NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and basis of presentation
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “EXCO,” “EXCO Resources,” “Company,” “we,” “us,” and “our” are to EXCO Resources, Inc. and its consolidated subsidiaries.
We are an independent oil and natural gas company engaged in the exploration, exploitation, acquisition, development and production of onshore U.S. oil and natural gas properties with a focus on shale resource plays. Our principal operations are conducted in certain key U.S. oil and natural gas areas including Texas, Louisiana and the Appalachia region. The following is a brief discussion of our producing regions.
•
East Texas and North Louisiana
The East Texas and North Louisiana regions are primarily comprised of our Haynesville and Bossier shale assets. We have a joint venture with a wholly owned subsidiary of Royal Dutch Shell, plc, ("Shell") covering an undivided
50%
interest in the majority of our Haynesville and Bossier shale assets in East Texas and North Louisiana. The East Texas and North Louisiana regions also include certain assets outside of the joint venture in the Haynesville and Bossier shales. We serve as the operator for most of our properties in the East Texas and North Louisiana regions.
•
South Texas
The South Texas region is primarily comprised of our Eagle Ford shale assets. We serve as the operator for most of our properties in the South Texas region.
On April 7, 2017
, we entered into a definitive agreement with a subsidiary of Venado Oil and Gas, LLC ("Venado") to divest our oil and natural gas properties and surface acreage in South Texas. See "Note 12. Subsequent events" for additional discussion of this divestiture.
•
Appalachia
The Appalachia region is primarily comprised of Marcellus shale assets. We have a joint venture with Shell covering our Marcellus shale assets in the Appalachia region ("Appalachia JV"). EXCO and Shell each own an undivided
50%
interest in the Appalachia JV and a
49.75%
working interest in the Appalachia JV's properties. The remaining
0.5%
working interest is held by a jointly owned operating entity ("OPCO") that operates the Appalachia JV's properties. We own a
50%
interest in OPCO.
The accompanying Condensed Consolidated Balance Sheets as of
March 31, 2017
and
December 31, 2016
, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Changes in Shareholders’ Equity
for the three months ended
March 31, 2017
and
2016
are for EXCO and its subsidiaries. The unaudited Condensed Consolidated Financial Statements and related footnotes are presented in accordance with generally accepted accounting principles in the United States ("GAAP").
We have prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in the opinion of management, such financial statements reflect all adjustments necessary to fairly present the consolidated financial position of EXCO at
March 31, 2017
and its results of operations and cash flows for the periods presented. We have omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP pursuant to those rules and regulations, although we believe that the disclosures we have made are adequate to make the information presented not misleading. These unaudited interim financial statements should be read in conjunction with our audited consolidated financial statements and related footnotes included in EXCO's Annual Report on Form 10-K for the year ended
December 31, 2016
, filed with the SEC on
March 16, 2017
("2016 Form 10-K").
In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures. The results of operations for the interim periods are not necessarily indicative of the results we expect for the full year.
Going Concern Assessment and Management’s Plans
These unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business.
Our liquidity and ability to maintain compliance with debt covenants have been negatively impacted by the prolonged depressed oil and natural gas price environment, levels of indebtedness, and gathering, transportation and certain other commercial contracts. We define liquidity as cash and restricted cash plus the unused borrowing base under our credit agreement ("Liquidity").
On March 15, 2017, we closed a series of transactions intended to improve our Liquidity and capital structure. This included the issuance of
$300.0 million
in aggregate principal amount of senior secured 1.5 lien notes due March 20, 2022 ("1.5 Lien Notes"), exchange of
$682.8 million
in aggregate principal amount of our senior secured second lien term loans due October 26, 2020 ("Second Lien Term Loans") for a like amount of senior 1.75 lien term loans due October 26, 2020 ("1.75 Lien Term Loans," and such exchange, the "Second Lien Term Loan Exchange") and issuance of warrants to purchase our common shares. Other than set forth below, under the terms of the indenture governing the 1.5 Lien Notes and the credit agreement governing the 1.75 Lien Term Loans, we may, at our discretion prior to December 31, 2018 and subject to certain limitations thereafter, make interest payments in cash, common shares or additional indebtedness (such interest payments in common shares or additional indebtedness, "PIK Payments"). The proceeds from the issuance of the 1.5 Lien Notes were primarily utilized to repay the outstanding indebtedness under our revolving credit agreement ("EXCO Resources Credit Agreement"). In connection with these transactions, the EXCO Resources Credit Agreement was amended to reduce the borrowing base to
$150.0 million
, permit the issuance of the 1.5 Lien Notes and the exchanges of Second Lien Term Loans, and modify certain financial covenants. See further discussion of these transactions as part of "Note 7. Debt".
The payment of interest in common shares on the 1.5 Lien Notes and 1.75 Lien Term Loans would improve our Liquidity and future cash flows. Our ability to pay interest in common shares is restricted until the Requisite Shareholder Approval, as defined below, is obtained. The amount of PIK Payments paid in additional 1.5 Lien Notes or 1.75 Lien Term Loans is subject to incurrence covenants within our debt agreements that limit our aggregate secured indebtedness to
$1.2 billion
. If we do not receive the shareholder vote to approve the issuance of common shares in connection with the 1.5 Lien Notes and 1.75 Lien Term Loans, then we may be required to pay interest in cash that would further restrict our Liquidity and ability to comply with debt covenants. Furthermore, if the Requisite Shareholder Approval is not obtained by September 30, 2017, the interest rate for cash and PIK Payments on the 1.5 Lien Notes will significantly increase.
The modified covenants in the EXCO Resources Credit Agreement include a requirement for our ratio of consolidated EBITDAX to consolidated interest expense ("Interest Coverage Ratio") to exceed a minimum of
1.75
to 1.0 for the fiscal quarter ending September 30, 2017 and
2.0
to 1.0 for fiscal quarters thereafter. The definition of consolidated interest expense utilized in the Interest Coverage Ratio excludes payments in common shares or additional indebtedness on the 1.5 Lien Notes and 1.75 Lien Term Loans. The consolidated EBITDAX and consolidated interest expense utilized in this calculation are annualized beginning with the fiscal quarter ending September 30, 2017. Therefore, the receipt of the Requisite Shareholder Approval and payment of interest in common shares is essential to our ability to maintain compliance with this covenant. Furthermore, our ability to maintain compliance with other financial covenants under the EXCO Resources Credit Agreement would be negatively impacted if we are not able to pay interest in common shares.
We will seek approval at our annual meeting of shareholders on May 31, 2017 to (i) permit the issuance of common shares to pay interest on the 1.5 Lien Notes and 1.75 Lien Term Loans and permit the issuance of common shares upon the exercise of the warrants associated with the 1.5 Lien Notes and 1.75 Lien Term Loans, in each case for purposes of New York Stock Exchange rules, and (ii) approve a reverse stock split at a ratio of between 1-for-
10
and 1-for-
20
, with the ratio within such range to be determined at the discretion of the Board of Directors, with a reduction in the total number of authorized common shares based on
one-fifth
of the reverse share split ratio (collectively referred to as "Requisite Shareholder Approval"). The issuance of common shares requires the affirmative vote of a majority of the votes cast by the holders of our outstanding common shares, and the reverse stock split requires that holders of at least two-thirds of outstanding shares approve the proposal. Certain of our related parties and members of our Board of Directors held approximately
46%
of the total common shares outstanding as of March 31, 2017. The issuance of the 1.5 Lien Notes and the exchange transactions involving the 1.75 Lien Term Loans were approved by a special committee of the Board of Directors consisting of the sole disinterested member of the Board of Directors. The Board of Directors authorized and approved the transactions based on the recommendation of the special committee. However, there is no assurance that the Requisite Shareholders Approval will be obtained. Therefore, the receipt of the Requisite Shareholder Approval was deemed to be outside of our control in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 205-40,
Going Concern
and our ability to pay interest in common shares was not factored into our analysis regarding our ability to continue as a going concern. If we are not able to obtain the Requisite Shareholder Approval, it is probable that we will not meet the minimum requirement under the Interest Coverage Ratio for the twelve-month period following the date of these unaudited Condensed Consolidated Financial Statements, which could result in an event of default under the EXCO Resources Credit Agreement.
We entered into an agreement to divest our oil and natural gas properties and surface acreage in South Texas on April 7, 2017 and the transaction is expected to close in early June 2017. Upon the closing of the South Texas divestiture, the borrowing
base under the EXCO Resources Credit Agreement will be
$100.0 million
, including letters of credit, until the date of the next redetermination, which is scheduled to occur on or around November 1, 2017. The proceeds from the sale would significantly increase our Liquidity and primarily be utilized to fund the acquisition and development of oil and natural gas properties in other regions. Therefore, this would reduce the need to incur indebtedness under the EXCO Resources Credit Agreement and mitigate the impact if we are not able to comply with the debt covenants. However, no assurance can be given as to outcome or timing of the divestiture and the intent and ability of the buyer to consummate the transaction was deemed to be outside of our control in accordance with FASB ASC 205-40. Therefore, the divestiture was not factored into our analysis regarding our ability to continue as a going concern.
If we are not able to comply with our debt covenants or do not have sufficient Liquidity to conduct our business operations in future periods, we may be required, but unable, to refinance all or part of our existing debt, seek covenant relief from our lenders, sell assets, incur additional indebtedness, or issue equity on terms acceptable to us, if at all, and may be required to surrender assets pursuant to the security provisions of the EXCO Resources Credit Agreement. Therefore, our ability to continue our planned principal business operations would be dependent on the actions of our lenders or obtaining additional debt and/or equity financing to repay outstanding indebtedness under the EXCO Resources Credit Agreement. These factors raise substantial doubt about our ability to continue as a going concern.
If the Requisite Shareholder Approval is obtained, we may elect to pay interest on the 1.5 Lien Notes and 1.75 Lien Term Loans in common shares at our sole discretion until December 31, 2018. Upon obtaining the Requisite Shareholder Approval, we plan to pay interest on the 1.5 Lien Notes and 1.75 Lien Term Loans in common shares during this period. In addition, the expected divestiture of our assets in South Texas would further improve our Liquidity. If we obtain the Requisite Shareholder Approval or if we divest our assets in South Texas, we expect that we would have sufficient Liquidity for the twelve-month period following the date of these Condensed Consolidated Financial Statements.
The accompanying unaudited Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.
2.
Significant accounting policies
We consider significant accounting policies to be those related to our estimates of proved reserves, oil and natural gas properties, derivatives, business combinations, equity-based compensation, goodwill, revenue recognition, asset retirement obligations and income taxes. The policies include significant estimates made by management using information available at the time the estimates were made. However, these estimates could change materially if different information or assumptions were used. These policies and others are summarized in our
2016
Form 10-K.
Recent accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The FASB and the International Accounting Standards Board ("IASB") jointly issued this comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under currently applicable guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. During 2016, the FASB issued four additional ASUs that primarily clarified the implementation guidance on principal versus agent considerations, performance obligations and licensing, collectability, presentation of sales taxes and other similar taxes collected from customers, and non-cash consideration. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and permits the use of either the retrospective or cumulative effect transition method.
We are currently assessing the impact of ASU 2014-09 and the related updates and clarifications and are performing a review of the new guidance. We intend to adopt ASU 2014-09 and the related updates for the interim and annual periods beginning after December 15, 2017. During 2017, we plan to assess our contracts and consider the method of adoption. We are currently unable to quantify the impact the standard will have on our consolidated financial condition and results of operations; however, based on our preliminary analysis, we do not believe this standard will have a material impact, if any, on our consolidated financial condition and results of operations.
3.
Asset retirement obligations
The following is a reconciliation of our asset retirement obligations
for the three months ended
March 31, 2017
:
|
|
|
|
|
|
(in thousands)
|
|
|
Asset retirement obligations at beginning of period
|
|
$
|
11,289
|
|
Activity during the period:
|
|
|
Liabilities incurred during the period
|
|
1
|
|
Liabilities settled during the period
|
|
(77
|
)
|
Accretion of discount
|
|
212
|
|
Asset retirement obligations at end of period
|
|
11,425
|
|
Less current portion
|
|
344
|
|
Long-term portion
|
|
$
|
11,081
|
|
Our asset retirement obligations are determined using discounted cash flow methodologies based on inputs and assumptions developed by management. We do not have any assets that are legally restricted for purposes of settling asset retirement obligations.
4.
Oil and natural gas properties
We use the full cost method of accounting, which involves capitalizing all acquisition, exploration, exploitation and development costs of oil and natural gas properties. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. We review our unproved oil and natural gas property costs on a quarterly basis to assess for impairment or the need to transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations or determination that no proved reserves are attributable to such costs. The majority of our undeveloped properties are held-by-production, which reduces the risk of impairment as a result of lease expirations. There were
no
impairments of unproved properties during the
three months ended
March 31, 2017
or 2016.
At the end of each quarterly period, companies that use the full cost method of accounting for their oil and natural gas properties must compute a limitation on capitalized costs ("ceiling test"). The ceiling test involves comparing the net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling limitation is less than the full cost pool, we are required to record an impairment of our oil and natural gas properties. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from our proved reserves by applying the average price as prescribed by the SEC, less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at
10%
, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The ceiling test for each period presented was based on the following average spot prices, in each case adjusted for quality factors and regional differentials to derive estimated future net revenues. Prices presented in the table below are the trailing twelve-month simple average spot prices at the first of the month for natural gas at Henry Hub ("HH") and West Texas Intermediate ("WTI") crude oil at Cushing, Oklahoma. The fluctuations demonstrate the volatility in oil and natural gas prices between each of the periods and have a significant impact on our ceiling test limitation.
|
|
|
|
|
|
|
|
|
|
|
|
Average spot prices
|
|
|
Oil (per Bbl)
|
|
Natural gas (per Mmbtu)
|
March 31, 2017
|
|
$
|
47.61
|
|
|
$
|
2.73
|
|
December 31, 2016
|
|
42.75
|
|
|
2.48
|
|
We did
no
t recognize an impairment to our proved oil and natural gas properties for the three months ended
March 31, 2017
, and we recognized an impairment to our proved oil and natural gas properties of
$134.6 million
for the three months ended
March 31, 2016
. The impairment during 2016 was primarily due to the decline in oil and natural gas prices. The possibility and amount of any future impairments is difficult to predict, and will depend, in part, upon future oil and natural gas prices to be utilized in the ceiling test, estimates of proved reserves, future capital expenditures and operating costs.
Our proved undeveloped reserves, other than the proved undeveloped reserves associated with certain wells expected to be drilled and/or completed during 2017, remained reclassified in unproved primarily due to the uncertainty regarding the
financing required to develop these reserves. These reserves remained classified as unproved due to our inability to meet the reasonable certainty criteria for recording proved undeveloped reserves, as prescribed under the SEC requirements, as the uncertainty regarding our availability of capital required to develop these reserves still existed at March 31, 2017. A significant amount of our proved undeveloped reserves that were reclassified to unproved remain economic at current prices, and we may report proved undeveloped reserves in future filings if we determine we have the financial capability to execute a development plan.
The evaluation of impairment of our oil and natural gas properties includes estimates of proved reserves. There are inherent uncertainties in estimating quantities of proved reserves including projecting the future rates of production and the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data, and engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revisions of such estimate. Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered.
5.
Earnings (loss) per share
The following table presents the basic and diluted earnings (loss) per share computations
for the three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands, except per share data)
|
|
2017
|
|
2016
|
Basic net income (loss) per common share:
|
|
|
|
|
Net income (loss)
|
|
$
|
8,193
|
|
|
$
|
(130,148
|
)
|
Weighted average common shares outstanding
|
|
280,727
|
|
|
278,357
|
|
Net income (loss) per basic common share
|
|
$
|
0.03
|
|
|
$
|
(0.47
|
)
|
Diluted net income (loss) per common share:
|
|
|
|
|
Net income (loss)
|
|
$
|
8,193
|
|
|
$
|
(130,148
|
)
|
Weighted average common shares outstanding
|
|
280,727
|
|
|
278,357
|
|
Dilutive effect of:
|
|
|
|
|
Stock options
|
|
—
|
|
|
—
|
|
Restricted shares and restricted share units
|
|
351
|
|
|
—
|
|
Warrants
|
|
—
|
|
|
—
|
|
Weighted average common shares and common share equivalents outstanding
|
|
281,078
|
|
|
278,357
|
|
Net income (loss) per diluted common share
|
|
$
|
0.03
|
|
|
$
|
(0.47
|
)
|
Diluted net income (loss) per common share
for the three months ended
March 31, 2017
and
2016
is computed in the same manner as basic net income (loss) per share after assuming the issuance of common shares for all potentially dilutive common share equivalents, which include stock options, restricted share units, restricted share awards and warrants issued to Energy Strategic Advisory Services LLC ("ESAS"), whether exercisable or not. The computation of diluted net income (loss) per share excluded
48,483,322
and
91,285,813
antidilutive share equivalents
for the three months ended
March 31, 2017
and
2016
, respectively. The antidilutive common share equivalents for the three months ended March 31, 2017 primarily related to out-of-the-money warrants issued to ESAS. No share and per-share amounts have been adjusted to give effect to our proposed reverse share split that will be voted upon at our annual meeting of shareholders on May 31, 2017.
The issuance of warrants and potential for interest payments in the Company's common shares related to the 1.5 Lien Notes and 1.75 Lien Term Loans could materially change the number of common shares or potential common shares outstanding. The warrants issued in connection with the issuance of the 1.5 Lien Notes and 1.75 Lien Term Loans will not be included in our earnings (loss) per share calculation until the Requisite Shareholder Approval is obtained to permit the exercisability of the warrants. Once the Requisite Shareholder Approval is obtained, warrants representing the right to purchase our common shares at an exercise price of
$0.01
will be included in our weighted average common shares outstanding and used in the computation of our basic net income (loss) per common share, and warrants representing the right to purchase our common shares at an exercise price of
$0.93
will be considered in the calculation of diluted weighted average common shares outstanding using the treasury stock method. See further discussion of the warrants and potential common shares to be issued in connection with the 1.5 Lien Notes and 1.75 Lien Term Loans in "Note 6. Derivative Financial Instruments" and "Note 7. Debt".
6.
Derivative financial instruments
Our derivative financial instruments are comprised of commodity derivatives and common share warrants. The table below outlines the classification of our derivative financial instruments on our Condensed Consolidated Balance Sheets and their financial impact on our Condensed Consolidated Statements of Operations.
Fair Value of Derivative Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Current assets
|
|
Derivative financial instruments - commodity derivatives
|
|
$
|
1,012
|
|
|
$
|
—
|
|
Long-term assets
|
|
Derivative financial instruments - commodity derivatives
|
|
662
|
|
|
482
|
|
Current liabilities
|
|
Derivative financial instruments - commodity derivatives
|
|
(9,376
|
)
|
|
(27,711
|
)
|
Long-term liabilities
|
|
Derivative financial instruments - commodity derivatives
|
|
—
|
|
|
(464
|
)
|
|
|
Net commodity derivative financial instruments
|
|
$
|
(7,702
|
)
|
|
$
|
(27,693
|
)
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
Derivative financial instruments - common share warrants
|
|
$
|
(155,136
|
)
|
|
$
|
—
|
|
Effect of Derivative Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Gain on derivative financial instruments - commodity derivatives
|
|
$
|
15,533
|
|
|
$
|
16,591
|
|
Gain on derivative financial instruments - common share warrants
|
|
6,004
|
|
|
—
|
|
Commodity derivative financial instruments
Our primary objective in entering into commodity derivative financial instruments is to manage our exposure to commodity price fluctuations, protect our returns on investments and achieve a more predictable cash flow from operations. These transactions limit exposure to declines in commodity prices, but also limit the benefits we would realize if commodity prices increase. When prices for oil and natural gas are volatile, a significant portion of the effect of our commodity derivative financial instruments consists of non-cash income or expense due to changes in the fair value. Cash losses or gains only arise from payments made or received on monthly settlements of contracts or if we terminate a contract prior to its expiration. We do not designate our commodity derivative financial instruments as hedging instruments for financial accounting purposes and, as a result, we recognize the change in the respective instruments’ fair value in earnings.
Settlements in the normal course of maturities of our derivative financial instrument contracts result in cash receipts from, or cash disbursements to, our derivative contract counterparties. Changes in the fair value of our derivative financial instrument contracts, which include both cash settlements and non-cash changes in fair value, are included in earnings with a corresponding increase or decrease in the Condensed Consolidated Balance Sheets fair value amounts.
Our oil and natural gas derivative instruments are comprised of the following instruments:
Swaps
: These contracts allow us to receive a fixed price and pay a floating market price to the counterparty for the hedged commodity.
Collars
: A collar is a combination of options including a sold call and a purchased put. These contracts allow us to participate in the upside of commodity prices to the ceiling of the call option and provide us with downside protection through the put option. If the market price is below the strike price of the purchased put at the time of settlement then the counterparty pays us the excess. If the market price is above the strike price of the sold call at the time of settlement, we pay the counterparty the excess. These transactions were conducted contemporaneously with a single counterparty and resulted in a net cashless transaction.
We place our commodity derivative financial instruments with the financial institutions that are lenders under the EXCO Resources Credit Agreement that we believe have high quality credit ratings. To mitigate our risk of loss due to default, we have entered into master netting agreements with counterparties to our commodity derivative financial instruments that allow us to offset our asset position with our liability position in the event of a default by the counterparty. Our credit rating and financial condition may restrict our ability to enter into certain types of commodity derivative financial instruments and limit the maturity of the contracts with counterparties. We have historically entered into commodity derivative financial instruments with the financial institutions that are lenders under the EXCO Resources Credit Agreement. Therefore, our ability to enter into
commodity derivative financial instruments may be limited beyond the maturity of the EXCO Resources Credit Agreement in July 2018. We are currently evaluating alternatives to enter into commodity derivative financial instruments beyond this date, which may include counterparties that are not lenders under the EXCO Resources Credit Agreement. These alternatives may include agreements with counterparties on a secured or unsecured basis. If we enter into commodity derivative financial instruments that require us to post collateral, this could further constrain our Liquidity. Our derivative contracts also contain rights that could result in the early termination of our derivative contracts and cash payments to our counterparties due to an event of default under the EXCO Resources Credit Agreement.
The following table presents the volumes and fair value of our commodity derivative financial instruments as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except prices)
|
|
Volume Bbtu/Mbbl
|
|
Weighted average strike price per Mmbtu/Bbl
|
|
Fair value at March 31, 2017
|
Natural gas:
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
Remainder of 2017
|
|
27,500
|
|
|
$
|
3.05
|
|
|
$
|
(6,439
|
)
|
2018
|
|
3,650
|
|
|
3.15
|
|
|
373
|
|
Collars:
|
|
|
|
|
|
|
Remainder of 2017
|
|
8,250
|
|
|
|
|
(1,421
|
)
|
Sold call
|
|
|
|
3.28
|
|
|
|
Purchased put
|
|
|
|
2.87
|
|
|
|
Total natural gas
|
|
|
|
|
|
$
|
(7,487
|
)
|
Oil:
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
Remainder of 2017
|
|
137
|
|
|
$
|
50.00
|
|
|
$
|
(215
|
)
|
Total oil
|
|
|
|
|
|
$
|
(215
|
)
|
Total commodity derivative financial instruments
|
|
|
|
|
|
$
|
(7,702
|
)
|
At
December 31, 2016
, we had outstanding swap and collar contracts covering
41,950
and
10,950
Bbtu, respectively, of natural gas and we had outstanding swap contracts covering
183
Mbbls of oil.
At
March 31, 2017
, the average forward NYMEX WTI oil prices per Bbl for the remainder of 2017 were
$51.63
and the average forward NYMEX HH natural gas prices per Mmbtu for the remainder of 2017 and calendar year 2018 were
$3.32
and
$3.04
, respectively.
Our commodity derivative financial instruments covered approximately
63%
and
46%
of production volumes
for the three months ended
March 31, 2017
and
2016
, respectively.
Common share warrants
In connection with the issuance of the 1.5 Lien Notes, on March 15, 2017, we issued warrants to the investors of 1.5 Lien Notes representing the right to purchase an aggregate of up to
322,580,655
common shares (assuming a cash exercise) at an exercise price of
$0.93
per share ("Financing Warrants"), and warrants representing the right to purchase an aggregate of up to
6,471,433
common shares (assuming a cash exercise) at an exercise price of
$0.01
per share (“Commitment Fee Warrants”). In addition, certain exchanging holders of the Second Lien Term Loans received warrants representing the right to purchase an aggregate of up to
19,883,077
common shares (assuming a cash exercise) at an exercise price of
$0.01
per share ("Amendment Fee Warrants", and with the Commitment Fee Warrants and Financing Warrants, collectively referred to as the "2017 Warrants").
The exercisability of the 2017 Warrants is subject to certain conditions, including the receipt of the Requisite Shareholder Approval. Each of the 2017 Warrants has an exercise term of 5 years from the date that Requisite Shareholder Approval is obtained and, subject to certain exceptions, may be exercised by cash or cashless exercise. The Financing Warrants are subject to an anti-dilution adjustment in the event we issue common shares for consideration less than the market value of our common shares or exercise price of the Financing Warrants, subject to certain adjustments and exceptions. The Commitment Fee Warrants and the Amendment Fee Warrants are subject to an anti-dilution adjustment in the event we issue common shares at a price per share less than
$0.70
per share, subject to certain exceptions and adjustments. The 2017 Warrants are accounted for as
derivatives in accordance with FASB ASC Topic 815,
Derivatives and Hedging
, ("ASC 815"), and required to be classified as liabilities due to the types of anti-dilution adjustments.
We record the warrants as non-current liabilities at fair value, with the increase or decrease in fair value being recognized in earnings. The 2017 Warrants will be measured at fair value on a recurring basis until the date of exercise or the date of expiration. The 2017 Warrants had a fair value of
$161.1 million
at the date of issuance on March 15, 2017 and a fair value of
$155.1 million
on March 31, 2017. As a result, we recorded a gain of
$6.0 million
on revaluation of the warrants during the three months ended March 31, 2017 in "
Gain on derivative financial instruments - common share warrants
" on the Condensed Consolidated Statements of Operations.
7.
Debt
The carrying value of our total debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
EXCO Resources Credit Agreement
|
|
$
|
—
|
|
|
$
|
228,592
|
|
1.5 Lien Notes
|
|
300,000
|
|
|
—
|
|
Unamortized discount on 1.5 Lien Notes
|
|
(152,546
|
)
|
|
—
|
|
1.75 Lien Term Loans
|
|
855,332
|
|
|
—
|
|
Unamortized discount on 1.75 Lien Term Loans
|
|
(21,009
|
)
|
|
—
|
|
Exchange Term Loan
|
|
24,633
|
|
|
590,477
|
|
Fairfax Term Loan
|
|
—
|
|
|
300,000
|
|
2018 Notes
|
|
131,576
|
|
|
131,576
|
|
Unamortized discount on 2018 Notes
|
|
(449
|
)
|
|
(520
|
)
|
2022 Notes
|
|
70,169
|
|
|
70,169
|
|
Deferred financing costs, net
|
|
(14,924
|
)
|
|
(11,756
|
)
|
Total debt
|
|
1,192,782
|
|
|
1,308,538
|
|
Less amounts due within one year
|
|
50,000
|
|
|
50,000
|
|
Total debt due after one year
|
|
$
|
1,142,782
|
|
|
$
|
1,258,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
(in thousands)
|
|
Carrying value
|
|
Deferred reduction in carrying value
|
|
Unamortized discount/deferred financing costs
|
|
Principal balance
|
EXCO Resources Credit Agreement
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
1.5 Lien Notes
|
|
147,454
|
|
|
—
|
|
|
152,546
|
|
|
300,000
|
|
1.75 Lien Term Loans
|
|
834,323
|
|
|
(172,578
|
)
|
|
21,009
|
|
|
682,754
|
|
Exchange Term Loan
|
|
24,633
|
|
|
(7,387
|
)
|
|
—
|
|
|
17,246
|
|
2018 Notes
|
|
131,127
|
|
|
—
|
|
|
449
|
|
|
131,576
|
|
2022 Notes
|
|
70,169
|
|
|
—
|
|
|
—
|
|
|
70,169
|
|
Deferred financing costs, net
|
|
(14,924
|
)
|
|
—
|
|
|
14,924
|
|
|
—
|
|
Total debt
|
|
$
|
1,192,782
|
|
|
$
|
(179,965
|
)
|
|
$
|
188,928
|
|
|
$
|
1,201,745
|
|
Terms and conditions of our debt obligations are discussed below.
EXCO Resources Credit Agreement
Concurrently with the issuance of the 1.5 Lien Notes and as a condition precedent thereto, on March 15, 2017, we amended the EXCO Resources Credit Agreement to, among other things, permit the issuance of the 1.5 Lien Notes and the exchanges of Second Lien Term Loans, reduce the borrowing base thereunder to
$150.0 million
and modify certain financial covenants. The next borrowing base redetermination for the EXCO Resources Credit Agreement is scheduled to occur on or around November 1, 2017. Upon the closing of the South Texas divestiture, the borrowing base under the EXCO Resources Credit Agreement will be reduced to
$100.0 million
until the date of the next redetermination.
The maturity date of the EXCO Resources Credit Agreement is
July 31, 2018
. The interest rate grid for the revolving commitment under the EXCO Resources Credit Agreement ranges from London Interbank Offered Rate ("LIBOR") plus 225 bps to 325 bps (or alternate base rate ("ABR") plus 125 bps to 225 bps), depending on our borrowing base usage.
As of
March 31, 2017
, we were in compliance with the financial covenants (defined in the EXCO Resources Credit Agreement), which required that:
|
|
•
|
our cash (as defined in the agreement) plus unused commitments under the EXCO Resources Credit Agreement cannot be less than (i)
$50.0 million
as of the end of a fiscal month and (ii )
$70.0 million
as of the end of a fiscal quarter ("Minimum Liquidity Test"); and
|
|
|
•
|
our ratio of aggregate revolving credit exposure to consolidated EBITDAX ("Aggregate Revolving Credit Exposure Ratio") cannot exceed
1.2
to 1.0 as of the end of any fiscal quarter. Aggregate revolving credit exposure utilized in the Aggregate Revolving Credit Exposure Ratio includes borrowings and letters of credit under the EXCO Resources Credit Agreement.
|
In addition, we are required to maintain a ratio of consolidated EBITDAX to consolidated interest expense (“Interest Coverage Ratio”) of at least
1.75
to 1.0 for the fiscal quarter ending September 30, 2017 and
2.0
to 1.0 for fiscal quarters thereafter. The consolidated EBITDAX and consolidated interest expense utilized in this ratio are based on the most recent fiscal quarter ended multiplied by
4.0
as of September 30, 2017, the most recent two fiscal quarters ended multiplied by
2.0
as of December 31, 2017, the most recent three fiscal quarters ended multiplied by
4/3
as of March 31, 2018, and the trailing twelve month period for fiscal quarters ending thereafter. The definition of consolidated interest expense includes cash interest payments that are accounted for as reductions in the carrying amount of indebtedness in accordance with FASB ASC 470-60,
Troubled Debt Restructuring by Debtors
. Consolidated interest expense is limited to payments in cash, and excludes PIK Payments on the 1.5 Lien Notes and 1.75 Lien Term Loans.
1.5 Lien Notes
On March 15, 2017, we issued an aggregate of
$300.0 million
of 1.5 Lien Notes due March 20, 2022 to affiliates of Fairfax Financial Holdings Limited ("Fairfax"), Bluescape Resources Company LLC ("Bluescape") and Oaktree Capital Management, LP ("Oaktree"), and an unaffiliated investor. The 1.5 Lien Notes bear interest at a cash interest rate of
8%
per annum, or, if we elect to make interest payments on the 1.5 Lien Notes with our common shares or, in certain circumstances, by issuing additional 1.5 Lien Notes, at an interest rate of
11%
per annum. Interest is payable bi-annually on March 20 and September 20 of each year, commencing on September 20, 2017. As described in “Note 6. Derivative financial instruments,” in connection with the issuance of the 1.5 Lien Notes, we also issued the Commitment Fee Warrants and the Financing Warrants. The combined fair value of the Commitment Fee Warrants and the Financing Warrants of
$148.6 million
as of March 15, 2017 and
$4.5 million
of cash paid to certain investors who elected to receive cash in lieu of Commitment Fee Warrants was recorded as a discount to the 1.5 Lien Notes. The discount and
$4.3 million
of transaction costs incurred related to the transaction are being amortized to interest expense over the life of the 1.5 Lien Notes. We used the majority of the proceeds from the issuance of the 1.5 Lien Notes to repay the entire amount outstanding under the EXCO Resources Credit Agreement.
1.75 Lien Term Loans and Second Lien Term Loan Exchange
During 2015, we closed a
12.5%
senior secured second lien term loan with certain affiliates of Fairfax in the aggregate principal amount of
$300.0 million
("Fairfax Term Loan") and a
12.5%
senior secured second lien term loan with certain unsecured noteholders in the aggregate principal amount of
$400.0 million
(“Exchange Term Loan" and together with the Fairfax Term Loan, "Second Lien Term Loans"). The proceeds from the Exchange Term Loan were used to repurchase a portion of the outstanding senior unsecured notes due September 15, 2018 ("2018 Notes") and senior unsecured notes due April 15, 2022 ("2022 Notes") in exchange for the holders of such notes agreeing to act as lenders in connection with the Exchange Term Loan. The exchange was accounted for as a troubled debt restructuring pursuant to FASB ASC 470-60,
Troubled Debt Restructuring by Debtors
. The future undiscounted cash flows from the Exchange Term Loan through its maturity were less than the carrying amounts of the retired 2018 Notes and 2022 Notes. As a result, the carrying amount of the Exchange Term Loan was adjusted to equal the total undiscounted future cash payments, including interest and principal. All cash payments under the terms of the Exchange Term Loan, whether designated as interest or as principal amount, reduce the carrying amount and no interest expense is recognized.
In connection with the offering of the 1.5 Lien Notes, on March 15, 2017, we completed the Second Lien Term Loan Exchange whereby approximately
$682.8 million
in aggregate principal amount of the outstanding Second Lien Term Loans, consisting of all of the outstanding indebtedness under the Fairfax Term Loan and approximately
$382.8 million
in aggregate principal amount of the Exchange Term Loan, were exchanged for approximately
$682.8 million
in aggregate principal amount of 1.75 Lien Term Loans. As a result of the Second Lien Term Loan Exchange, the Fairfax Term Loan was deemed satisfied and paid in full and was terminated. In addition, by participating in the Second Lien Term Loan Exchange, each exchanging
lender was deemed to consent to an amendment to the Second Lien Term Loans that eliminated substantially all of the restrictive covenants and events of default in the agreements governing the Second Lien Term Loans. Following the Second Lien Term Loan Exchange, the Company has approximately
$17.2 million
in aggregate principal amount of Second Lien Term Loans outstanding, consisting entirely of the remaining portion of the Exchange Term Loan.
The Second Lien Term Loan Exchange was accounted for as a modification of debt, and no gain or loss was recognized on the exchange. As described in “Note 6. Derivative financial instruments,” in connection with the issuance of the 1.75 Lien Term Loans, we also issued the Amendment Fee Warrants. The combined fair value of the Amendment Fee Warrants issued to the lenders of the 1.75 Lien Term Loans on March 15, 2017 of
$12.6 million
and
$8.6 million
of cash paid to the lenders who elected to receive cash in lieu of warrants was recorded as a discount to the 1.75 Lien Term Loans, and is being amortized to interest expense over the life of the loans. The transaction costs related to the Second Lien Term Loan Exchange of
$6.3 million
were recorded in "
Gain (loss) on restructuring and extinguishment of debt
" in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2017.
The 1.75 Lien Term Loans are due on October 26, 2020, bear interest at a cash rate of
12.5%
per annum, or, if we elect to pay interest on the 1.75 Lien Term Loans with our common shares or, in certain circumstances, by issuing additional 1.75 Lien Term Loans, at an interest rate of
15.0%
per annum.
PIK Payments under the 1.5 Lien Notes and the 1.75 Lien Term Loans
The indenture governing the 1.5 Lien Notes and the credit agreement governing the 1.75 Lien Term Loans allow us to make PIK Payments subject to certain limitations. Our ability to issue common shares for the PIK Payments is restricted until the Requisite Shareholder Approval is obtained. If the Requisite Shareholder Approval is not obtained by September 30, 2017, the cash interest on the 1.5 Lien Notes shall accrue at a rate of
15.0%
per annum and the interest rate for PIK Payments shall accrue at a rate of
20.0%
per annum. Further, the issuance of common shares as a PIK Payment cannot result in a beneficial owner, directly or indirectly, owning more than
50%
of the outstanding common stock.
Prior to December 31, 2018, provided the Requisite Shareholder Approval is obtained, we may make PIK Payments on the 1.5 Lien Notes and the 1.75 Lien Term Loans in our sole discretion. Once the Requisite Shareholder Approval is obtained, we expect to make PIK Payments on the 1.5 Lien Notes and the 1.75 Lien Term Loans throughout the remainder of 2017 and 2018. After December 31, 2018, the amount of PIK Payments we are permitted to make will depend on our level of liquidity, which, for the purposes of 1.5 Lien Notes and 1.75 Lien Term Loans, is defined as (i) the sum of (a) our unrestricted cash and cash equivalents and (b) any amounts available to be borrowed under the EXCO Resources Credit Agreement (to the extent then available) less (ii) the face amount of any letters of credit outstanding under the EXCO Resources Credit Agreement. The PIK Payment percentage after December 31, 2018 decreases from
100%
to
0%
as the level of liquidity increases from less than
$150.0 million
to greater than
$225.0 million
, respectively.
Covenants, events of default and other material provisions under the 1.5 Lien Notes and the 1.75 Lien Term Loans
The 1.5 Lien Notes and 1.75 Lien Term Loans are guaranteed by substantially all of EXCO’s subsidiaries, with the exception of certain non-guarantor subsidiaries and our jointly-held equity investments with Shell. The 1.5 Lien Notes and 1.75 Lien Term Loans are secured by second priority liens and third priority liens, respectively, on substantially all of EXCO’s assets and such guarantors. Subject to certain exceptions, the covenants under the indenture governing the 1.5 Lien Notes and the credit agreement governing the 1.75 Lien Term Loans limit our ability and the ability of our restricted subsidiaries to, among other things:
|
|
•
|
pay dividends or make other distributions or redeem or repurchase our common shares;
|
|
|
•
|
prepay, redeem or repurchase certain debt;
|
|
|
•
|
enter into agreements restricting the subsidiary guarantors’ ability to pay dividends to us or another subsidiary guarantor, make loans or advances to us or transfer assets to us;
|
|
|
•
|
engage in asset sales or substantially alter the business that we conduct;
|
|
|
•
|
enter into transactions with affiliates;
|
|
|
•
|
consolidate, merge or dispose of assets;
|
|
|
•
|
enter into sale/leaseback transactions.
|
In addition, the indenture governing the 1.5 Lien Notes includes restrictions on our ability to incur additional indebtedness, including debt under the EXCO Resources Credit Agreement in excess of
$150.0 million
, among other things and subject to certain restrictions. We may incur debt under the EXCO Resources Credit Agreement up to
$200.0 million
if we obtain consent from holders of a majority in principal amount of the 1.5 Lien Notes. The indenture governing the 1.5 Lien
Notes and the credit agreement governing the 1.75 Lien Term Loans require that net cash proceeds of certain asset sales be used within one year to acquire or develop oil and natural gas properties or we must use the proceeds to repay, redeem or repurchase a portion of the EXCO Resources Credit Agreement, 1.5 Lien Notes or 1.75 Lien Term Loans. We intend to primarily use the proceeds from the sale of our assets in South Texas to fund the acquisition and development of oil and natural gas properties in other regions.
In connection with the offering of the 1.5 Lien Notes and the Second Lien Term Loan Exchange, we entered into an amended and restated intercreditor agreement, under which the lenders of the remaining outstanding portion of the Exchange Term Loan agreed to subordinate their security interest in the collateral to the interests of the holders of the 1.5 Lien Notes, the 1.75 Lien Term Loans and the lenders under EXCO Resources Credit Agreement. In addition, the lenders of the 1.75 Lien Term Loans agreed to subordinate their security interest in the collateral to the interests of the holders of the 1.5 Lien Notes and the lenders under the EXCO Resources Credit Agreement, and the holders of the 1.5 Lien Notes agreed to subordinate their security interest in the collateral to the lenders under the EXCO Resources Credit Agreement.
2018 Notes
The 2018 Notes are guaranteed on a senior unsecured basis by a majority of EXCO’s subsidiaries, with the exception of certain non-guarantor subsidiaries and our jointly held equity investments with Shell. Our equity investments, other than OPCO, have been designated as unrestricted subsidiaries under the indenture governing the 2018 Notes.
During 2015 and 2016, we completed exchanges and a series of open market repurchases of the 2018 Notes significantly reducing the aggregate principal amount outstanding. As of
March 31, 2017
,
$131.6 million
in principal was outstanding on the 2018 Notes. Interest accrues at
7.5%
per annum and is payable semi-annually in arrears on March 15 and September 15 of each year.
2022 Notes
The 2022 Notes were issued at
100.0%
of the principal amount and bear interest at a rate of
8.5%
per annum, payable in arrears on April 15 and October 15 of each year. During 2015 and 2016, we completed exchanges and a series of open market repurchases of the 2022 Notes significantly reducing the aggregate principal amount outstanding. As of
March 31, 2017
,
$70.2 million
was outstanding on the 2022 Notes.
The 2022 Notes rank equally in right of payment to any existing and future senior unsecured indebtedness of the Company (including the 2018 Notes) and are guaranteed on a senior unsecured basis by EXCO’s consolidated subsidiaries that are guarantors of the indebtedness under the EXCO Resources Credit Agreement. The 2022 Notes were issued under the same base indenture governing the 2018 Notes and the supplemental indenture governing the 2022 Notes contains similar covenants to those in the supplemental indenture governing the 2018 Notes.
8.
Fair value measurements
We value our derivatives and other financial instruments according to FASB ASC 820,
Fair Value Measurements and Disclosures
, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability ("exit price") in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
We categorize the inputs used in measuring fair value into a three-tier fair value hierarchy. These tiers include:
Level 1 –
Observable inputs, such as quoted market prices in active markets, for substantially identical assets and liabilities.
Level 2 –
Observable inputs other than quoted prices within
Level 1
for similar assets and liabilities. These include quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data. If the asset or liability has a specified or contractual term, the input must be observable for substantially the full term of the asset or liability.
Level 3 –
Unobservable inputs that are supported by little or no market activity, generally requiring development of fair value assumptions by management.
During the
three months ended
March 31, 2017
and
2016
there were no changes in the fair value level classifications, except that the Exchange Term Loan was reclassified to Level 3.
Fair value of derivative financial instruments
The following table presents a summary of the estimated fair value of our derivative financial instruments as of
March 31, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative financial instruments - commodity derivatives
|
|
$
|
—
|
|
|
$
|
(7,702
|
)
|
|
$
|
—
|
|
|
$
|
(7,702
|
)
|
Derivative financial instruments - common share warrants
|
|
—
|
|
|
(155,136
|
)
|
|
—
|
|
|
(155,136
|
)
|
|
|
December 31, 2016
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivative financial instruments - commodity derivatives
|
|
$
|
—
|
|
|
$
|
(27,693
|
)
|
|
$
|
—
|
|
|
$
|
(27,693
|
)
|
Derivative financial instruments - commodity derivatives
We evaluate commodity derivative assets and liabilities in accordance with master netting agreements with the derivative counterparties, but report them on a gross basis in our Condensed Consolidated Balance Sheets. Net commodity derivative asset values are determined primarily by quoted futures prices and utilization of the counterparties’ credit-adjusted risk-free rate curves and net commodity derivative liabilities are determined by utilization of our credit-adjusted risk-free rate curve. The credit-adjusted risk-free rates of our counterparties are based on an independent market-quoted credit default swap rate curve for the counterparties’ debt plus the LIBOR curve as of the end of the reporting period. Our credit-adjusted risk-free rate is based on the blended rate of independent market-quoted credit default swap rate curves for companies that have the same credit rating as us plus the LIBOR curve as of the end of the reporting period.
The valuation of our commodity price derivatives, represented by oil and natural gas swaps and collar contracts, is discussed below.
Oil derivatives
. Our oil derivatives are swap contracts for notional barrels of oil at fixed NYMEX oil index prices. The asset and liability values attributable to our oil derivatives as of the end of the reporting period are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for oil index prices, and (iii) the applicable credit-adjusted risk-free rate curve, as described above.
Natural gas derivatives
. Our natural gas derivatives consisted of swap and collar contracts for notional Mmbtus of natural gas at posted price indexes, including NYMEX HH swap and option contracts. The asset and liability values attributable to our natural gas derivatives as of the end of the reporting period are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for natural gas, (iii) the applicable credit-adjusted risk-free rate curve, as described above, and (iv) the implied rates of volatility inherent in the option contracts. The implied rates of volatility were determined based on the average of historical HH natural gas prices.
The fair value of our commodity derivative financial instruments may be different from the settlement value based on company-specific inputs, such as credit ratings, futures markets and forward curves, and readily available buyers or sellers.
Derivative financial instruments - common share warrants
The liability attributable to our common share warrants as of the issuance date and the end of each reporting period was measured using the Black-Scholes model based on inputs including our share price, volatility, expected remaining life and the risk-free rate of return. The implied rates of volatility were determined based on historical prices of our common shares over a period consistent with the expected remaining life. Common share warrants are measured at fair value on a recurring basis until the date of exercise or the date of expiration.
See further details on the fair value of our derivative financial instruments in “Note 6. Derivative financial instruments”.
Fair value of other financial instruments
Our financial instruments include cash and cash equivalents, accounts receivable and payable and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.
The carrying values of our borrowings under the EXCO Resources Credit Agreement approximate fair value, as these are subject to short-term floating interest rates that approximate the rates available to us for those periods.
The estimated fair values of our senior notes and term loans are presented below. The estimated fair values of the 2018 Notes and 2022 Notes have been calculated based on quoted prices in active markets. The estimated fair value of the 1.5 Lien Notes has been calculated based on quoted prices obtained from third-party pricing sources and is classified as Level 3. The estimated fair value of the 1.75 Lien Term Loans has been calculated based on a discounted cash flow model and is classified as Level 3. The 2017 Warrants are considered freestanding financial instruments and are not considered in the determination of the fair value of the 1.5 Lien Notes and 1.75 Lien Term Loans. The estimated fair value of the Exchange Term Loan was calculated based on quoted prices obtained from third-party sources and classified as Level 2 during 2016. During the three months ended March 31, 2017, we reclassified the fair value of the Exchange Term Loan into Level 3 due to the lack of market activity and significant observable inputs. See "Note 7. Debt" for the carrying value and the principal balance of each debt instrument included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
1.5 Lien Notes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
290,625
|
|
|
$
|
290,625
|
|
1.75 Lien Term Loans
|
|
—
|
|
|
—
|
|
|
547,569
|
|
|
547,569
|
|
Exchange Term Loan
|
|
—
|
|
|
—
|
|
|
12,935
|
|
|
12,935
|
|
2018 Notes
|
|
91,199
|
|
|
—
|
|
|
—
|
|
|
91,199
|
|
2022 Notes
|
|
36,094
|
|
|
—
|
|
|
—
|
|
|
36,094
|
|
|
|
December 31, 2016
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Exchange Term Loan
|
|
$
|
—
|
|
|
$
|
294,000
|
|
|
$
|
—
|
|
|
$
|
294,000
|
|
Fairfax Term Loan
|
|
—
|
|
|
222,000
|
|
|
—
|
|
|
222,000
|
|
2018 Notes
|
|
79,028
|
|
|
—
|
|
|
—
|
|
|
79,028
|
|
2022 Notes
|
|
35,260
|
|
|
—
|
|
|
—
|
|
|
35,260
|
|
9.
Income taxes
We evaluate our estimated annual effective income tax rate based on current and forecasted business results and enacted tax laws on a quarterly basis and apply this tax rate to our ordinary income or loss to calculate our estimated tax liability or benefit. We have accumulated financial deferred tax assets primarily due to losses arising from impairments to the carrying value of our oil and natural gas properties that are subject to valuation allowances. Our valuation allowances decreased
$2.9
million
for the three months ended
March 31, 2017
. As a result of cumulative financial operating losses, we have recognized net valuation allowances of approximately
$1.4
billion that have fully offset our net deferred tax assets as of
March 31, 2017
. The valuation allowances will continue to be recognized until the realization of future deferred tax benefits are more likely than not to become utilized. The valuation allowances do not impact future utilization of the underlying tax attributes. The utilization of our net operating loss carryforwards ("NOLs") to offset taxable income in future periods may be limited if we undergo an ownership change based on the criteria in Section 382 of the Internal Revenue Code.
10.
Related party transactions
OPCO
OPCO serves as the operator of our wells in the Appalachia JV and we advance funds to OPCO on an as needed basis. We did not advance any funds to OPCO during
three months ended
March 31, 2017
or
2016
. OPCO may distribute any excess cash equally between us and Shell when its operating cash flows are sufficient to meet its capital requirements. There are service agreements between us and OPCO whereby we provide administrative and technical services for which we are reimbursed.
For the three months ended
March 31, 2017
and
2016
, these transactions included the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Amounts received from OPCO
|
|
$
|
1,921
|
|
|
$
|
5,119
|
|
As of
March 31, 2017
and
December 31, 2016
, the amounts owed were as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
Amounts due to EXCO (1)
|
|
$
|
558
|
|
|
$
|
618
|
|
Amounts due from EXCO (1)
|
|
9,901
|
|
|
13,624
|
|
|
|
(1)
|
Advances to OPCO are recorded in "Other current assets" in our Condensed Consolidated Balance Sheets. Any amounts we owe to OPCO are netted against the advance until the advances are utilized. If the advances are fully utilized, we record amounts owed in "Accounts payable and accrued liabilities" in our Condensed Consolidated Balance Sheets.
|
ESAS
We have a services and investment agreement with ESAS, a wholly owned subsidiary of Bluescape. C. John Wilder, Executive Chairman of Bluescape, is the Executive Chairman of our Board of Directors. As consideration for the services provided under the agreement, EXCO pays ESAS a monthly fee of
$300,000
and an annual incentive payment of up to
$2.4 million
per year that is based on EXCO’s common share price achieving certain performance hurdles as compared to a peer group. Amounts due to ESAS are recorded in "Accounts payable and accrued liabilities" in our Condensed Consolidated Balance Sheets. We did not make an accrual for the annual incentive payment at March 31, 2017 or December 31, 2016 as a result of EXCO's performance rank.
In connection with the services and investment agreement, EXCO issued warrants to ESAS in four tranches representing the right to purchase an aggregate of
80,000,000
common shares. These warrants may become exercisable in the future if our common shares achieve certain performance metrics compared to a peer group as of March 31, 2019. The measurement of the warrants is accounted for in accordance with ASC Topic 505-50,
Equity-Based Payments to Non-Employees
, which requires the warrants to be re-measured each interim reporting period until the completion of the services on March 31, 2019 and an adjustment is recorded in the statement of operations within equity-based compensation expense. For the three months ended
March 31, 2017
and 2016, we recognized income of
$3.6 million
and expense of
$2.0 million
, respectively, of equity-based compensation related to the warrants. The income recorded during the three months ended March 31, 2017 was due to a significant decrease in the fair value of the warrants primarily as a result of a decrease in the Company's share price.
ESAS holds
$70.0 million
in aggregate principal amount of 1.5 Lien Notes and
$47.9 million
in aggregate principal amount of 1.75 Lien Term Loans, as well as Financing Warrants representing the right to purchase an aggregate of
75,268,818
common shares at an exercise price equal to
$0.93
per share. ESAS received a consent fee of
$1.6 million
in cash for exchanging its interest in the Exchange Term Loan, and a commitment fee of
$2.1 million
in cash in connection with the issuance of the 1.5 Lien Notes. At
March 31, 2017
, ESAS was the beneficial owner of approximately
6.5%
of our outstanding common shares based on public filings with the SEC. During the three months ended
March 31, 2017
, ESAS received
$1.2 million
of interest payments on the Exchange Term Loan.
As described above, ESAS is a wholly owned subsidiary of Bluescape, and C. John Wilder, the Executive Chairman of our Board of Directors, is Bluescape’s Executive Chairman. As Bluescape’s Executive Chairman, Mr. Wilder has the power to direct the affairs of Bluescape and, indirectly, ESAS, and may be deemed to share ESAS’s interest in the 1.5 Lien Notes, 1.75 Lien Term Loans and our common shares.
Fairfax
Samuel Mitchell, a member of our Board of Directors, serves as a Managing Director of Hamblin Watsa Investment Counsel Ltd. ("Hamblin Watsa"), the investment manager of Fairfax and certain affiliates thereof, and certain affiliates of Fairfax hold, directly or indirectly,
$151.0 million
in aggregate principal amount of 1.5 Lien Notes and
$412.1 million
in aggregate principal amount of 1.75 Lien Term Loans, as well as Financing Warrants representing the right to purchase an aggregate of
162,365,599
common shares at an exercise price equal to
$0.93
per share, Commitment Fee Warrants representing the right to purchase an aggregate of
6,471,433
common shares at an exercise price equal to
$0.01
per share and Amendment Fee Warrants representing the right to purchase an aggregate of
19,412,035
common shares at an exercise price equal to
$0.01
per share. At
March 31, 2017
, Fairfax was the beneficial owner of approximately
9.7%
of our outstanding common shares based on public filings with the SEC. During the three months ended
March 31, 2017
, Fairfax received
$10.6 million
of interest payments on the Fairfax Term Loan and the Exchange Term Loan.
Oaktree
B. James Ford, a member of our Board of Directors, serves as a Senior Adviser of Oaktree. Certain affiliates of Oaktree hold, directly or indirectly,
$39.5 million
in aggregate principal amount of 1.5 Lien Notes and warrants representing the right to purchase an aggregate of
42,473,119
common shares at an exercise price equal to
$0.93
per share. In addition, Oaktree also received a commitment fee of
$1.2 million
in cash in connection with the issuance of the 1.5 Lien Notes. At
March 31, 2017
, Oaktree was the beneficial owner of approximately
10.9%
of our outstanding common shares based on public filings with the SEC.
11.
Condensed consolidating financial statements
As of March 31, 2017, the majority of EXCO’s subsidiaries were guarantors under the EXCO Resources Credit Agreement, the indenture governing the 1.5 Lien Notes, the credit agreement governing the 1.75 Lien Term Loans and the indentures governing the 2018 Notes and 2022 Notes. All of our unrestricted subsidiaries under the 1.5 Lien Notes, 1.75 Lien Term Loans and the indentures governing the 2018 Notes and 2022 Notes are considered non-guarantor subsidiaries.
Set forth below are condensed consolidating financial statements of EXCO, the guarantor subsidiaries and the non-guarantor subsidiaries. The 1.5 Lien Notes, 1.75 Lien Term Loans, 2018 Notes and 2022 Notes, which were issued by EXCO Resources, Inc., are jointly and severally guaranteed by substantially all of our subsidiaries (referred to as Guarantor Subsidiaries). For purposes of this footnote, EXCO Resources, Inc. is referred to as Resources to distinguish it from the Guarantor Subsidiaries. Each of the Guarantor Subsidiaries is a 100% owned subsidiary of Resources and the guarantees are unconditional as they relate to the assets of the Guarantor Subsidiaries.
The following financial information presents consolidating financial statements, which include:
|
|
•
|
the Guarantor Subsidiaries;
|
|
|
•
|
the Non-Guarantor Subsidiaries;
|
|
|
•
|
elimination entries necessary to consolidate Resources, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries; and
|
|
|
•
|
EXCO on a consolidated basis.
|
Investments in subsidiaries are accounted for using the equity method of accounting for the disclosures within this footnote. The financial information for the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries is presented on a combined basis. The elimination entries primarily eliminate investments in subsidiaries and intercompany balances and transactions.
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,025
|
|
|
$
|
(10,996
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,029
|
|
Restricted cash
|
|
—
|
|
|
15,595
|
|
|
—
|
|
|
—
|
|
|
15,595
|
|
Other current assets
|
|
6,117
|
|
|
59,084
|
|
|
—
|
|
|
—
|
|
|
65,201
|
|
Total current assets
|
|
49,142
|
|
|
63,683
|
|
|
—
|
|
|
—
|
|
|
112,825
|
|
Equity investments
|
|
—
|
|
|
—
|
|
|
24,682
|
|
|
—
|
|
|
24,682
|
|
Oil and natural gas properties (full cost accounting method):
|
|
|
|
|
|
|
|
|
|
|
Unproved oil and natural gas properties and development costs not being amortized
|
|
—
|
|
|
101,944
|
|
|
—
|
|
|
—
|
|
|
101,944
|
|
Proved developed and undeveloped oil and natural gas properties
|
|
332,401
|
|
|
2,620,878
|
|
|
—
|
|
|
—
|
|
|
2,953,279
|
|
Accumulated depletion
|
|
(330,776
|
)
|
|
(2,382,671
|
)
|
|
—
|
|
|
—
|
|
|
(2,713,447
|
)
|
Oil and natural gas properties, net
|
|
1,625
|
|
|
340,151
|
|
|
—
|
|
|
—
|
|
|
341,776
|
|
Other property and equipment, net
|
|
507
|
|
|
22,898
|
|
|
—
|
|
|
—
|
|
|
23,405
|
|
Investments in and advances to affiliates, net
|
|
440,865
|
|
|
—
|
|
|
—
|
|
|
(440,865
|
)
|
|
—
|
|
Deferred financing costs, net
|
|
4,205
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,205
|
|
Derivative financial instruments - commodity derivatives
|
|
662
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
662
|
|
Goodwill
|
|
13,293
|
|
|
149,862
|
|
|
—
|
|
|
—
|
|
|
163,155
|
|
Total assets
|
|
$
|
510,299
|
|
|
$
|
576,594
|
|
|
$
|
24,682
|
|
|
$
|
(440,865
|
)
|
|
$
|
670,710
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
73,639
|
|
|
$
|
147,578
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
221,217
|
|
Long-term debt
|
|
1,142,782
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,142,782
|
|
Derivative financial instruments - common share warrants
|
|
155,136
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155,136
|
|
Other long-term liabilities
|
|
4,185
|
|
|
12,833
|
|
|
—
|
|
|
—
|
|
|
17,018
|
|
Payable to parent
|
|
—
|
|
|
2,344,583
|
|
|
—
|
|
|
(2,344,583
|
)
|
|
—
|
|
Total shareholders' equity
|
|
(865,443
|
)
|
|
(1,928,400
|
)
|
|
24,682
|
|
|
1,903,718
|
|
|
(865,443
|
)
|
Total liabilities and shareholders' equity
|
|
$
|
510,299
|
|
|
$
|
576,594
|
|
|
$
|
24,682
|
|
|
$
|
(440,865
|
)
|
|
$
|
670,710
|
|
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,610
|
|
|
$
|
(15,542
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,068
|
|
Restricted cash
|
|
—
|
|
|
11,150
|
|
|
—
|
|
|
—
|
|
|
11,150
|
|
Other current assets
|
|
6,463
|
|
|
83,936
|
|
|
—
|
|
|
—
|
|
|
90,399
|
|
Total current assets
|
|
31,073
|
|
|
79,544
|
|
|
—
|
|
|
—
|
|
|
110,617
|
|
Equity investments
|
|
—
|
|
|
—
|
|
|
24,365
|
|
|
—
|
|
|
24,365
|
|
Oil and natural gas properties (full cost accounting method):
|
|
|
|
|
|
|
|
|
|
|
Unproved oil and natural gas properties and development costs not being amortized
|
|
—
|
|
|
97,080
|
|
|
—
|
|
|
—
|
|
|
97,080
|
|
Proved developed and undeveloped oil and natural gas properties
|
|
331,823
|
|
|
2,608,100
|
|
|
—
|
|
|
—
|
|
|
2,939,923
|
|
Accumulated depletion
|
|
(330,776
|
)
|
|
(2,371,469
|
)
|
|
—
|
|
|
—
|
|
|
(2,702,245
|
)
|
Oil and natural gas properties, net
|
|
1,047
|
|
|
333,711
|
|
|
—
|
|
|
—
|
|
|
334,758
|
|
Other property and equipment, net
|
|
568
|
|
|
23,093
|
|
|
—
|
|
|
—
|
|
|
23,661
|
|
Investments in and advances to affiliates, net
|
|
430,168
|
|
|
—
|
|
|
—
|
|
|
(430,168
|
)
|
|
—
|
|
Deferred financing costs, net
|
|
4,376
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,376
|
|
Derivative financial instruments - commodity derivatives
|
|
482
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
482
|
|
Goodwill
|
|
13,293
|
|
|
149,862
|
|
|
—
|
|
|
—
|
|
|
163,155
|
|
Total assets
|
|
$
|
481,007
|
|
|
$
|
586,210
|
|
|
$
|
24,365
|
|
|
$
|
(430,168
|
)
|
|
$
|
661,414
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
90,671
|
|
|
$
|
167,692
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
258,363
|
|
Long-term debt
|
|
1,258,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,258,538
|
|
Other long-term liabilities
|
|
3,704
|
|
|
12,715
|
|
|
—
|
|
|
—
|
|
|
16,419
|
|
Payable to parent
|
|
—
|
|
|
2,337,585
|
|
|
—
|
|
|
(2,337,585
|
)
|
|
—
|
|
Total shareholders' equity
|
|
(871,906
|
)
|
|
(1,931,782
|
)
|
|
24,365
|
|
|
1,907,417
|
|
|
(871,906
|
)
|
Total liabilities and shareholders' equity
|
|
$
|
481,007
|
|
|
$
|
586,210
|
|
|
$
|
24,365
|
|
|
$
|
(430,168
|
)
|
|
$
|
661,414
|
|
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas
|
|
$
|
—
|
|
|
$
|
69,356
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,356
|
|
Purchased natural gas and marketing
|
|
—
|
|
|
7,173
|
|
|
—
|
|
|
—
|
|
|
7,173
|
|
Total revenues
|
|
—
|
|
|
76,529
|
|
|
—
|
|
|
—
|
|
|
76,529
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas production
|
|
—
|
|
|
11,933
|
|
|
—
|
|
|
—
|
|
|
11,933
|
|
Gathering and transportation
|
|
—
|
|
|
27,353
|
|
|
—
|
|
|
—
|
|
|
27,353
|
|
Purchased natural gas
|
|
—
|
|
|
6,452
|
|
|
—
|
|
|
—
|
|
|
6,452
|
|
Depletion, depreciation and amortization
|
|
61
|
|
|
11,447
|
|
|
—
|
|
|
—
|
|
|
11,508
|
|
Impairment of oil and natural gas properties
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accretion of discount on asset retirement obligations
|
|
—
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
212
|
|
General and administrative
|
|
(10,667
|
)
|
|
15,082
|
|
|
—
|
|
|
—
|
|
|
4,415
|
|
Other operating items
|
|
398
|
|
|
671
|
|
|
—
|
|
|
—
|
|
|
1,069
|
|
Total costs and expenses
|
|
(10,208
|
)
|
|
73,150
|
|
|
—
|
|
|
—
|
|
|
62,942
|
|
Operating income
|
|
10,208
|
|
|
3,379
|
|
|
—
|
|
|
—
|
|
|
13,587
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(19,952
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,952
|
)
|
Gain on derivative financial instruments - commodity derivatives
|
|
15,533
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,533
|
|
Gain on derivative financial instruments - common share warrants
|
|
6,004
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,004
|
|
Loss on restructuring and extinguishment of debt
|
|
(6,272
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,272
|
)
|
Other income
|
|
1
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Equity income
|
|
—
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
317
|
|
Net income from consolidated subsidiaries
|
|
3,699
|
|
|
—
|
|
|
—
|
|
|
(3,699
|
)
|
|
—
|
|
Total other income (expense)
|
|
(987
|
)
|
|
3
|
|
|
317
|
|
|
(3,699
|
)
|
|
(4,366
|
)
|
Income before income taxes
|
|
9,221
|
|
|
3,382
|
|
|
317
|
|
|
(3,699
|
)
|
|
9,221
|
|
Income tax expense
|
|
1,028
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,028
|
|
Net income
|
|
$
|
8,193
|
|
|
$
|
3,382
|
|
|
$
|
317
|
|
|
$
|
(3,699
|
)
|
|
$
|
8,193
|
|
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas
|
|
$
|
—
|
|
|
$
|
51,649
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51,649
|
|
Purchased natural gas and marketing
|
|
—
|
|
|
4,441
|
|
|
—
|
|
|
—
|
|
|
4,441
|
|
Total revenues
|
|
—
|
|
|
56,090
|
|
|
—
|
|
|
—
|
|
|
56,090
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas production
|
|
3
|
|
|
14,115
|
|
|
—
|
|
|
—
|
|
|
14,118
|
|
Gathering and transportation
|
|
—
|
|
|
25,105
|
|
|
—
|
|
|
—
|
|
|
25,105
|
|
Purchased natural gas
|
|
—
|
|
|
5,966
|
|
|
—
|
|
|
—
|
|
|
5,966
|
|
Depletion, depreciation and amortization
|
|
119
|
|
|
28,882
|
|
|
—
|
|
|
—
|
|
|
29,001
|
|
Impairment of oil and natural gas properties
|
|
547
|
|
|
134,052
|
|
|
—
|
|
|
—
|
|
|
134,599
|
|
Accretion of discount on asset retirement obligations
|
|
—
|
|
|
912
|
|
|
—
|
|
|
—
|
|
|
912
|
|
General and administrative
|
|
(3,967
|
)
|
|
14,864
|
|
|
—
|
|
|
—
|
|
|
10,897
|
|
Other operating items
|
|
(407
|
)
|
|
597
|
|
|
—
|
|
|
—
|
|
|
190
|
|
Total costs and expenses
|
|
(3,705
|
)
|
|
224,493
|
|
|
—
|
|
|
—
|
|
|
220,788
|
|
Operating income (loss)
|
|
3,705
|
|
|
(168,403
|
)
|
|
—
|
|
|
—
|
|
|
(164,698
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(19,257
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,257
|
)
|
Gain on derivative financial instruments - commodity derivatives
|
|
16,591
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,591
|
|
Gain on extinguishment of debt
|
|
45,114
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,114
|
|
Other income
|
|
2
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Equity loss
|
|
—
|
|
|
—
|
|
|
(7,910
|
)
|
|
—
|
|
|
(7,910
|
)
|
Net loss from consolidated subsidiaries
|
|
(176,303
|
)
|
|
—
|
|
|
—
|
|
|
176,303
|
|
|
—
|
|
Total other income (expense)
|
|
(133,853
|
)
|
|
10
|
|
|
(7,910
|
)
|
|
176,303
|
|
|
34,550
|
|
Loss before income taxes
|
|
(130,148
|
)
|
|
(168,393
|
)
|
|
(7,910
|
)
|
|
176,303
|
|
|
(130,148
|
)
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
|
$
|
(130,148
|
)
|
|
$
|
(168,393
|
)
|
|
$
|
(7,910
|
)
|
|
$
|
176,303
|
|
|
$
|
(130,148
|
)
|
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(12,106
|
)
|
|
$
|
17,302
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,196
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions
|
|
(271
|
)
|
|
(11,586
|
)
|
|
—
|
|
|
—
|
|
|
(11,857
|
)
|
Restricted cash
|
|
—
|
|
|
(4,445
|
)
|
|
—
|
|
|
—
|
|
|
(4,445
|
)
|
Net changes in amounts due to joint ventures
|
|
—
|
|
|
(3,723
|
)
|
|
—
|
|
|
—
|
|
|
(3,723
|
)
|
Advances/investments with affiliates
|
|
(6,998
|
)
|
|
6,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in investing activities
|
|
(7,269
|
)
|
|
(12,756
|
)
|
|
—
|
|
|
—
|
|
|
(20,025
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings under EXCO Resources Credit Agreement
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Repayments under EXCO Resources Credit Agreement
|
|
(253,592
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(253,592
|
)
|
Proceeds received from issuance of 1.5 Lien Notes, net
|
|
295,530
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
295,530
|
|
Payments on Exchange Term Loan
|
|
(10,512
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,512
|
)
|
Debt financing costs and other
|
|
(18,636
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,636
|
)
|
Net cash provided by financing activities
|
|
37,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,790
|
|
Net increase in cash
|
|
18,415
|
|
|
4,546
|
|
|
—
|
|
|
—
|
|
|
22,961
|
|
Cash at beginning of period
|
|
24,610
|
|
|
(15,542
|
)
|
|
—
|
|
|
—
|
|
|
9,068
|
|
Cash at end of period
|
|
$
|
43,025
|
|
|
$
|
(10,996
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,029
|
|
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Resources
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
7,762
|
|
|
$
|
20,219
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,981
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to oil and natural gas properties, gathering assets and equipment and property acquisitions
|
|
(428
|
)
|
|
(32,058
|
)
|
|
—
|
|
|
—
|
|
|
(32,486
|
)
|
Restricted cash
|
|
—
|
|
|
(5,184
|
)
|
|
—
|
|
|
—
|
|
|
(5,184
|
)
|
Net changes in amounts due to joint ventures
|
|
—
|
|
|
1,001
|
|
|
—
|
|
|
—
|
|
|
1,001
|
|
Advances/investments with affiliates
|
|
(24,343
|
)
|
|
24,343
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in investing activities
|
|
(24,771
|
)
|
|
(11,898
|
)
|
|
—
|
|
|
—
|
|
|
(36,669
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings under EXCO Resources Credit Agreement
|
|
297,897
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
297,897
|
|
Repayments under EXCO Resources Credit Agreement
|
|
(232,397
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(232,397
|
)
|
Payment on Exchange Term Loan
|
|
(12,639
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,639
|
)
|
Repurchases of senior unsecured notes
|
|
(7,863
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,863
|
)
|
Debt financing costs and other
|
|
(2,341
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,341
|
)
|
Net cash provided by financing activities
|
|
42,657
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,657
|
|
Net increase in cash
|
|
25,648
|
|
|
8,321
|
|
|
—
|
|
|
—
|
|
|
33,969
|
|
Cash at beginning of period
|
|
34,296
|
|
|
(22,049
|
)
|
|
—
|
|
|
—
|
|
|
12,247
|
|
Cash at end of period
|
|
$
|
59,944
|
|
|
$
|
(13,728
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,216
|
|
12.
Subsequent events
On April 7, 2017
, we entered into a definitive agreement with Venado to divest our oil and natural gas properties and surface acreage in South Texas. The purchase price of
$300.0 million
is subject to customary closing conditions and adjustments based on an effective date of January 1, 2017. Concurrently with the execution of the agreement, Venado made a deposit of
$30.0 million
with a third party escrow agent. During the three months ended March 31, 2017, these properties produced approximately
4.0
Mboe per day and revenues less direct operating expenses were
$10.7 million
. The Company expects the transaction to close in early June 2017; however, no assurance can be given as to outcome or timing of such transaction. We intend to use the proceeds to fund the acquisition and development of oil and natural gas properties in other regions.