EXCO Resources To Divest Its South Texas Assets For $300M

EXCO Resources, Inc. (NYSE:XCO) recently declared that it has inked a definitive agreement with a subsidiary of Venado Oil and Gas, LLC, which is an affiliate of Kohlberg Kravis Roberts & Co. LP (“KKR”), to sell its oil and natural gas properties in South Texas.

The transaction has an effective date of Jan 1, 2017 and is expected to raise proceeds of about $300 million. Subject to customary closing conditions, the company anticipates the transaction to close in Jun 2017.

The assets to be divested comprise the company's interests in oil and natural gas properties and surface acreage in Zavala, Frio and Dimmit counties in Texas. These properties were purchased for $685 million four years ago, when oil prices were near $100 a barrel.

These properties produced about 4,100 barrels of oil equivalent (BOE) per day, of which over 90% was oil, during Dec 2016.

EXCO Resources plans to utilize the funds to boost drilling and development of its core Haynesville and Bossier shale assets in North Louisiana and East Texas. The remaining proceeds will be utilized for other general corporate purposes. On completion of the sale, the borrowing base under the company's revolving credit agreement will be $100 million. The company's next borrowing base redetermination is slated for November.

The sale is in sync with EXCO Resources' planned divestiture of the South Texas oil and natural gas properties. This is an important step toward the company’s portfolio optimization and will increase its financial flexibility.

However, EXCO Resources’ price chart shows weakness. Shares of the company declined 37.5% in the last three months, while the Zacks categorized Oil & Gas – U.S. Exploration & Production industry registered a decrease of 9.8% in the same time span.

Some better-ranked from the same space are Diamond Offshore Drilling Inc (NYSE:DO) , Bellatrix Exploration Ltd. (TO:BXE) , Crescent Point Energy Corp. (TO:CPG) and Cenovus Energy Inc. (CVE). All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Diamond Offshore Drilling posted a positive earnings surprise of 341.67% in the preceding quarter. It beat estimates in all of the four trailing quarters with an average positive earnings surprise of 353.28%.

Bellatrix Exploration posted a positive earnings surprise of 240.00% in the preceding quarter. It beat estimates in three of the four trailing quarters with an average positive earnings surprise of 58.54%.

Crescent Point Energy posted a positive earnings surprise of 244.44% in the preceding quarter. It beat estimates in all the four trailing quarters with an average positive earnings surprise of 127.16%.

Cenovus Energy posted a positive earnings surprise of 583.33% in the preceding quarter. It beat estimates in two of the four trailing quarters with an average positive earnings surprise of 74.89%.

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