Exco Resources (XCO) is one of many oil and gas small-caps that might wind up great long-term buys considering the recent underperformance of the energy sector and the hopes of a recovery in 2014.
Exco is an onshore oil and natural gas play focused mainly on shale operations. Its focus is on using horizontal drilling to extract gas from shale formations in east Texas, north Louisiana, Appalachia and the Permian Basin in west Texas.
Obviously, weaker natural gas prices during the past year or so have weighed on XCO stock. The company reported a steep loss in fiscal 2012 as a result. But don’t let the loss scare you, because some of the shortfalls have been self-imposed and are ultimately good for the long run. For instance, in fiscal 2012, EXCO reduced drilling rigs from 24 to just five, and laid off more than 60% of its contractors and 1 in 6 full-time workers. All in all, it slashed capital expenses by more than a billion dollars. The restructuring hit the company hard, but has put it on track again now that it has “right-sized.”
Furthermore, long-term debt has actually declined from $1.9 billion a year ago to $1.3 billion in the company’s latest earnings report, thanks to a partnership with Phil Falcone’s iconic Harbinger Group.
So don’t fret that this company is going under, what with lower debt and a big hedge fund buy-in.
Shares are well under $8, and there’s a 2.8% dividend to boot.