I would appreciate any thoughts from the board on XCO Resources.
Thanks,
Bob
XCO
Re: XCO
S&P on XCO:
Highlights
Production fell 13% in 2010, on asset sales and JVs XCO entered, but is up 65% so far in 2011. XCO is focused on the Haynesville/Bossier, Marcellus and Permian formations. Permian returns are being driven by high liquids content. We see flexibility in 2011 as term drilling contracts expire in the second half. XCO will run 22 rigs in Haynesville/Bossier to drill 243 wells, one rig in the Permian and four at Marcellus. We believe XCO's JVs with U.K.-based BG Group in Haynesville and Marcellus will allow for accelerated development at lower capex, as BG has committed $550 million for development. We see a further rampup in 2011 and 2012 driving increased volumes; 2011 guidance is 511-529 MMcfe/d and XCO plans to exit the year at 600 MMcfe/d.
XCO's 2011 capex budget is set at $1 billion, with $892 million allocated toward the drilling and completion of 360 gross wells and 85% to the Haynesville/Bossier and Marcellus shales.
The Capital IQ consensus estimate for 2011 EPS is $0.67, versus $0.64 in 2010, reflecting production growth. On a preliminary $710 million capex plan for 2012, the consensus EPS estimate is $1.02.
Investment Rationale/Risk
On July 8, directors terminated XCO's strategic review process, turning down CEO Douglas H. Miller's buyout proposal for $20.50 per share in cash, or about $4.4 billion. With over $3 billion in acquisitions since 2007, and significant asset sales since 2009, XCO's re-shaped portfolio consists of a multi-year inventory of development and exploitation projects in major shale plays. We now expect XCO to develop and unlock as much potential as possible. This has been XCO's main focus since 2009, and has begun to drive production growth from the Haynesville and Marcellus, where JVs should alleviate capital concerns. XCO has used proceeds from asset sales to repay debt, and we see catalysts in the early stages at Marcellus.
Risks to our recommendation and target price include a substantial and sustained decline in oil and gas prices, production declines, an inability to replace reserves at reasonable costs, and difficulty integrating acquisitions.
Our 12-month target price is $14, based on an enterprise value/2012 Capital IQ consensus EBITDA estimate multiple of 5.5X. The shares have retreated since rejection of the CEO's buyout offer, and we find valuations attractive.
Highlights
Production fell 13% in 2010, on asset sales and JVs XCO entered, but is up 65% so far in 2011. XCO is focused on the Haynesville/Bossier, Marcellus and Permian formations. Permian returns are being driven by high liquids content. We see flexibility in 2011 as term drilling contracts expire in the second half. XCO will run 22 rigs in Haynesville/Bossier to drill 243 wells, one rig in the Permian and four at Marcellus. We believe XCO's JVs with U.K.-based BG Group in Haynesville and Marcellus will allow for accelerated development at lower capex, as BG has committed $550 million for development. We see a further rampup in 2011 and 2012 driving increased volumes; 2011 guidance is 511-529 MMcfe/d and XCO plans to exit the year at 600 MMcfe/d.
XCO's 2011 capex budget is set at $1 billion, with $892 million allocated toward the drilling and completion of 360 gross wells and 85% to the Haynesville/Bossier and Marcellus shales.
The Capital IQ consensus estimate for 2011 EPS is $0.67, versus $0.64 in 2010, reflecting production growth. On a preliminary $710 million capex plan for 2012, the consensus EPS estimate is $1.02.
Investment Rationale/Risk
On July 8, directors terminated XCO's strategic review process, turning down CEO Douglas H. Miller's buyout proposal for $20.50 per share in cash, or about $4.4 billion. With over $3 billion in acquisitions since 2007, and significant asset sales since 2009, XCO's re-shaped portfolio consists of a multi-year inventory of development and exploitation projects in major shale plays. We now expect XCO to develop and unlock as much potential as possible. This has been XCO's main focus since 2009, and has begun to drive production growth from the Haynesville and Marcellus, where JVs should alleviate capital concerns. XCO has used proceeds from asset sales to repay debt, and we see catalysts in the early stages at Marcellus.
Risks to our recommendation and target price include a substantial and sustained decline in oil and gas prices, production declines, an inability to replace reserves at reasonable costs, and difficulty integrating acquisitions.
Our 12-month target price is $14, based on an enterprise value/2012 Capital IQ consensus EBITDA estimate multiple of 5.5X. The shares have retreated since rejection of the CEO's buyout offer, and we find valuations attractive.