SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Value Investing
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Mattyice who wrote (53570)3/10/2014 6:48:59 PM
From: E_K_S1 Recommendation

Recommended By
Mattyice

  Read Replies (1) of 78717
 
Hi Mattyice -

Re: XCO Fair Value

It's a guess based on acreage they own, current reserves, a conservative estimate of their JV deal for new wells under development and what's left of their midstream assets which they now own an 8% equity stake in. It has gotten much more complicated to break down the true values because of all the side deals they have done (including a "rights" offering diluting shares by 25%) and so my basic premise is a bet on Wilbur Ross and his ownership group.

These well known value investors have accumulated shares now close to 50% at an avg cost around $7.50/share. Also it is rumored that they may take the company private and a $7.00/share number was discussed by 3rd parties.

At one time before the sale of their Midstream assets and with money in the bank, EXC was selling in the $19.00/share area and the XCO Midstream assets had a stated BV of $3.50/share. Since then they have spent a lot of money drilling NG wells that are marginal producers especially w/ the low historical NG prices and buying acreage in the Eagle Ford area. The thought was to migrate new production to "oily" wells but this transition has burned up money and their hidden Midstream Asset was monetized to finance this move (see the link above).

Therefore, at this point, I would say FV is around $7.00/share and falling until these new wells come into production. The problem is that much of that upside was sold to JV partners which only per the last conference call was explained (to my understanding). They plan to eventually buy back a portion of their new well production interests (@ 120% of what they sold) after they have assurance of their 1st years production results so that they can obtain bank financing based on the "actual" free cash flow of those wells. The problem is that is all in the future; wells have a depletion factor so 1st year's production is much more than year 2-5, the commodity price of Oil & NG can change and many other factors that impact value.

My avg cost is now around $5.35/share (not counting the dividends) so I may wait another quarter or two to see how successful they are with their drilling program. The next big news event that may make me continue to hold my position is if/when they announce the JV drilling partner for Eagle Ford. We know that KKR is the investment (ie money) partner w/ that venture but we have yet to hear if they will be working w/ an experience oil well driller (XCO really only has experience drilling NG wells). If they find an experienced oil driller/developer and do not give the store away, XCO could grow their NAV as new "oily" wells are brought online. Another catalysts is the announcement of a new CEO. I would not be surprised that if/when an Eagle Ford JV partner is found, a new CEO will be announced.

I could also see the company taken private too but for not much more than $7.00/share. There are a lot of other E&P companies with good asset that may present a better value play. SFY and DVN are two that come to mind.

EKS
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News