The oil industry is suffering as a whole. The weaker oil prices are showing no signs of fading away. This has affected the oil companies largely and EXCO Resources (XCO, Financial) is no such exception. There is large drop in the financial performance of the company and it seems keep affecting the performance in the long run as well. However, the company is still fighting to maintain its position in the market and is taking some defensive measures for the same.
Since the company cannot control the oil prices, it is focusing largely on reducing the costs. Under this, it is already working on its South Texas oil assets to reduce the costs. In addition, it is also working on acreage in not Eagle Ford but also focusing on additional productive zones such as Buda for higher returns which may help the company to maintain its position among these headwinds.
How it plans to make a comeback
To hold its position intact, EXCO is undertaking hedging initiatives. These are helpful to the company as it will give strength to the company to fight the near term volatility. But the company is largely focusing on key aspects which it can control. It is using its enhanced completion methodologies across its portfolio which will also help it to control its costs. In addition, EXCO is working on 2015 capital expenditure budgeting to manage its cash flow generation and maintaining inventory development opportunities.
Moving on, EXCO is working on reducing the operating costs and it the recent statistics show that the company has also succeeded in doing so. It is continually achieving lower drilling times per well, averaging 13 days from spud to rig release. Based on the current consumption rate, the company is expected to reduce the operating costs further. Moreover, the company is also testing different refract design to optimize costs and production further. For this, it has three refrac schedules in the fourth quarter. If this works, EXCO is planning to implement a refract campaign in 2015 as well.
Moving ahead, besides this, the company is also seeing uplift in the gas production by 5% or 6% which is also helping the company to reduce the lime pressures. EXCO is also bringing adjustments in the financial strategy of the company. Under this, it has increased its credit agreement’s borrowing base to $900 million. This will add incremental liquidity which will also enhance its asset base making it more attractive. This can also help the company to attract investors, gaining market share in the upcoming quarters. It is also monetizing its minority interests with relatively minimal impact to its EBITDA. With this capital, EXCO is focusing on developing its extensive inventory of oil and natural gas properties.
Conclusion
Now moving on the fundamentals of the stock, the company doesn’t have a trailing and the forward P/E due to the ongoing headwinds due to weaker oil prices across the globe which is affecting the oil industry as a while. Even in the next five years, the prospects of the company are not impressive. In the next five years, the company’s earnings are declining at a CAGR of -45.80% which is lesser than the industry average of 11.68%. Thus, in my opinion, EXCO is not a take away now. The oil prices are soft and are showing no signs of recovering so I would like to suggest the investors to look out for other profitable stocks.
