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Wilbur Ross Doubles on EXCO Resources

July 29, 2011 | About:
Wilbur Ross is the founder of private equity firm WL Ross & Co. He is best known for restructuring failed companies in industries such as steel, coal, telecommunications, foreign investment, and textiles and turning them into profitable investments. He also specializes in leveraged buyouts and distressed businesses. His portfolio is generally highly concentrated in a few stocks, with currently more than 90% of his portfolio weighted in six stocks. According to Ross's latest 13D filings, he added 123.74% to his holdings in EXCO Resources (XCO), more than doubling his position in the company.

Holding History

Ross first bought into EXCO Resources in the third quarter of 2010, purchasing 1.8 million shares for an average price of $14.54. As the price of the stock increased, he added another 14 million shares at an average price of $17.50. In the first quarter of 2011, as the price grew even higher, he added more EXCO stock, buying on three separate occasions at an average price of $20.06 to give him a total of 21 million shares.

On 7/27/2011, the Special Committee of the Board of Directors of EXCO Resources announced that the company has entered into a new, extended standstill agreement with WL Ross & Co. The new agreement increases the percentage of EXCO's outstanding common shares that WL Ross can beneficially own from 10% to 20%, an agreement extended till February 3, 2013. Under terms of the agreement, WL Ross and its affiliates are required to remain passive investors and are prohibited from certain activities, including acquiring derivatives that would increase their interest in EXCO above 20%, making public offers to acquire control of EXCO, making public shareholder proposals with respect to EXCO, and soliciting proxies in connection with any offer to acquire control of EXCO or for any director nominee.

As a result of the new ownership allowance, Ross added to his position by 123.74% at an average price of $15.96 on the same day, giving him a total of 46,985,001 shares in the company. This add impacts his portfolio by 28.77% and makes EXCO more than a third of his overall portfolio.

EXCO Resources, Inc. (XCO)

EXCO Resources, Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploitation of onshore North American oil and natural gas properties. EXCO targets acquisitions of onshore, North American oil and natural gas properties, with particular emphasis on Appalachia, Eastern and Western Texas, Mid Continent and the Rocky Mountain regions.

According to EXCO's latest quarterly report for the period ending March 31, revenues increased by 23% year-over-year, from $131 million last year and $135 million last quarter to $161 million. Average sales price per Mcfe decreased by 20% year-over-year, but this was more than offset by a 55% increase in production. Oil and natural gas operating costs also decreased by 35%. Net income is down from $116 million last year to $21.94 million this year, though it improves upon last quarter's $72.85 million loss. However, when adjusted for non-cash mark-to-market gains on derivative financial instruments, gains from early termination of derivative financial instruments, and associated taxes for the adjustments, adjusted net income is $29 million for this year compared to $32 million last year. EXCO's borrowing base increased from $1.0 billion to $1.5 billion while the interest rate was reduced by 50 basis points and the maturity date was extended from April 30, 2014 to April 1, 2016. Free cash flow was at a loss of $368 million, better than last quarter's loss of $536 million though worse than last year's gain of $34 million.

According to Douglas H. Miller, EXCO's CEO, the company continues to "increase our daily production, averaging 408 Mmcfe per day in the first quarter of 2011, a 17% increase over the fourth quarter of 2010. We have added nearly 200 Mmcfe per day of net production through the drill bit since the beginning of 2010, effectively replacing the production sold in our 2009/2010 divestiture program." The company also "completed a significant acquisition of acreage and some production in the prolific northeastern Pennsylvania area in the first quarter and initial drilling and completion results have been very encouraging." In April, the company acquired approximately 3,500 acres of surface, mineral interests, and royalties in the DeSoto Parish core area of Haynesville, near their existing production units.

The company expects net production in 2011 to average between 501 and 534 million cubic feet of natural gas equivalents per day. It forecasts production to reach between 1.01 and 1.14 billion cubic feet of natural gas equivalents per day by 2015. It also plans to spend $976 million in capital in 2011 to develop oil and gas properties.

EXCO has a market cap of $3.48 billion. The stock trades with a trailing P/E ratio of 5.97, very far on the low end of its historical average. Its P/S ratio is 6.7, above its historical average. Its P/B ratio is 2.1, roughly in line with its historical average.

Recent Headlines

On 6/6/2011, EXCO announced that an incident occurred at its 50% owned TGGT Holdings, LLC amine treating facility in northwest Red River Parish, Louisiana, resulting in the death of an EXCO employee, injury to a contract employee of TGGT, and an ongoing interruption of service at the facility. The facility was shut down immediately, and another TGGT amine treating facility was also shut down as a precautionary measure. Combined, the TGGT treating facilities treat approximately 900 gross Mmcf per day though EXCO's drilling and completion activities were unaffected. EXCO has incurred transportation charges of approximately $35,000 per day as a result of the incident.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 3.2/5 (13 votes)


Vgm - 6 years ago    Report SPAM
Anything major that Wilbur Ross does is worthy of deep consideration.

It's also worthy of note that Oaktree is the largest owner of XCO, having bought in 1Q2011 at what must have been prices considerably above today's. It's their second largest position.

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