Investors should not have to pick either the Marcellus or Haynesville shale players, according to Pritchard Capital Partners LLC analyst Jeffrey P. Hayden. Instead they should look at Exco Resources Inc., Dallas, (NYSE: XCO) as a way of entering both plays.

“Our opinion is that investors should be exposed to both, and Exco offers this with material acreage positions in each,” Hayden says. “The company also has a solid acreage position in the Huron shale in Appalachia.”

At its current price of $36.45 per share, Hayden says he sees 25% to 30% upside to his $47 net asset value estimate. He says this assumes one-half of Exco’s Haynesville acreage at 6 billion cubic feet equivalent per well, and one-third of its acreage in the Marcellus (2.5 billion cubic equivalent per well) and Huron (1 billion cubic feet equivalent per well) shales will be prospective.

Exco has 107,000 net acres in the Haynesville shale, “much of which is located in what could be a sweet spot in the developing fairway in Caddo, DeSoto, Harrison and Panola parishes (and counties),” Hayden says. The company reports its Haynesville acreage has an upside potential of 2- to 3 trillion cubic feet.

The company also has a large position in the developing Marcellus play. Exco has 393,000 net acres, with 260,000 in the developing fairway. The company reports the upside potential on this acreage to be 6- to 10 trillion cubic feet.

“Exco estimates that it can generate 5% to 10% production growth using only 50% of its earnings before interest, taxes, depreciation and amortization,” Hayden says. “This should provide ample cash flow to fund the development of its shale plays or make additional acquisitions.” 

--JAS