After Losing Billions on Lightsquared, Falcone Bets on Natural Gas

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Philip Falcone’s Harbinger Group Inc (NYSE:HRG) has partnered with Energy producer Exco Resources Inc (NYSE:XCO) in a deal worth $725 million with a mission to own and operate Exco’s conventional oil and gas fields. The deal will see Exco pay Harbinger $597.5 million in cash, plus a stake in the partnership, which is believed to be 75% according to a statement noted by Business Week. The partnership is also expected to include debt financing.

After Losing Billions on Lightsquared, Falcone Bets on Natural Gas

Harbinger Group Inc (NYSE:HRG) was acquired by Philip Falcone’s Harbinger Capital Partners LLC in 2009, and has since acquired two more arms of investment, including a life insurance company and a majority stake in the maker of Rayovac batteries. The acquisition of Exco Gas will grow the company’s current portfolio of entities to three. Falcone’s Harbinger Capital Partners LLC is known to target undervalued and out of favor companies.

Omar Asali, Harbinger Group Inc (NYSE:HRG), president is quoted saying, “this deal will create long-term value by anchoring our new energy operating business with a long-duration gas asset at a time when natural gas is trading near historically low levels”.

Drilling of shale gas is one of the most burdening in running oil and gas companies. It requires a lot of capital investment, and as depicted by some oil and gas companies balance sheets, it has often prompted excessive uptake of debt. Business Week noted, “most new onshore U.S. oil and gas drilling in the past decade has focused on so-called unconventional wells, many of which require techniques such as horizontal drilling and hydraulic fracturing to unlock hydrocarbons”.

The report also noted that the Exco assets to be included in the deal were, among others, conventional wells in areas of West Texas, East Texas, and Northern Louisiana, while the fields comprise 520 billion cubic feet, equivalent to an estimated proved reserves with about 84% gas. Ideally, Harbinger group’s approach to the deal is very prudent in the sense that the company expects to earn a return, even if gas prices do not recover; a person with knowledge of the matter was quoted.

Phillip Falcone was recently involved in a disastrous debacle with LightSquared Inc, a wireless network company. Accusations were made following allegations raised over the insider loans received by LightSquared, which is equity controlled by Falcone. However, Falcone dismissed the issue, claiming that the lenders were attempting to gain an upper hand in the bankruptcy proceedings and its restructuring by adopting dilatory tactics that would extend LightSquared’s losses and lose its cash.

At the time of this writing, Harbinger Group Inc (NASDAQ:HRG) stock was trading at $8.82 per share, $0.34 up, 3.98% increase from yesterday’s close. Exco Resources Inc (NYSE:XCO) was trading at $8.41 per share, $0.13 up, or 1.57% increase from the previous close.

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