UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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EXCO
RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Explanatory Note
EXCO Resources, Inc., a Texas corporation (the
Company
), is filing materials contained in this Schedule 14A with the U.S. Securities
and Exchange Commission (the
SEC
) in connection with the solicitation of proxies from its stockholders in connection with its 2017 Annual Meeting of Stockholders and at any and all adjournments or postponements thereof (the
Annual Meeting
). The Company has not yet filed a preliminary or definitive proxy statement with the SEC in connection with its solicitation of proxies to be used at the Annual Meeting.
Presentation Materials
Attached hereto is a slide
presentation that the Company published on its website on March 20, 2017 for use in connection with its Fourth Quarter and Full Year 2016 Results Conference Call, which took place on March 20, 2017.
Important Information for Investors and Shareholders
This filing does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.
The proposals to be presented at the Annual Meeting are expected to be submitted to the shareholders of the Company for their consideration pursuant to a
Definitive Proxy Statement on Schedule 14A (the
Proxy Statement
) that will be filed by the Company with the SEC and mailed to the Companys shareholders. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ
THE PROXY STATEMENT THAT IS FILED WITH THE SEC CAREFULLY AND IN ITS ENTIRETY AS IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE ANNUAL MEETING. Investors and shareholders will be able to obtain free copies of the Proxy
Statement and other documents containing important information about the Company, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. The Company will make available free of charge at
www.excoresources.com (in the Investor Relations section), copies of materials it files with, or furnishes to, the SEC, or investors and shareholders may contact the Company at (214)
368-2084
to
receive copies of documents that it files with or furnishes to the SEC.
Participants in the Proxy Solicitation
The Company and certain of its respective directors and officers may be deemed to be participants in the solicitation of proxies from the shareholders of the
Company in connection with the Annual Meeting. Information about the directors and officers of the Company is set forth in its Definitive Proxy Statement on Schedule 14A for its 2016 annual meeting of shareholders, which was filed with the SEC on
April 6, 2016, as well as its Current Reports on Form
8-K
filed with the SEC on April 7, 2016, May 24, 2016, August 22, 2016, October 25, 2016, February 2, 2017 and March 3,
2017. These documents can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC when they become available.
Fourth Quarter & Full Year 2016 Review
Hal Hickey Chief Executive Officer Harold Jameson Chief Operating Officer Tyler Farquharson Chief Financial Officer
March 20, 2017
Strategic Plan Update
Focus Area # Improvement Plan Update
Improve Debt Structure To Issued $300MM
in new 1.5 Lien Notes and exchanged $683MM in existing 2nd Lien Provide Structural Liquidity Term Loans for new 1.75 Lien Term Loans. These instruments allow for the Company to pay interest in either common shares or additional debt
Credit Agreement amended to establish a borrowing base of $150MM; amendments 1 allow for the issuance of 1.5 Lien Notes and 1.75 Lien Term Loans and modification of certain
covenants Liability Liquidity pro forma for recent transactions totals $182MM
Management Continuing to evaluate repurchase of 2018 and 2022 unsecured notes. The
Company currently has $132MM outstanding on its 2018 Notes and $70MM outstanding on its 2022 Notes Restructure Gathering And Negotiating with midstream and transportation providers to restructure gathering and
2 Transportation Contracts To transportation contracts
Provide Liquidity Significant amount of
underutilized capacity and fee structures above current market rates Reduce LOE and G&A Load To Divested
non-core,
conventional assets in Pennsylvania and West Virginia which had
Reduce Fixed Cost Burden the highest LOE per Mcfe in the Companys portfolio; footprint in Marcellus, Upper
3 Devonian and Utica remains unchanged post sale
Decreased LOE costs by 35% in 16
compared to 15
Adjusted G&A decreased by 39% in 16 compared to 15, excluding equity based
Operational compensation, restructuring and severance costs
Performance Improve Drilling And
Enhanced completions in the Haynesville with 2,700 lbs/ft have improved EUR/ft to Completion Performance To 2.3 Bcf/1,000 ft in NLA and to 2.6 Bcf/1,000 ft in ETX
4 Improve Capital Returns Company is implementing larger completion designs in 2017, increasing proppant amount from 2,700 lbs/ft to 3,500 lbs/ft
Achieved the lowest Haynesville development cost per completed lateral ft in EXCOs history ($1,150/ft with most recent NLA wells in 2016) Implement A Liquidity
Measuring capital allocation decisions against liquidity intensity benchmark Capital Driven Prioritized Capital Evaluating potential sale of South Texas asset; proceeds from sale would primarily be
5 Allocation System To Ensure redeployed to develop the Companys position in North Louisiana and East Texas
Deployment
Highest And Best Use Of Capital
2
$300 Million Issuance Of Secured Debt To Provide Liquidity For Drilling Program
Item Key Highlights
Secured Debt With Low Interest is payable on the 1.5 Lien Notes in cash at
a rate of 8% per annum, or at EXCOs Cash Coupon With option, payable in EXCOs common shares or additional 1.5 Lien Notes at a rate of 11%
1 Optionality
per annum, subject to certain limitations
Interest payable on the 1.75 Lien Term Loans in cash at a rate of 12.5% per annum, or at EXCOs option, payable in
EXCOs common shares or additional 1.75 Lien Term Loans at a rate of 15% per annum, subject to certain limitations Provided Liquidity For Increased pro forma liquidity by $116MM
Capital Investment Provides EXCO the optionality to reduce cash interest payments up to $109MM1 per Program year, or $433MM1 through maturity, through the issuance of common shares
or 2 additional indebtedness on 1.5 Lien Notes and 1.75 Lien Term Loans, subject to certain restrictions
EXCO intends to deploy this capital towards the 850 gross
(280 net) operated locations in our portfolio with rates of return in excess of 25% Obtained Covenant The Second Lien Terms Loans were amended, with the consent of the exchanging Relief lenders, to permit the issuance of the 1.5 Lien Notes and 1.75
Lien Term Loans, and 3 eliminate substantially all of the covenants and events of default
Amended Credit Agreement to establish a borrowing base of
$150 million, permit the issuance of the 1.5 Lien Notes and the 1.75 Lien Term Loans, and modify certain financial covenants
4 Extended Runway Extended
weighted average debt maturity from 3.0 years to 3.9 years, 30% improvement Improved Long Term Established structural liquidity to deploy capital towards EXCOs portfolio of drilling
5 Value opportunities with high rates of return
Warrants have $0.93/share strike price, which
represents approximately a 50% premium to our current share price
1. Assumes all interest is paid in common shares or additional indebtedness 3
Capital Transaction Detail
Sources & Uses Cap Table $MM 1 $MM 2
% Sources Of Cash 12/31/2016
Pro Forma Change
New 1.5 Lien Notes 300 Cash And Restricted Cash2 20 42 110% Credit Agreement1 229 0 (100)%
1.5 Lien Notes 0 300 N/A
Subtotal, Sources of Cash 300
Uses of Cash 1.75 Lien Term Loans 0 683 N/A 2nd Lien Term Loans 700 17 (98)% Repay Credit Agreement1 254 2018 Unsecured Notes 132 132 0%
1.5 Lien Commitment Fee 4
2022 Unsecured Notes 70 70 0% 2nd Lien Amendment Fee 9 Gross Debt
1,131 1,202 6% Fees and Expenses 12 Net Debt 1,111 1,160 4% Cash to Balance Sheet2 22 Key Metrics Borrowing capacity on revolver 285 150 (47)% Subtotal, Uses Of Cash 300 Liquidity 66 182 176%
Warrants
Q4 16; Mixed Measures 3
Warrants Strike Warrants Common Shares Unit Price Outstanding3 Outstanding
Common Shares
Outstanding (as of 12/31/2016) $/MM 283.0 Financing Warrants $/MM 0.93 322.6 Commitment Fee Warrants $/MM 0.01 6.5 Amendment Fee Warrants $/MM 0.01 19.9
1. Balance
includes amount drawn on revolver of $229 million at December 31, 2016, plus additional borrowings of $25 million incurred subsequent to December 31, 2016.
2. Pro forma cash is equal to cash and restricted cash at 12/31/2016 plus cash to balance sheet from sources & uses table
3. The exercisability of the warrants are subject to conditions including the receipt of shareholder approval. The amount of actual common shares purchased by the exercise of the
Financing Warrants could be significantly lower than the amount depicted depending on the holders election of either cash or cashless exercise. 4
EXCO Overview: Three Concentrated Resource Positions
Operating Area Overview 1 Core Basins 2
East Texas and North Louisiana
Net Acres/%HBP1 96,300/87%
Appalachia
Q4 16 Operated Rigs 0
Q4 16 Net Production (Mmcfe/d) 209
12/31/16 Proved Reserves (Bcfe)2 1,110 East Texas /
North Louisiana
South Texas
Net Acres/% HBP1 49,300/95%
Q4 16 Operated Rigs 0
Q4 16 Net Production (Boe/d) 4,500 South Texas
12/31/16 Proved Reserves (Bcfe)2 155
Net Production3
Appalachia and Other
15-16;
Mmcfe/d 3
Net Acres/% HBP1 184,100/93%
361
Q4 16 Operated Rigs 0 339 340
319
295 296 288
Q4 16 Net Production (Mmcfe/d) 27 263
12/31/16 Proved Reserves (Bcfe)2 238 Total Net Acres/% HBP1 329,700/92%
Q4 16 Operated
Rigs 0
Q4 16 Net Production (Mmcfe/d) 263
2 Q1 15 Q2 15 Q3 15 Q4 15 Q1
16 Q2 16 Q3 16 Q4 16 12/31/16 Proved Reserves (Bcfe) 1,503
1. As of December 31, 16.
2. Proved reserves were based on December 30, 2016 NYMEX futures prices, in each case adjusted for geographical and historical differentials. The NYMEX proved reserves
disclosed differ from proved reserves that would be prepared based on the methodology prescribed by GAAP primarily due to the oil and natural gas prices and the development plans utilized in the classification of undeveloped locations. This measure
should not be purported to be in accordance with GAAP nor is it indicative of the Companys proved reserves if they were prepared in accordance with GAAP. 5
Improve Drilling And Completion Performance To Improve Capital Returns
NLA Cumulative Gas vs. Time ETX Cumulative Gas vs. Time
Mcf; Days 1 Mcf; Days 2
3,500,000 4,500,000
4,000,000 3,000,000 60% 3,500,000
2,500,000 23% 3,000,000 2,000,000 87% 2,500,000 1,500,000 2,000,000 1,000,000 1,500,000 1,000,000 500,000 500,000
- -
0 40 80 120 160 200 240 0 50 100 150 200 250 300 350 400
NLA Caddo Type Curve Progression
Well Performance 3 2016+; Bcf/1000 4
Wells with ~2,700 lb/ft completions performance exceeding expectations
NPV-10
(8/8ths) of Target is $10.7MM, up from $8.6MM at YE
15
Larger stimulation design having positive impact on existing wells
0.18
Larger completions and longer laterals delivering 147% more volume in 0.20
approximately 200 days on line in NLA
Three long lateral wells in NLA
turned-to-sales
in Q3 16 averaged $8.8MM/well 1.98
1.60
Larger completions delivering 23% more volume in approximately 350 days online in ETX
Most recent well TTS in the southern area of ETX in Q1 16 cost $10.3MM. This well was drilled in the deepest part of the Haynesville play to a TVD of
>14,500 YE 15 Proved YE 16 Proved 3500 lbs./ft. Target EUR/1000 (BCF) EUR/1000 (BCF) Proppant
NLA and ETX wells continue to exceed
expectations; pressure decline is currently <10 psi/day and volumes continue to exceed type curve expectations
6
High Quality Drilling Inventory
Drilling Inventory1
Breakeven Price Required for 25% IRR ($/Mcf)2; Gross/Net Locations 1
$4.00 250
331 Gross Locations (95 Net) with Breakeven Prices Below $3.00/Mcf
$3.53 $3.43 $3.50 $3.23 $3.18 $3.03 200 $3.00 $2.81 $2.86 $2.78 $2.49 168/78 $2.50 $2.46 $2.33 $2.23 150
$2.00
/MCF $ 102/27 100Locations $1.50 Gross 81/18
$1.00 65/17 63/25
57/13 57/10 50 46/12 48/21 43/15 $0.50 20/9 23/9
$0.00 0
NLA NLA ETX NLA ETX APP ETX ETX APP NLA APP ETX CADDO DESOTO CORE HIGHLANDER CADDO
HIGHLANDER EAST JEBEL HSVL JEBEL SOUTH WEST HOLLY BOSSIER ARMSTRONG JEBEL NORTH
(7,500 LL) (4,500 LL) HSVL (4,500 LL) BSSR LYCOMING (7,500
LL) BSSR LYCOMING (7,500 LL) (5,800 LL) BSSR (6,400 LL) (6,500 LL) NORTH (7,500 LL) (5,200 LL) (7,500 LL) (5,800 LL)
Breakeven Prices (25% ROR)
EXCO has more than 19 years of economic drilling
locations with a 4 rig program drilling 41 wells per year
1. Excludes South Texas locations.
2. Breakeven figures are wellhead returns 7
Financial And Operational Results
Quarter-to-Date
Year-to-Date
4Q 16 3Q 16 4Q 15 4Q 16 4Q 15 Factors Unit Actual Actual % Change1
Actual % Change1 Actual Actual % Change1 Rig Count # 0 0 0 3 (100) 1 4 (75) Gross/Net Wells Drilled # 0/0.0 0/0.0 0 6/2.7 (100) 6/5.2 37/17.8 (71) Gross/Net Wells Turned To Sales # 1/0.4 3/2.7 (85) 8/4.3 (91) 15/9.2 68/29.2 (68) Production Oil Mbbl
381 391 (3) 609 (37) 1,769 2,342 (24) Natural Gas Bcf 21.9 24.1 (9) 25.7 (15) 93.8 109.9 (15) Total Bcfe 24.2 26.5 (9) 29.3 (17) 104.4 124.0 (16) Total Daily Mmcfe/d 263 288 (9) 319 (18) 285 340 (16) Realized Price Differentials Oil $/Bbl (2.86)
(3.57) (20) (4.57) (37) (4.30) (4.78) (10) Natural Gas $/Mcf (0.50) (0.54) (7) (0.63) (21) (0.51) (0.61) (16) Financial Results Lease Operating Expense $/Mcfe 0.36 0.33 9 0.41 (12) 0.33 0.43 (23) Production Taxes $/Mcfe 0.09 0.14 (36) 0.21 (57) 0.15
0.18 (17) Gathering And Transportation $/Mcfe 1.10 1.06 4 0.86 28 1.02 0.80 28 Adj. General And Administrative2 $MM 6 7 (11) 12 (50) 28 46 (39) Interest Expense3 $MM 16 16 0 21 (24) 66 101 (35) Adj. EBITDA4 $MM 26 25 4 47 (45) 96 233 (59) Capital
Expenditures $MM 8 14 (43) 35 (77) 78 277 (72)
1. Percentage change calculated using net wells drilled and net wells turned to sales, respectively.
2. Adjusted General and Administrative is a
non-GAAP
measure. See appendix for definition and reconciliation.
3. Interest expense excludes the amortization of debt issuance costs, discount on notes and capitalized interest. In addition, cash payments under the Exchange Term Loan are not
considered interest expense per ASC
470-60
and are excluded from the cash interest expense amounts shown. EXCOs payments on the Exchange Term Loan in 16 total $50.0 million.
4. Adjusted EBITDA is a
non-GAAP
measure. See appendix for definition and reconciliation. 8
Actuals To Guidance Comparison
Three Months Ended
4Q 16 4Q 16 Guidance 1Q 17 Guidance Factors Unit Actual Low High Low High
Wells Spud (Gross/Net) # 0/0.0 0/0.0 5/3.9 Wells Turned To Sales (Gross/Net) # 1/0.4 0/0.0 0/0.0 Production Oil Mbbl 381 335 355 300 320 Natural Gas Bcf 21.9 21.5 22.3 19.4 20.1 Total Bcfe 24.2 23.5 24.4 21.2 22.1 Total Daily Mmcfe/d 263 255 265 235
245 Realized Price Differentials Oil $/Bbl (2.86) (3.00) (4.00) (3.00) (4.00) Natural Gas $/Mcf (0.50) (0.50) (0.60) (0.50) (0.60) Financial Results Lease Operating Expense $/Mcfe 0.36 0.35 0.40 0.40 0.45 Production Taxes $/Mcfe 0.09 0.15 0.20 0.15
0.20 Gathering And Transportation $/Mcfe 1.10 1.05 1.10 1.20 1.25 General And Administrative1 $MM 10 9 10 9 10 Interest Expense2 $MM 16 16 18 24 28
1. Excludes
equity based compensation expense.
2. Interest expenses exclude the amortization of debt issuance costs, discount on notes and capitalized interest. In addition,
cash payments under the Exchange Term Loan are not considered interest expense per ASC
470-60
and are excluded from the cash interest expenses amounts shown. EXCOs expected payments on the Exchange Term
Loan in 16 are $50.0 million. 9
Hedge Positions
Twelve
Months Ended Twelve Months Ended 12/31/17 12/31/18
Factors Unit Volume Price Volume Price
Natural Gas
Bbtu,
Fixed Price Swaps - Henry Hub $/Mmbtu 38,300 3.02 3,650 3.15 Collars - Henry Hub Bbtu 10,950 Sold Call Options $/Mmbtu 3.28 Purchased
Put Options $/Mmbtu 2.87 Oil Fixed Price Swaps - WTI Mbbl, $/Bbl 183 50.00 - - Percent Hedged1 Natural Gas % 71 11 Oil % 15 -
1. Percent hedged based on PDP
production forecast. 10
Appendix
Key Transaction Terms
Item
Format $300MM 1.5 Lien Notes
1 $683MM of existing 2nd Lien Term Loans exchanged for new 1.75 Lien Term Loans Issue Price 100%
2 Closing Date March 15, 2017
3 Maturity Date March 20, 2022
4 Use of Proceeds Repay revolver borrowings, transaction fees and general corporate purposes
5 1.5 Lien Interest Rate 8.0% cash
11.0% PIK
6 PIK interest converted into shares of common stock at
20-day
VWAP or additional indebtedness as of each interest payment date
Company can pay
in-kind
any interest payment on or prior to December 31, 2018
Ability for Company to pay interest
in-kind
beyond 2018 will be governed by a liquidity scale
Financing Warrants 322.6MM 5 year tenor warrants issued to holders of new 1.5 Lien Notes with an exercise price of $0.93/share
7 1.5 Lien Commitment Fee Fee equal 3% of the aggregate principal amount of 1.5 Lien Notes paid to new holders
8 6.5MM penny warrants issued
$4.5MM cash fees paid
9 2nd Lien Exchange Interest on the new 1.75 Lien Term Loans can be paid in equity or additional debt at Companys option
1.75 Lien Interest Rate 12.5% cash
10 15.0% PIK
2nd Lien Amendment Fee Amendment fee equal to 10% of outstanding common stock paid to all exchanging 2nd Lien holders
19.9MM penny warrants issued
11
$8.6MM cash fees paid
Shareholder Approval If requisite shareholder approvals
are not obtained by the end of the 6th month after closing, the cash interest rate on the 1.5 Lien Notes 12 will increase to 15% and the PIK interest rate will increase to 20% Default Upon the occurrence of an event of default, the cash
interest rate and the PIK interest rate will each increase by an additional 2% on the
13 1.5 Lien Notes and 1.75 Lien Term Loans
Credit Agreement Borrowing base reduced from $325MM to $150MM with flexibility under 1.5 Lien Notes to increase facility size up to $200MM
14
12
Single Well Economics Internal Type Curves
NLA NLA NLA
NLA Caddo Caddo Bossier ETX ETX ETX DeSoto
X-Unit
Standard
X-Unit
Shelby Highlander Highlander Unit Core Lateral Lateral Lateral HSVL HSVL BSSR
1 Target Lateral Length Ft 4,500 7,500 4,500 7,500 7,500 6,500 6,500
2 Gross Locations # 20 46
23 168 63 57 65
3 Net Locations # 9 12 9 78 25 13 17
4 WI % 43 25 37 46 39 23
26
5 NRI % 33 19 28 36 31 18 20
6 Spacing Acres 136 227 136 227 241 221
223 Type Curve
7 IP Mcf/d or Boe/d 14,000 17,600 13,200 10,900 9,300 11,500 9,500
8 Phase I Duration Month Month 16 16 16 12 12 18 16
9 Phase I B Factor x 0 0 0 0
0 0 0
10 Phase I Initial Decline % 50.00 40.00 52.00 41.00 22.00 22.00 22.00
11 Phase II Duration Month Month 10 10 10 14 15 54 56
12 Phase II B Factor x .6
.6 .6 .6 .6 .6 .6
13 Phase II Initial Decline % 51.04 51.82 51.04 36.77 41.60 41.60 40.81
14 Phase III Duration Month Month 16 16 16 16 9 24 24
15 Phase III B Factor x 1
1 1 1 1 1 1
16 Phase III Initial Decline % 42.33 42.33 42.33 37.42 38.83 24.73 24.73
17 Phase IV Initial Decline % 32.34 32.34 32.34 26.29 35.98 22.34 22.34
18 Terminal
Decline % 6 6 6 6 6 6 6
19 Wellhead EUR Bcf/Mbo 9.9 14.9 8.9 12 11.3 14.1 11.7
20 EUR per 1,000 (lateral length) Bcf or Mbo 2.20 1.98 1.98 1.60 1.50 2.20 1.80
21 D&C/Pumping Unit $MM 6.8 9.3 6.8 11.2 9.5 10.0 9.6
22 LOE Fixed $/month 1,770 1,770
1,770 1,770 3,034 2,690 2,690
23 Variable/Gathering Expense $/mcf,$/bbl .02/.47 .02/.47 .02/.47 .02/.47 0.03/0.29 0.02/0.31 0.02/0.31
24 SWD Expense $/mcf .03 .03 .03 .04 .05 .04 .04 Single Well Returns
25
NPV10 (8/8ths)1 $MM 6.9 10.7 5.5 3.5 4.9 8.4 5.5
26 IRR1 % 100 100 95 26 40 62 42
27 Breakeven Flat Price (25%) $/MMBTU or $/BBL 2.33 2.23 2.49 3.23 2.86 2.46 2.78
28 PV/I,
Disc x 2.03 2.16 1.82 1.32 1.52 1.85 1.58
1. Economics based on NYMEX futures prices as of December 30, 2016, including natural gas prices per MMBtu of $3.63
for 2017, $3.14 for 2018, $2.87 for 2019, $2.88 for 2020, $2.90 for 2021, $2.93 for 2022, $3.02 for 2023, $3.16 for 2024 and $3.31 thereafter. 13
Non-GAAP
Measures and Reconciliations
Consolidated EBITDA and Adjusted EBITDA Reconciliations
Three Months
Ended Year Ended
(in thousands) December 31, 2016 September 30,
2016 December 31, 2015 December 31, 2016 December 31, 2015
Net income (loss) $ (34,699) $
50,936 $ (65,595) $ (225,258) $ (1,192,381) Interest
expense 16,252 16,997 25,260 70,438 106,082 Income tax
expense 1,027 1,028 2,802 Depletion, depreciation and
amortization 11,987 15,910 39,266 75,982 215,426 EBITDA(1) $ (5,433) $
84,871 $ (1,069) $ (76,036) $ (870,873) Accretion of discount on asset retirement
obligations 204 325 579 2,210 2,277 Impairment of oil and natural gas
properties 205,323 160,813 1,215,370 Other items impacting
comparability (1,062) (252) 23,636 3,889 Gain on restructuring and extinguishment of debt (83)
(57,421) (193,276) (119,457) (193,276) Equity loss 7,608 823 14,239 16,432 15,691 (Gain) loss on derivative
financial instruments 22,505 (8,209) (21,442) 34,137 (75,869) Cash receipts of derivative financial instruments
1,052 4,709 39,823 39,149 128,800 Equity-based compensation
expense 220 1,417 3,153 14,778 7,198 Adjusted EBITDA (1) $ 26,073 $
25,453 $ 47,078 $ 95,662 $ 233,207 Interest expense (16,252) (16,997) (25,260) (70,438) (106,082) Current income tax
expense Amortization of deferred financing costs and
discount 2,006 2,251 5,911 9,256 16,994 Other operating items impacting comparability and
non-operating
items 5 (21) 233 437 (3,921) Changes in working
capital (8,506) (60,351) (20,791) (35,331) (6,171) Net cash provided by operating activities $ 3,326 $ (49,665) $
7,171 $ (414) $ 134,027
1) Earnings before interest, taxes, depreciation, depletion and amortization
(EBITDA) represents net income (loss) adjusted to exclude interest expense, income taxes and depreciation, depletion and amortization. Adjusted
EBITDA represents EBITDA adjusted to exclude accretion of discount on asset retirement obligations,
non-cash
changes
in the fair value of derivatives,
non-cash
impairments of assets, equity-based compensation, income or losses from equity method investments and other operating items impacting comparability. In previous
periods, the Company added back severance costs in the determination of Adjusted EBITDA. As a result of a reduction in workforce that occurred in the second quarter 2016, management reassessed this measurement and determined it is no longer
considered
non-recurring.
Accordingly, all periods for which Adjusted EBITDA is presented include severance costs.
EXCO has
presented EBITDA and Adjusted EBITDA because they are a widely used measure by investors, analysts and rating agencies for valuations, peer comparisons and investment recommendations. In addition, similar measures are used in covenant calculations
required under the Credit Agreement, the indenture governing the 1.5 Lien Notes, the indenture governing the 2018 Notes, the indenture governing the 2022 Notes and the term loan credit agreement governing the 1.75 Lien Term Loans. Compliance with
the liquidity and debt incurrence covenants included in these agreements is considered material to the Company. EXCOs computations of EBITDA and Adjusted EBITDA may differ from computations of similarly titled measures of other companies due
to differences in the inclusion or exclusion of items in the Companys computations as compared to those of others. EBITDA and Adjusted EBITDA are measures that are not prescribed by GAAP. EBITDA and Adjusted EBITDA specifically exclude changes
in working capital, capital expenditures and other items that are set forth on a cash flow statement presentation of the Companys operating, investing and financing activities. As such, investors are encouraged not to use these measures as
substitutes for the determination of net income, net cash provided by operating activities or other similar GAAP measures. The calculation of EBITDA and Adjusted EBITDA as presented herein differ in certain respects from the calculation of
comparable measures in the Credit Agreement, the indentures and the term loan credit agreements.
Adjusted General and Administrative Expenses Reconciliations
Three Months Ended Year Ended
(in
thousands) December 31, 2016 September 30, 2016 December 31, 2015 December 31, 2016 December 31, 2015
General and administrative, GAAP $ 10,074 $ 10,746 $ 17,591 $
48,700 $ 58,818 Less: Equity-based compensation (220) (1,417) (3,153) (14,778) (7,198) Less: Restructuring and severance costs (3,936)
(2,697) (2,711) (5,645) (5,283) Adjusted general and administrative,
non-GAAP
measure
(1) 5,918 6,632 11,727 28,277 46,337
1) The
Company believes this
non-GAAP
measure is used by investors, analysts and management for valuations, peer comparisons and other recommendations. The exclusion of equity-based compensation is important to users
that are evaluating the impact of the Companys cash-based general and administrative costs on its credit metrics and ability to service its indebtedness. In addition, the exclusion of cash-based costs such as restructuring and severance
assists in the comparability between periods and similar measures are used in debt covenant calculations required under certain of the Companys debt agreements. Restructuring costs include legal and advisory costs incurred in connection with
the Companys strategic initiative focused on restructuring its balance sheet and gathering and transportation contracts, and severance costs relate primarily to the Companys reductions in workforce.
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Important Information for Investors and Shareholders
This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.
The requisite shareholder approval matters are expected to be submitted to the shareholders of the Company for their consideration pursuant to a Definitive Proxy Statement on
Schedule 14A (the Proxy Statement) that will be filed by the Company with the SEC and mailed to the Companys shareholders. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT
DOCUMENTS RELATED TO THE TRANSACTIONS DESCRIBED HEREIN THAT ARE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE REQUISITE SHAREHOLDER APPROVAL MATTERS. Investors
and shareholders will be able to obtain free copies of the Proxy Statement and other documents containing important information about the Company, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov.
The Company will make available free of charge at www.excoresources.com (in the Investor Relations section), copies of materials it files with, or furnishes to, the SEC, or investors and shareholders may contact the Company at (214)
368-2084 to receive copies of documents that it files with or furnishes to the SEC.
Participants in the Proxy Solicitation
The Company and certain of its respective directors and officers may be deemed to be participants in the solicitation of proxies from the shareholders of the Company in connection
with the requisite shareholder approval matters. Information about the directors and officers of the Company is set forth in its Definitive Proxy Statement on Schedule 14A for its 2016 annual meeting of shareholders, which was filed with the SEC on
April 6, 2016, as well as its Current Reports on Form 8-K filed with the SEC on April 7, 2016, May 24, 2016, August 22, 2016, October 25, 2016, February 2, 2017 and March 3, 2017. These documents can be obtained free of charge from the sources
indicated above. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant
materials to be filed with the SEC when they become available.
Forward Looking Statements
This presentation contains forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements relate to, among other things, the following:
? future
financial and operating performance and results; ? business strategy; ? market prices; ? future use of derivative financial instruments; and ? plans and forecasts.
The Company based these forward-looking statements on current assumptions, expectations and projections about future events.
The Company uses the words may, expect, anticipate, estimate, believe, continue, intend,
plan, potential, project, budget and other similar words to identify forward-looking statements. The statements that contain these words should be read carefully because they discuss future
expectations, contain projections of results of operations or financial condition and/or state other forward-looking information. The Company does not undertake any obligation to update or revise any forward-looking statements, except as
required by applicable securities laws. These statements also involve risks and uncertainties that could cause actual results or financial condition to materially differ from expectations in this presentation, including, but not limited to:
? fluctuations in the prices of oil and natural gas; ? the availability of oil and natural gas;
? future capital requirements and availability of financing, including limitations on our ability to incur certain types of indebtedness under our debt agreements; ? our ability to
meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants; ? disruption of credit and capital markets and the ability of financial institutions to honor their commitments; ? estimates
of reserves and economic assumptions, including estimates related to acquisitions and dispositions of oil and natural gas properties; ? geological concentration of our reserves; ? risks associated with drilling and operating wells; ? exploratory
risks, including those related to our activities in shale formations; ? discovery, acquisition, development and replacement of oil and natural gas reserves; ? outcome of divestitures of
non-core
assets,
including the potential sale of our assets in the South Texas region; ? cash flow and liquidity; ? timing and amount of future production of oil and natural gas; ? availability of drilling and production equipment; ? availability of water, sand and
other materials for drilling and completion activities; ? marketing of oil and natural gas; ? political and economic conditions and events in
oil-producing
and natural
gas-producing
countries; ? title to our properties; ? litigation; ? competition; ? our ability to attract and retain key personnel; ? general economic conditions, including costs associated with drilling and
operations of our properties; ? our ability to comply with the listing requirements of, and maintain the listing of our common shares on, the New York Stock Exchange (NYSE);
? environmental or other governmental regulations, including legislation to reduce emissions of greenhouse gases, legislation of derivative financial instruments, regulation of
hydraulic fracture stimulation and elimination of income tax incentives available to our industry; ? receipt and collectability of amounts owed to us by purchasers of our production and counterparties to our derivative financial instruments; ?
decisions whether or not to enter into derivative financial instruments; ? potential acts of terrorism; ? our ability to manage joint ventures with third parties, including the resolution of any material disagreements and our partners ability
to satisfy obligations under these arrangements; ? actions of third party
co-owners
of interests in properties in which we also own an interest; ? fluctuations in interest rates; ? our ability to effectively
integrate companies and properties that we acquire ? our ability to execute our business strategies and other corporate actions; ? outcome of shareholder approvals related to the warrants and issuance of equity in connection with the 1.5 Lien Notes
and 1.75 Lien Term Loans; ? decisions to pay interest on the 1.5 Lien Notes and 1.75 Lien Term Loans in cash, common shares or additional indebtedness; and ? our ability to continue as a going concern
It is important to communicate expectations of future performance to investors. However, events may occur in the future that EXCO is unable to accurately predict, or over which
EXCO has no control. Users of the financial statements are cautioned not to place undue reliance on any forward-looking statements. When considering EXCOs forward-looking statements, investors are urged to read the cautionary statements and
the risk factors included in EXCOs Annual Report on Form
10-K
for the year ended December 31, 2016, filed with the Securities and Exchange Commission (SEC) on March 16, 2017 and its
other periodic filings with the SEC.
Any number of factors could cause actual results to differ materially from those in EXCOs forward-looking statements,
including, but not limited to, the volatility of oil and natural gas prices, future capital requirements and the availability of capital and financing, uncertainties about reserve estimates, the outcome of future drilling activity, environmental
risks and regulatory changes. Revenues, operating results and financial condition substantially depend on prevailing prices for oil and natural gas and the availability of capital. Declines in oil or natural gas prices may have a material adverse
effect on financial condition, liquidity, results of operations, the amount of oil or natural gas that we can produce economically and the ability to fund operations. Historically, oil and natural gas prices and markets have been volatile, with
prices fluctuating widely, and they are likely to continue to be volatile. EXCO undertakes no obligation to publicly update or revise any forward-looking statements.
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