With the crude oil prices falling continuously, EXCO Resources (SCO) shares the fate of some its worst hit peers. The company had been sailing through troubled waters for quite some and with mixed numbers for the third quarter, it is still far from a turnaround. Led by its dismal performance, the stock has tanked to all time lows and it won’t be until some time that we could see some relief for the oil producer. Moreover, the U.S crude inventories do not show any signs of slowdown, which will continue to drag the prices down.
Quarterly performance
Revenue declined 8.6% from a year ago period to $151 million, while adjusted earnings fell to 1 cent a share compared to 4 cents last year. The numbers were down sequentially as well but came in line with the consensus estimate. Its revenue declined on account of a decrease in production coupled with the falling oil prices. Though it cannot do anything about the declining oil prices, the company does seem committed to reduce costs and enhance its returns.
EXCO has some good resources at its East Texas and North Louisiana, which is around 99% held by production. In East Texas, the company drilled 15 wells and completed 7. It is currently operating five rigs in the area, which it plans to reduce to three. On the other hand, its core Holly position in North Louisiana also had 15 wells but completed only five. Interestingly, its profit increased per lateral foot by around 50%, which is quite encouraging and the management anticipates this performance to be even better.
Bold moves
But the company has to put in more effort considering the challenges it has to face. Taking a bold step in this direction, EXCO decided to suspend its recent cash dividends and intends to reinvest that fund into the company. This seems to be the right thing to do as it will help to optimally utilize EXCO’s current asset base especially the development of the Shelby natural gas asset in East Texas. This will strengthen its business in the long run and prepare itself for a future turnaround.
However, the macroeconomic factors will play a crucial role for things to get better. According to the U.S. Energy Information Administration data, crude inventories increased 4.9 million barrels last week, which is highest level for this time of year in at least the last 80 years. It is even more than the 3.4 million barrels consensus estimate. The analysts are split on this topic as to when oil will see a turnaround and head towards its former glory. It will be a matter of time until we see that happen, and until then, we must be extremely cautious before investing in this industry.
Conclusion
Currently it does not have any signs of trailing or forward P/E, which once again confirms our short term fears on its performance. The company’s stock had been on a declining spree since the mid of 2011 and has reduced around ten times and is presently at its all time lows. Therefore in the light of these facts, it seems prudent for investors to avoid EXCO for the moment.
