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Why Exco Resources Surged 14% in the Last 2 Trading Sessions


Apr. 6 2015, Updated 10:07 a.m. ET

Exco Resources

Exco Resources (XCO) is a small capital independent oil and gas exploration and production company. It has operations in the US and focuses on shale resource plays. Exco has a market capitalization of $500 million. It has been the top performer for the past two days in the Spider Oil and Gas (XOP).

In yesterday’s trade, the other top four gainers in XOP were Approach Resources (AREX), Halcon Resources (HK), Energy XXI (EXXI), and Synergy Resources (SYRG). They account for 6.64% of XOP.

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These five stocks have a short interest ratio average of 10%. Halcon Resources has the highest short interest ratio of 17%. Energy XXI has the lowest short interest ratio of 5%. There seem to be a short squeeze happening in the market. These five companies also have a low price-to-book ratio per share. Exco has a 1.06x price-to-book ratio. Synergy has a 3.19 price-to-book ratio. All of the other companies have a price-to-book ratio that’s less than one. This means the stocks are undervalued. The average price-to-book ratio for an oil and gas exploration and production company is 1.74x.

Exco surged more than 14% in the last two trading sessions. It entered into a service agreement with Bluescape Resources—an energy-focused private equity firm. According to the agreement, Bluescape will buy common stocks worth $10 million directly from Exco. It will also buy shares for $40 million in the open market within a year of the agreement date. This is about 10% of Exco’s market capitalization. Exco already has $1.5 billion in debt. The deal will likely help Exco restructure itself and perform better.


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