Monday, July 13, 2015

Uh Oh, EXCO

While I normally don't comment on stock performance, it is worth noting that EXCO Resources, which has been in a steady decline for the past two years, has officially entered The Danger Zone.  For the past seven days, the stock has closed at a bid price under $1.  After 30 days of this, they should expect a notice from NASDAQ giving them some period of time, usually 90 days, to get their minimum bid price back over a buck.  If that doesn't happen, they will be delisted and join Sabine Oil & Gas in OTC BB purgatory.  Ask Sabine how fun that is.

Right now, it appears as though more people are betting on EXCO's failure than their success.  They have good assets, but the company's focus on natural gas has limited its opportunities now that gas is having trouble getting above $2.75/MMBTU.  EXCO is heavy with debt, and its production is gradually declining as it can't (and shouldn't) spend a lot on breakeven or money-losing projects.  An expensive, debt-laden foray into liquids probably would have killed them already, so low and slow was probably the right strategy.  But in the end, there is nowhere to go but down.

The company has been awfully quiet of late, not having released any news since April 28.  With an earnings report due soon, they will break the silence.  The current price probably reflects the sentiment that the news won't be good, but it's probably as much a comment on the price expectation for natural gas as much as on EXCO's future.

The delisting notice is not a guarantee, since it is a discretionary call by NASDAQ, but if it does come, it will get uglier for EXCO before it gets better.

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