Oil Patch Claims More Victims
BY Dow Jones & Company, Inc.— 4:45 PM ET 05/13/2016
A bleak outlook from Exco Resources Inc. ( XCO ) means more losses for big investors who tried to bolster the ailing oil-and- gas producer last year with a new, high-profile chairman.
Exco's shares lost more than half their value Friday after the Dallas company said it hired advisers and formed a special committee to explore alternatives, including seeking bankruptcy protection, as relentlessly low oil and gas prices have hurt its business.
Private-equity investor Wilbur Ross, Canadian insurance magnate Prem Watsa and Los Angeles investment firm Oaktree Capital Group LLC ( OAK ) became Exco's top three shareholders when the stock was much higher. Together through vehicles they control, those investors owned roughly 43% of Exco's shares at end of 2015, according to securities filings.
Exco had appeared to be bouncing back under the guidance of turnaround specialist C. John Wilder, who was installed as chairman in September. After bottoming at about 50 cents a share in August, Exco's stock had more than tripled through Thursday's close as the company was able to reduce its debt and cut spending.
Friday, though, Exco made clear the progress hasn't been enough. It said the special committee would study various options, including swapping debt for stock, selling assets and restructuring, either in or out of court. "No assurance can be given as to the outcome or timing of this process," the company said.
On Friday, Exco shares closed down 59%, to 73 cents.
Exco's disclosure is the latest in a particularly painful run in the oil patch, as the 25% rise in U.S. oil prices this year and the 28% that natural gas has gained since hitting a 52-week low in early March have proved too little too late for some outfits.
U.S.-traded oil settled at $46.21 on Friday, less than half the price from the summer of 2014. Natural gas closed at $ 2.096 a million British thermal units and hasn't traded above $3 in a year.
Houston's Linn Energy LLC ( LINE ) filed for bankruptcy protection on Wednesday with $7.7 billion of debt, and Penn Virginia Corp., founded in 1882 as a coal concern, filed Thursday under $1.2 billion of debt. Two weeks ago, Ultra Petroleum Corp. ( UPLMQ ), a Rocky Mountains gas producer that once had a stock market value of more than $15 billion, filed for bankruptcy protection.
The tally of North American exploration-and-production companies that have filed for bankruptcy protection since the beginning of 2015 now exceeds 70, based on data from law firm Haynes and Boone LP.
Exco was already struggling with high debt and low natural-gas prices before oil prices plunged in the second half of 2014. Mr. Ross, known for betting big on beleaguered companies, doubled down on Exco in 2014, staking $200 million on the company in which he had already invested $286 million. He and colleagues courted Mr. Wilder for over a year, hoping he would help steer a turnaround.
Mr. Wilder had earlier led a revival at Texas power provider TXU Corp. before selling it in 2007 to a group of Wall Street firms in the largest-ever and ultimately doomed leveraged buyout.
Laden with buyout debt and stung by low natural-gas prices, the company, now called Energy Future Holdings Corp., filed for bankruptcy protection in 2014.
Mr. Wilder, who received a severance package valued at roughly $300 million from TXU, has more on the line at Exco than his reputation as the energy sector's Mr. Fix-It. As part of the deal to make him Exco's chairman, his Bluescape Resources Co. agreed to buy $23.5 million of Exco stock, making him the company's fourth-largest shareholder, securities filings show.
An Exco spokesman didn't respond to requests for comment from the company and Mr. Wilder. Representatives for Messrs. Ross and Watsa didn't respond to requests for comment. Oaktree declined to comment.
Mr. Ross and Oaktree, along with a few other big investors and Exco founder Douglas Miller, had unsuccessfully tried to take Exco private in 2010 near the height of the shale-drilling boom, offering $20.50 a share, or about $4.4 billion.
Bets against Exco's stock, known as short interest, rose by at least 3.5 million shares Friday, said Ihor Dusaniwsky, managing director at short-sale tracker S3 Partners LLC, indicating investors believe the stock has further to fall.
Write to Ryan Dezember at
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(END) Dow Jones Newswires
05-13-16 1645ET
Copyright (c) 2016 Dow Jones & Company, Inc.
