Texas-based energy explorer, EXCO Resources Inc. (XCO) reported third quarter 2013 adjusted earnings – excluding one-time items such as gains from asset sales and other non-cash gains – of 4 cents per share, missing the Zacks Consensus Estimate of 10 cents and deteriorating from 13 cents earned in the prior-year quarter. Increased capital expenditure and impairment loss on TGGT joint venture, in addition to production declines, were the reasons behind the weak results.
During the three-month period ended Sep 30, EXCO generated total revenue of $165.3 million, up 16.7% year over year amid higher natural gas realizations, but was below the Zacks Consensus Estimate of $181.0 million.
Production
In the third quarter, overall production decreased to 455 million cubic feet equivalent (Mmcfe) per day from 512 Mmcfe in third quarter 2012.
In the East Texas/North Louisiana region, production dropped to 340 Mmcfe/d from 442 Mmcfe/d in the year-ago quarter. The decrease was due to normal field declines and conventional properties’ contribution to the EXCO-HGI partnership. However, it was partially offset by contributions from the recently acquired Haynesville assets.
In the South Texas region, which includes the Eagle Ford assets acquired from Chesapeake Energy Corp. (CHK) on Jul 31, production averaged at about 6 million barrels of oil equivalent (Mboe) per day.
In the Appalachian region, the trends were positive and production levels increased to 64 Mmcfe/d from 46 Mmcfe/d in the prior-year quarter owing to solid Marcellus Shale play performance.
From the EXCO/HGI partnership, the company’s share of production was 27 Mmcfe/d for 3Q13, down from 28 Mmcfe/d in the previous quarter.
Realized Prices
Natural gas, which comprised 93.8% of the total production for EXCO, was sold at a realized price of $3.17 per thousand cubic feet (Mcf), up 17.8% from $2.69 in the prior-year quarter. The natural gas equivalent price realizations also increased 31.2% year over year to $3.95 per thousand cubic feet equivalent (Mcfe).
Drilling Statistics, Balance Sheet & Capital Spending
Net operated wells drilled and completed during the quarter were 7.2 and 12.9 respectively, apart from the 1 net well operated by others.
As of Sep 30, 2013, EXCO had approximately $33.5 million in cash and cash equivalents and long-term debt of $1,863.5 million, representing a debt-to-capitalization ratio of 87%.
The company’s capital expenditure (excluding spending related to the partnership with HGI) for the quarter was $109.7 million, up 81.3% from the previous quarter’s expenditure of $60.5 million. This substantial rise is attributable to the Haynesville and Eagle Ford assets acquisition earlier in the reported quarter.
Company Guidance
EXCO forecasts capital expenditure of approximately $111.5 million for the fourth quarter and $350 million for the full year. Per management, capex budget was increased to cater to the development of the newly acquired assets.
Zacks Rank & Stock Picks
EXCO Resources currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider other firms in the exploration and production industry that are expected to significantly outperform the broader U.S. equity market over the same time frame. These include Zacks Rank #1 (Strong Buy) stocks of Linn Energy, LLC (LINE) and Matador Resources Company (MTDR).
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