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Holly LaFon
Holly LaFon
Articles (7942) 

Howard Marks Increases Stake in Largest Holding EXCO Resources

January 16, 2014 | About:

Howard Marks (Trades, Portfolio), founder of Oaktree Capital (NYSE:OAK), has increased his shareholding of EXCO Resources Inc. (NYSE:XCO), a stock that is down 34% from three months ago to near a 10-year low.


Marks increased his stake by 23.04% to 45,251,182 shares, from 36,778,946 shares he owned at third quarter end, according to GuruFocus Real Time Picks. The shareholding represents 16.6% of the company’s shares outstanding.


He acquired $41,973,680, or 8,394,736 of the shares through a rights offering EXCO held beginning Dec. 17, 2013, in which it granted shareholders the right to purchase 0.25% of a share for each share they held, at a price equal to $5.00 per share of stock. The rights then expired on Jan. 9, 2014.

As of the third quarter, EXCO Resources ranks as Marks’ largest equity position, with a 4.8% weighting in his $5.2 billion portfolio of 77 stocks.

The same time as the rights offering in which Marks participated, it announced that it entered into two exercise commitment agreements with two other gurus: Wilbur Ross (Trades, Portfolio) of WL Ross & Co. LLC and Prem Watsa (Trades, Portfolio) of Hamblin Watsa Investment Counsel Ltd. Under the deal, Ross and Watsa agreed to purchase their respective pro rata portion of shares under the rights plan and all unsubscribed shares according to an over-subscription privilege.

As of third quarter end, Ross and Watsa owned 14.48% and 4.97%, respectively, of the company’s outstanding shares.

EXCO is a natural gas and oil exploration, exploitation, development and production company operating within the U.S. After its stock suffered last year due to a downturn in natural gas prices, the company is producing a 2014 capital budget that increases its exposure to crude oil. As it stands, EXCO expects the budget to engender a 15% decline in production year over year.

For full-year 2014, EXCO anticipates EBITDA in a range of $400 million to $425 million, based on expected average 2014 prices of $4.00 for natural gas NYMEX and $90 for oil NYMEX.

“From 2015 forward, incorporating anticipated acquisitions, we expect to return to a more predictable pattern of annual production growth of approximately 7% to 10% per year and corresponding Adjusted EBITDA growth of approximately 10% to 15% per year, based on forward NYMEX pricing,” the company said in a statement.

EXCO’s 10-year revenue and earnings history:


The company also made changes to management recently, announcing on Nov. 31, 2013, that its CEO and board chairman Douglas H. Miller had resigned from his position. The board appointed Jeffrey D. Benjamin as non-executive chairman of the board of directors, and began a search for a new CEO.

EXCO has a P/B of 3.9 and P/S of 1.76, near a three-year low.

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Rating: 4.4/5 (11 votes)


Superguru - 3 years ago    Report SPAM

I did a quick sanity check on EXCO yesterday and I felt

a) Debt is too high

b) May have to further dilute existing shareholders by issuing more equity to raise funds.

c) Depency on price of Natural Gas.

So I did not research further and did not study it in detail. What do you others think? Why are gurus in it?

MritikCapital - 3 years ago    Report SPAM
I wonder why the gurus keep buying the equity on XCO.Why not have the compay issue convertible notes and lend money to the company that way. Similar to what Prem Watsa (Trades, Portfolio) did with BBRY recently or OAK did with Diamond Foods last year.

I would think a company like OAK would do that but not in this case. There is a risk for the equity holder that increasing debt could wipe then out if natural gas price does not recover soon.In hindsight this may prove to be the point of maximum pessimism but there is no denying the risks involved.

Cdubey - 3 years ago    Report SPAM

They just completed a rights offering worth $273M. I don't think they will need money for a while.


Vgm - 3 years ago    Report SPAM
Exco did complete the rights offering recently as CD said. The $273M is welcome but the total debt was $1.6B. So, debt is still high as Superguru mentioned.

One major item the market seems to be ignoring are the $1B of producing assets in the Eagle Ford / Haynesville which Exco bought from Chesapeake recently and which are immediately accretive to cashflow.

2 or 3 years ago there was a management buyout attempt at (I think) $21 which was thwarted.

The list of owners reads like an all-star lineup - Ross, Watsa, Marks, as mentioned above, but also Ares, Pickens, and Citadel. Wilbur Ross (Trades, Portfolio) was asked his opinion on Exco recently and he replied that the fact that he was puting more money in spoke for itself. I believe his cost basis was in double digits before the rights offering.

I'm long XCO with a cost basis of $5.30 (I got out at higher levels and bought back in of late as the price plummetted). It has the potential to rise multiples from here IMHO. Nat gas pricing is obviously a hurdle, but utilization is increasing and export of nat gas will also be big according to Wilbur.

Maurodejesus premium member - 3 years ago

I think they bought the assets. take a look at this:


"We estimate our total net resource potential to be approximately 11.3 Tcfe as of December 31, 2010". That's worth a lot more than the enterprise value (equity and debt).

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