XCO - EXCO

[usdtor05]

Fair enough although if you look at the pricing moves in NG they are nothing close to the sell off in the shares. Understood the stock is going to move around more than the pricing based on forward estimates but still seems off.

 

XCO sure looked manipulated at the close on Friday to me.

[valueinvesting101]

Mostly related to this:

 

http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0000316300-14-000042%2Etxt&FilePath=%5C2014%5C09%5C18%5C&CoName=EXCO+RESOURCES+INC&FormType=4&RcvdDate=9%2F18%2F2014&pdf=

 

Mark F Mulhern, Executive VP & CFO of Exco Resources Inc reported the following on a Form 4 filed with the SEC on 09/18/14:

 

Transaction                Amount          Price  Date Range            Type

-------------------------------------------------------------------------------

**Rule 16b-3**

Disposition to issuer      244,033              $0  09/16/14              Disp.

-------------------------------------------------------------------------------

Direct Holding:          70,659

Indirect Holding:              0

Total Reported Holdings:  70,659

 

[brker_guy]

Isn't this news relating to Mark F. Mulhern selling his shares bc he is leaving the company to go back to his home town in NC?

 

http://www.excoresources.com/single-news-release.htm?regid=1957361

[usdtor05]

I saw the Form 4...I can't believe the market would sell off that hard on a mis-interpretation of an insider selling stock given the situation.

 

I guess anything is possible though.

[undervalued]

Anyone adding more XCO after these few days? I want to buy more but I am doubting myself.

[frommi]

How many of Marks and Watsa picks were failures in the past? Has someone a rough % number?

[undervalued]

According to dataroma, XCO is Marks' largest position in the portfolio at 10%. And 7% of Watsa's stock portfolio. Watsa also has 16% in SD which has been falling as well these last few days.

[usdtor05]

Feeling the same way as you @undervalued.

 

All of these stocks getting clobbered but XCO seems to be doing among the worst with no news I can see at least outside of some articles around natural gas, etc.

 

Volume has certainly been up the last few days. Lots of chatter around PF clean-up etc.

If we look at the business EBITDA should come in around $400-$450M and the EV is now down to about $2.5B so paying around 5-6 times.

 

I think there is so much uncertainty here with the following:

 

1. KKR deal and what this is going to cost them on top of their capex next year (which means more debt). And the overall Eagle Ford results/price of oil at a time in which they are trying to become more liquid. This deal is complicated, I have read the contracts a couple of times and still am not sure I fully understand it. If I had to guess, KKR is going to get the better end of the deal between these two "partners".

 

2. Natural gas prices and the fact that they are in Haynesville which is one of the more expensive areas to drill in (however it is also located the closest to the new LNG terminals being build and Ross also has a play in LNG freighters)

 

3. Lack of a CEO/Management competence. You would have thought by now Ross would have made a bid (I still think he may use WLRH to do this) or put in a CEO. Something here is weird.

 

4. I think there is an inherent stomach punch feeling to this stock whenever it trades down because everyone is hoping and praying it isn't one of the Big Three or Ares, dumping. I haven't seen any Form 4s come out for the Big Three so it must not be them but when a stock is valued somewhat based on these investors being in play I think any large movement just freaks people out and they puke the stock.

 

If we put our rational hat on, always hard if we predicated an investment based on those Big Three which I think has influenced a lot of XCO share holders, we are buying producing assets at roughly 5-6 times EBITDA and we are buying assets such as the Marcellus and some Eagle Ford where they either haven't drilled or are holding back due to pricing...so there is some optionality there.

 

Also, if we believe management there are plenty of Haynesville wells that are profitable around these prices so the new revenues from wells shouldn't just dry out.

[undervalued]

They have issued about 200M of equity every quarter for the past 2 quarters so I think people are afraid they will need to keep doing that adding more debt to the balance sheet or worse, no one is willing to fund it.

[usdtor05]

Not sure what your comments means but they have actually delevered the last two quarters primarily through the equity raise, they haven't added to debt.

 

They have $740M liquidity in their revolver as of Q214

 

 

[txlaw]

I've restarted a position. 

 

The lack of any progress on the CEO front and the change in CFO position might indicate a transaction brewing.  But who knows -- it seems like something should have occurred a while back.

[CorpRaider]

Yeah, I nibbled a little on this one and TLM.  Didn't get a fill on some SD leaps.  I suppose so long as these gas rich e&p plays can make it until (what, 2017) when the ngl terminals start coming on line, it should be a nice patience/time arbitrage opportunity.  10x higher prices for the stuff in asia.

[usdtor05]

@ txlaw, I managed to miss a fill by one cent which is probably what I get for trying to bottom tick it although I already have a position in the company.

 

I still think there could be something brewing with WLRH (Ross' SPAC) purchasing EXCO with a roll-over of the Big Three so that they are not out based on their average prices, but that could just be wishful thinking. It is interesting that Ross has a position in Exco which is primarily a Haynesville play with good access to the LNG factories in LA/TX and also an investment in a LNG shipper. Could be that he is in a way trying to create a semi-vertically integrated position (although he doesn't own the LNG factories) by owning the natural gas and the shippers. Maybe he figures that is where the best value will be although I do not fully understand the economics of the LNG conversion process.

 

Would love your thoughts on any of this if you have the time.

[txlaw]

@ txlaw, I managed to miss a fill by one cent which is probably what I get for trying to bottom tick it although I already have a position in the company.

 

I still think there could be something brewing with WLRH (Ross' SPAC) purchasing EXCO with a roll-over of the Big Three so that they are not out based on their average prices, but that could just be wishful thinking. It is interesting that Ross has a position in Exco which is primarily a Haynesville play with good access to the LNG factories in LA/TX and also an investment in a LNG shipper. Could be that he is in a way trying to create a semi-vertically integrated position (although he doesn't own the LNG factories) by owning the natural gas and the shippers. Maybe he figures that is where the best value will be although I do not fully understand the economics of the LNG conversion process.

 

Would love your thoughts on any of this if you have the time.

 

I'm not sure why a SPAC would purchase a company that is already public.  Seems like it would just be a waste of money -- a bevy of unnecessary transaction costs.

 

Re: Ross' general concentration in natural gas, I think he just believes that natural gas is THE fossil fuel of the 21st century and that there will be a global nat gas market in due time.  And US assets are cheap right now for people who have long term outlooks.  I think it's as simple as that. 

 

But we'll see.

[usdtor05]

I agree with your comments on the global natural gas market that is why I thought he is taking these stakes.

 

Never thought about the costs in that way so appreciate the comment. The underwriters actually deferred the majority of their fee until a deal gets done (still paid out $8M I think off top of my head but more has been deferred). The other public costs and what not could be wiped out (their BOD, etc.). Were you thinking of other costs that I am not taking into consideration outside of transaction costs?

[yadayada]

THis thing is kind of a black box. Is there a write up somewhere on this?

 

It seems your better off investing in companies like macro enterprises, and enterprise group. You get 100's %'s of upside without the risk of natural gas prices?

[txlaw]

I agree with your comments on the global natural gas market that is why I thought he is taking these stakes.

 

Never thought about the costs in that way so appreciate the comment. The underwriters actually deferred the majority of their fee until a deal gets done (still paid out $8M I think off top of my head but more has been deferred). The other public costs and what not could be wiped out (their BOD, etc.). Were you thinking of other costs that I am not taking into consideration outside of transaction costs?

 

Well, I think the idea of a SPAC is to do a private equity style deal where the public gets to participate.  You use the pre-funded acquisition vehicle to purchase a company that is privately held.

 

But in this case, XCO is already public . . . so, what would be the point?

[txlaw]

THis thing is kind of a black box. Is there a write up somewhere on this?

 

It seems your better off investing in companies like macro enterprises, and enterprise group. You get 100's %'s of upside without the risk of natural gas prices?

 

Haha, that's a new one.  Now O&G companies are black boxes as well? ;D

[yadayada]

well tell me the different scenario's that can happen then. And please predict with a reasonable certainty where natural gas prices will go and how earnings in the next 5-10 years will be affected. I think most people here invest based on all the superstar investors that are involved with this thing.

 

It seems O&G services companies are much easier to value.

[usdtor05]

@txlaw ok I had never thought of it like that really. I worked on plenty of PE deals where they were taking out a public company although certainly they didn't create a public company to do, so I get your point.

 

I thought of this as more of a vehicle for Ross to get more permanent capital rather than your typical SPAC "private equity" type deal

 

No idea if actually goes after XCO just figured that would be one way for him to get basically full control (maybe he does now anyway) of the natural gas play.

 

Probably just overthinking it and will buy something in a completely different industry that is private as you've noted...just a thought.

[BargainValueHunter]

Where the heck is the bottom in this stock?

 

I'd hate to see what would happen if oil goes to $79 or gas down to $3!

[fareastwarriors]

Where the heck is the bottom in this stock?

 

I'd hate to see what would happen if oil goes to $79 or gas down to $3!

 

ouch,,,,

[alertmeipp]

Where the heck is the bottom in this stock?

 

I'd hate to see what would happen if oil goes to $79 or gas down to $3!

 

Just did a quick look.

 

 

This is trading at 6x ev and almost 4x debt to ebitda,  which is pretty high valuation and leverage.

 

Where is the attraction

 

 

[yadayada]

since this is a bet on LNG, your better off buying O&G service companies trading at cheap multiples. With those you don't have the downside in case LNG does not work out very well, and all the upside. But I might be wrong. Since there was a take over bid for close to 20$ by insiders (?), there might be massive value here. I just have a hard time seeing it.

[undervalued]

Wow another free fall today.