BMO Capital Reiterates Market Perform on EXCO Resources Following Haynesville/Eagle Ford Acquisition Announcement

In a report published Friday, BMO Capital Markets analyst Phillip Jungwirth reiterated a Market Perform rating and $5.00 price target on

. In the report, BMO Capital Markets noted, “In our view, the deal looks attractive as 1) EXCO is buying inexpensive production at ~$6,600Mcfe/d (~80% natural gas) and we estimate 4.9x EV/EBITDA (NTM), 2) all debt financing at a low cost of capital, and 3) 55 additional drilling locations in the core Haynesville for free and 55,000 net acres (300 locations) in the Eagle Ford (although we view this acreage to be non-core and economics as marginal). Also, the high natural gas production component doesn't dilute EXCO's story as a levered play on higher natural gas prices, which is why its shareholders own the stock, in our view. One negative of the attractive Haynesville purchase price is that BG Group has pref rights to acquire 50% of the Haynesville properties, which lowers the accretion of the deal. While the transaction improves nearly all of EXCO's financial metrics, we don't view it as NAV accretive as we think buying Haynesville for less than PDP is outweighed by paying ~$7,000 per acre for marginally economic Eagle Ford.” EXCO Resources closed on Wednesday at $8.05.