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I've been trying to determine true value opportunities in the natural gas area. Today I looked at Exco Resources (XCO)

Dallas-based EXCO Resources engages in the exploration and production of oil and natural gas in Appalachia, East Texas, Louisiana, and the Permian Basin. At the end of 2010, EXCO reported proven reserves of 1,499 billion cubic feet of natural gas equivalent. Daily production averaged 307 million cubic feet in 2009. EXCO's production is about 93% natural gas.

The relentless bear market in Natural Gas futures continues, with prices falling to lows not seen during the last decade. Mother Nature is aiding the bear run, with weather forecasters calling for “well above” normal temperatures for a majority of the U.S. going out through the month of March. Here in Chicago, we are expecting temperatures to reach near 80 degrees, nearly unheard of warmth for Mid-March. Mild winter temperatures has caused Gas draws from storage to run well below average, as Gas usage for heating purposes was limited. Current Gas in storage is nearly 50% above the 5-year average for this time of year. Limited storage and low spot market prices for Gas have caused some producers to start scaling back on drilling, which can be seen in the Baker Hughes rig count, which has fallen to levels not seen since 2009. Though the near-term outlook appears negative for prices, longer-term, low prices in the U.S. should encourage increased industrial demand, as industries involved in chemical production, for example, increase production in the U.S. due to low gas prices. In addition, low U.S. prices should encourage an expansion in U.S. Gas exports, especially once LNG terminals go online starting in 2014 and 2015. In the meantime, near-term futures may continue to weaken, especially once the winter withdrawal season comes to an end and traders’ concerns turn to the lack of storage space needed for the continued boom in gas production.

What second drew me to XCO and made me want to dig deeper was the quality investors who also have confidence in them. I very much like Wilber Ross and Howard Marx (I read his book), and they have been adding to their positions.

My first filter was that I like that they are at or below book value (.955), although I understand that may change as nat gas land possibly loses value with continuing depressed prices AND a glut. This is the lowest price to BV ever for them.

Third, I like the 2.3% dividend which pays me if I wait.

They are a mid-cap that has very good margins and continues to seem to expand, but that may be brought short if, like CHK, they reduce production. Their PE is very high, but that's a product of the horrible ng prices. Their debt doesn't seem to be high.

I've seen articles that ng prices may go to $1, but then I think that the time to get greedy is when others are fearful.

This isn't a LeKitKat analysis but about as good as I have the time right now.

Comments and critique are welcome.

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