theme plays some of you might find this illuminating:

 

http://soberlook.com/2012/04/economics-101-supply-and-demand.html?utm_source=BP_recent

 

 

[WarrenWatsa]

Ross adds to his XCO position significantly:

http://www.thestreet.com/story/11597055/1/insiders-trading-xco-ebix-plce-uve.html?puc=yahoo&cm_ven=YAHOO

[txlaw]

As expected, Wilbur Ross is using XCO as a platform to buy up nat gas assets.  Interesting that he is purposefully going to the Chinese to find JV partners.

 

http://www.reuters.com/article/2012/09/25/us-finance-wlross-idUSBRE88O00G20120925

[Guest hellsten]

Couldn't help myself, with Howard Marks, Wilbur Ross and FFH interested, I had to have a brief look at the company.

 

http://dealbook.nytimes.com/2010/11/01/a-big-bet-on-exco-and-natural-gas/

 

Exco’s stock price reached a high of $38.01 in early July 2008, when natural gas was nearing $14 per million British thermal units.

 

Since then, natural gas has fallen sharply. It is now trading near $4 per million British thermal units.

 

http://dealbook.nytimes.com/2011/01/13/exco-board-is-mulling-ceos-buyout-bid/

 

The board of Exco Resources, an oil and gas producer based in Dallas, said on Thursday that it was considering a buyout offer made by Douglas H. Miller, the company’s chief executive officer, which values Exco at $4.35 billion.

…

Mr. Miller said in his October letter that he had the support of Oaktree Capital Management, Ares Management and T. Boone Pickens, three of Exco’s major shareholders.

 

http://www.excoresources.com/single-news-release.htm?regid=1489519

 

I am pleased to express my interest in acquiring all of the outstanding shares of common stock of EXCO Resources, Inc. (the "Company") at a cash purchase price of $20.50 per share. I have preliminarily discussed this proposal with Oaktree Capital Management, L.P., on behalf of its funds and accounts under management, Ares Management LLC, on behalf of one or more of its funds under management, and Boone Pickens, and each has expressed an interest in pursuing the acquisition with me.

 

I believe that $20.50 per share is very compelling and in the best interest of the Company and its public shareholders and that the shareholders will find this proposal attractive. This valuation represents a premium of 38% over today's closing price of the Company's common shares. The acquisition would be in the form of a merger of the Company with a newly-formed acquisition vehicle.

 

http://www.marketwatch.com/story/exco-ceo-says-buyout-bid-lost-major-player-at-end-2011-07-13

 

Chief Executive Douglas Miller said Wednesday that his bid to take the oil and natural-gas explorer private lost "a major player" as negotiations dragged into their eighth month, dooming the effort.

 

"I will take full responsibility for that," Miller said on a webcast presentation. "It was a long, tedious process."

 

http://www.businessweek.com/news/2011-07-07/exco-ceo-miller-is-said-to-lower-buyout-offer-to-4-billion.html

 

If approved, the deal would be Miller’s third buyout of Exco. The former Coda Energy Inc. executive bought 51 percent of Exco in 1997, leaving the rest of the shares publicly traded, and became CEO.

 

In 2003, he took the company private through a buyout with backing from Cerberus Capital Management LP. He listed shares again in 2006.

 

 

http://blogs.wsj.com/deals/2012/03/05/exco-resources-names-wilbur-ross-to-its-board/

 

Ross reached a standstill agreement with Exco last summer, agreeing to remain a passive investor and acquire no more than a 20% stake in the company. The pact expires Feb. 3, 2013.

 

http://seekingalpha.com/article/768621-exco-resources-i-m-gassy-and-i-ve-fallen-but-i-will-get-up

 

http://static.cdn-seekingalpha.com/uploads/2012/7/31/53637-13437862364173527-Steve-Zachritz.jpg

 

More:

http://seekingalpha.com/article/1176391-exco-resources-inc-a-long-term-play-on-natural-gas

http://seekingalpha.com/article/1154751-exco-resources-wilbur-ross-howard-marks-all-in-on-this-beaten-up-stock

http://www.insidermonkey.com/blog/insider-trading-wl-ross-co-bought-shares-in-xco-9700/

 

XCO certainly looks like an interesting leveraged play on natural gas. I guess someone will buy XCO soon ;)

[Guest hellsten]

Good Haven also owns XCO:

In this report, we also disclosed investments in two natural gas producers.

Although we did not report these positions promptly after purchase,

10 we opportunistically invested in Birchcliff Energy Ltd. and Exco Resources, Inc. in early

2012. At the time, the stock prices of many explorers and producers of natural gas

had collapsed when gas prices plummeted below $2 per thousand cubic feet (mcf).

We held back disclosure as we thought we might get a chance to buy debt or more

equity at highly distressed prices and did not want to create unnecessary competition.

Both companies have significant owners with access to large financial resources,

significant reserves in relation to our purchase price, and both were the subject of

previously failed acquisition attempts at prices far above our cost. For a variety of

reasons, not least of which was the enormous energy differential between oil and gas,

we thought that gas prices were likely to stabilize over time at higher prices.

Although we have no ironclad views on the long-term price of natural gas, prices

have now recovered to close to $4 per mcf on the forward curve, confirming a

significant margin of safety on our purchases.

Source http://www.goodhavenfunds.com/media/pdfs/2012_AR.pdf

 

[Pensionguy]

Anyone have any thoughts on the deal with Harbinger?

[muscleman]

XCO has only 1 TCF of proved reserves. CHK has 15 TCF of proved reserves, and it has a good liquid production.

XCO is more expensive on price/proved reserved than CHK, not to say the quality of the reserves in CHK is higher.

[muscleman]

Where can I get some info about its probable and possible reserves? The proved reserves of only 1 TCF (and 0.7 TCF pro forma) doesn't seem attractive to me.

[muscleman]

In the latest cc, the CEO said:"what you have today is 96% PDP. I mean, we only have 4% left, and I think we're drilling those". Does this mean that they think the 1 TCF number is only 4% of the total resource potential? If that is true, then it is HUGE. What does PDP mean? I know something like PUD means proved undeveloped.

[T-bone1]

In the latest cc, the CEO said:"what you have today is 96% PDP. I mean, we only have 4% left, and I think we're drilling those". Does this mean that they think the 1 TCF number is only 4% of the total resource potential? If that is true, then it is HUGE. What does PDP mean? I know something like PUD means proved undeveloped.

 

PDP is "proved developed producing" - essentially the reserves that remain in your producing wells

 

I think he is basically saying: so much of our reserves have been written off, that only 4% of our proved reserves are undeveloped.  The implication is that they are getting almost no credit in the "proved reserves" figure for all of the recoverable gas they have in their undrilled land

[muscleman]

In the latest cc, the CEO said:"what you have today is 96% PDP. I mean, we only have 4% left, and I think we're drilling those". Does this mean that they think the 1 TCF number is only 4% of the total resource potential? If that is true, then it is HUGE. What does PDP mean? I know something like PUD means proved undeveloped.

 

PDP is "proved developed producing" - essentially the reserves that remain in your producing wells

 

I think he is basically saying: so much of our reserves have been written off, that only 4% of our proved reserves are undeveloped.  The implication is that they are getting almost no credit in the "proved reserves" figure for all of the recoverable gas they have in their undrilled land

 

I see. So it is like, they had 20 TCF of proved reserves when gas was $7, and now gas is $3 and they are forced to write off 96% of that, and they had only 1 TCF left?

Now 19 TCF turns from proved to probable and possible reserves, right?

Ok. I start to get it now. I think if they have 20 TCF resource potential and they have the opportunity to acquire more distressed gas assets then it will be a very good investment.

 

On the other hand, I still like my CHK position. They have 15 TCF proved reserve at current price, so there must be way more resource potential.

 

I am long CHK, SD and XCO now, with XCO the smallest position, but I am planning to add. :)

[muscleman]

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7355940-5576-236623&type=sect&TabIndex=2&companyid=157&ppu=%252fdefault.aspx%253fsym%253dXCO

 

This contains the July 2010 presentation about NAV. They think it should be $25-37 per share. In 2010 around July, the gas price was 6.5.

It is only 4 now, so I think the NAV is probably negative at this moment. But if it goes back to $6, the NAV should go back up there.

They stopped talking about NAV shortly after that presentation as the CEO tried to take the company private at $20 per share.

If they could buy some distressed assets now, then their NAV would be very nice at a $6 gas.

[txlaw]

Exco buying Eagle Ford assets from CHK.

 

http://www.bloomberg.com/news/2013-07-03/exco-to-buy-chesapeake-oil-and-gas-assets-for-1-billion.html

 

Jefferies advised, of course.

 

Edit: Looks like they're buying Eagle Ford and Haynesville assets.  And KKR will be a partner for the Eagle Ford assets.

[fareastwarriors]

http://www.bloomberg.com/article/2013-08-05/aOfJndw0EhKg.html

 

EXCO Resources, Inc. Reports Second Quarter 2013 Results

 

[muscleman]

Does anyone hold this?

I owned it briefly this year, but decided that this is really hard to understand the valuation, so I sold.

If natural gas price dose not go up, it seems very overvalued at today's price. Thoughts?

[phil_Buffett]

i bought a few Shares after i Drops the last month. buying more every time it Drops more.

you are right when nat gas Prices going down the stock is not so good. but Long term nat gas Prices only can go up. they are so low in North america in comparison to Europe and Asia. Wilbur Ross, Howard Marks, and Prem Watsa have significant stakes in Exco and Ross and Marks are big in the red with average Price around 16-20$. so i can sleep well with this stock

[muscleman]

i bought a few Shares after i Drops the last month. buying more every time it Drops more.

you are right when nat gas Prices going down the stock is not so good. but Long term nat gas Prices only can go up. they are so low in North america in comparison to Europe and Asia. Wilbur Ross, Howard Marks, and Prem Watsa have significant stakes in Exco and Ross and Marks are big in the red with average Price around 16-20$. so i can sleep well with this stock

 

Well, the reason that I got interested in this stock is also because those big boys are in.

But the problem is that I can't make a good valuation for XCO.

We could say, if gas price is $5, XCO is worth $20, maybe? But how about other gas companies like CHK, SD? Or even SWN?

If we look at the price/sales ratio, 1.17 for CHK and 2.54 for XCO.

CHK has 60% of revenue from oil, and it kept growing at 20% a year.

If we remove the oil revenue, CHK's price/sales ratio is about the same as XCO. This means if gas goes up to $5, CHK gets the same upside as XCO in gas, but then I get those oil operations for free.

 

So my question is, what makes XCO a unique investment that CHK or even SD doesn't have?

[phil_Buffett]

you are absolutely right muscleman. chk has the best Portfolio for near future. i like the Company very much.

 

i see in Exco the big Boys, which is definetly a very high sign of confidence for me, especially ross and marks. then you have a Company which is producing gas at a very low cost, around 1,5$ i think. and you have the potenial big upside of nat gas in the next years. Exco is a pure conviction Play on nat gas in the US.

 

SD is a Play on the miss. Areas, also a lot of gas and oil. i have also a lot of Shares in SD. i like CHK, XCO and SD

[muscleman]

you are absolutely right muscleman. chk has the best Portfolio for near future. i like the Company very much.

 

i see in Exco the big Boys, which is definetly a very high sign of confidence for me, especially ross and marks. then you have a Company which is producing gas at a very low cost, around 1,5$ i think. and you have the potenial big upside of nat gas in the next years. Exco is a pure conviction Play on nat gas in the US.

 

SD is a Play on the miss. Areas, also a lot of gas and oil. i have also a lot of Shares in SD. i like CHK, XCO and SD

 

I used to have all three at the beginning of the year. I sold out XCO for the above concerns.

For SD, I really can't understand its yield curve and IRR, so I sold as well.

[fareastwarriors]

http://www.bloomberg.com/article/2013-10-29/a1aVG8jjGvo4.html

 

EXCO Resources, Inc. Reports Third Quarter 2013 Results