IPO FILING: EXCO Partners LP, An MLP Spin-Off of EXCO Resources (XCO,XP)

EXCO Partners, LP has filed to come public via an IPO with 75 million units in a proposed offering of $1.725 Billion.  This is a limited partnership recently formed by EXCO Resources, Inc. (NYSE: XCO) to acquire, exploit and develop oil and natural gas properties that will trade under the "XP" stock ticker on the NYSE.  Assuming that this is not a figure for filing purposes only, then the pricing indicated on this is $23.00 per unit.  The underwriters listed for the offering are Goldman Sachs, Citigroup, UBS, JPMorgan, Merrill Lynch, Morgan Stanley, and Wachovia.

In connection with this offering, EXCO will contribute proved developed producing oil and natural gas wellbores to this LP in its East Texas/North Louisiana, Mid-Continent and Permian operating areas. EXCO will also contribute all of its properties, including its undeveloped properties, in its Appalachian operating area.  As of June 30, 2007, total estimated proved reserves were 895.8 Bcfe, of which 92% were natural gas and 82% were classified as proved developed.  Its properties consisted of working interests in 8,869 producing wells, which it owned a 79% average working interest. EXCO is the operator of 8,036 of its total wells, which represented 94% of total estimated proved reserves as of June 30, 2007. Based on average net daily production for the month of June 2007 of 167.9 Mmcfe/d, total estimated proved reserves had a reserve-to-production ratio of 14.6 years. In addition, based on oil and natural gas prices as of June 30, 2007, it had an inventory of 4,900 drilling locations in Appalachia, of which 1,787 were proved, representing 159.5 Bcfe, or 18%, of total estimated proved reserves. EXCO Partners’ total estimated proved reserves represented approximately 49.8% of EXCO’s total estimated proved reserves as of June 30, 2007.

This lists its primary business objective to maintain its asset base over the long term in a manner that will allow quarterly cash distributions to unitholders at the initial quarterly distribution rate of $0.35 per common unit.  It then wants to grow its asset base to enable increases of this quarterly distribution rate.  Based on a $23.00 per unit pricing, assuming that is accurate, and based upon a $1.40 annual dividend rate ($0.35 per quarter) this will have a proposed dividend yield of 6.08%. 

Shares of EXCO Resources, Inc. (NYSE:XCO) are trading down 1% to $16.07 after the open today, although this is about 1% higher than the opening lows.  Shares of XCO have a $1.7 Billion market cap, and the 52-week trading range for the stock is $12.44 to $19.70.  XCO has been paying no dividend of its own.

Jon C. Ogg
September 14, 2007

Jon C. Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and does not own securities in the companies he covers.