EXCO Resources Inc (NYSE:XCO) is an oil and natural gas company with a focus on shale resource plays. It’s easy to see EXCO has had it’s fair share of sharp swings this year, as oil prices have wreaked havoc on both traditional oil and natural gas companies, as well as with the new breed of shale mining companies. The latter group of companies includes XCO which has been under tremendous financial pressure as a result of the falling price of oil. Now that prices appear to have stabilized, at least temporarily, it could be a positive catalyst for XCO.
Shares of the Texas-based company are currently trading $1.19, giving the company a total market cap of $337M. Over the most recent 52-week period, shares of XCO have traded as low as $0.51 and as high as $1.94. The current trading range for the company’s stock is $1.13 – $1.20. EXCO stock has passed the psychologically important $1 mark and market sentiment has increased of late.
EXCO Resources Inc (NYSE:XCO) is an oil and natural gas company engaged in the exploration, exploitation, acquisition, development and production of onshore U.S. oil and natural gas properties with a focus on shale resource plays in Texas, Louisiana and Appalachia. There are three key shale resource plays for investors to track: the Haynesville and Bossier shale formations in East Texas and Northern Louisiana; the Eagle Ford shale formation in South Texas; and the Marcellus shale formation in Appalachia.
Critics have put together a long list of reasons why it may be too risky banking on the fortunes of these shale deposits. To start with, company insiders have been selling off their positions over the past few months, which have generated a fair amount of concern. Secondly, some analysts have floated a price target of just $0.50 for the stock, which would represent more than a 50 percent discount from today’s levels.
Finally, options investors have pointed out the tremendous implied volatility for the company’s stock. While the broader stock market only has an implied volatility of 15 percent, the extremely high implied volatility of XCO is 117.7 percent. Historically, implied volatility for XCO has been 56.5 percent.
However, there are some signals that XCO has turned the corner. On August 22, the company made a major management change, replacing its CFO. Additionally, the company has refocused efforts around a sweeping five-point financial plan for bringing the company back to financial health.
This five-point plan calls for improving the debt structure of the company to provide structural liquidity; restructuring transport contracts to provide enhanced liquidity; reducing the G&A load to reduce the fixed costs basis of the company; improving drilling and completion performance; and coming up with a prioritized capital allocation system. This last step is critically important – it implies the “highest and best use” of capital and shows that XCO is focused on optimizing performance.
To achieve these goals, XCO has been retiring debt, selling off non-core assets, restructuring the balance sheet and transforming EXCO Resources into the lowest cost producer.
These steps are not easy, of course, and especially not when the overall market narrative about shale exploration has shifted. Yet, the bottom line is that XCO has a high-quality asset base in attractive regions. The company has three high-quality shale resource assets.
The bigger question, of course, is what’s happening to the broader market for oil and gas. Institutional investors certainly haven’t abandoned the company. Yet, the extremely high implied volatility from the options market means that we could be seeing a very sharp, very decisive move in either direction. Shares could be cut in half, falling to $0.50. Or, they double in value, getting closer to the 52-week high of $1.94. This could be a stock to watch, as long as you can handle the potential roller-coaster moves along the way – including the release of Q3 2016 earnings on October 25. We will contiune to update as the story develops. For more news on EXCO Resources and other fast-moving stocks, please subscribe now to OracleDispatch.com