Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number 001-32743
______________________________ 
EXCO RESOURCES, INC.
(Exact name of registrant as specified in its charter)
______________________________
Texas
 
74-1492779
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
12377 Merit Drive
Suite 1700, LB 82
Dallas, Texas
 
75251
(Address of principal executive offices)
 
(Zip Code)
(214) 368-2084
(Registrant’s telephone number, including area code)
______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   x     NO   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant is required to submit and post such files).    YES   x     NO   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o   (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   o     NO   x

The number of shares of common stock, par value $0.001 per share, outstanding as of July 31, 2013 was 217,545,979 .


Table of Contents

EXCO RESOURCES, INC.
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Table of Contents

PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements

EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
 
June 30,
2013
 
December 31,
2012
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
80,442

 
$
45,644

Restricted cash
 
42,542

 
70,085

Accounts receivable, net:
 
 
 
 
Oil and natural gas
 
78,029

 
84,348

Joint interest
 
62,519

 
69,446

Other
 
18,209

 
15,053

Inventory
 
4,727

 
5,705

Derivative financial instruments
 
33,082

 
49,500

Other
 
16,767

 
22,085

Total current assets
 
336,317

 
361,866

Equity investments
 
371,190

 
347,008

Oil and natural gas properties (full cost accounting method):
 
 
 
 
Unproved oil and natural gas properties and development costs not being amortized
 
367,407

 
470,043

Proved developed and undeveloped oil and natural gas properties
 
2,699,608

 
2,715,767

Accumulated depletion
 
(2,029,922
)
 
(1,945,565
)
Oil and natural gas properties, net
 
1,037,093

 
1,240,245

Gas gathering assets
 
33,562

 
130,830

Accumulated depreciation and amortization
 
(9,688
)
 
(34,364
)
Gas gathering assets, net
 
23,874

 
96,466

Office, field and other equipment, net
 
17,597

 
20,725

Deferred financing costs, net
 
18,098

 
22,584

Derivative financial instruments
 
13,562

 
16,554

Goodwill
 
163,155

 
218,256

Other assets
 
28

 
28

Total assets
 
$
1,980,914

 
$
2,323,732

 
 
 
 
 
See accompanying notes.
 
 
 
 













2


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
 
June 30,
2013
 
December 31,
2012

 
(Unaudited)
 

Liabilities and shareholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
81,134

 
$
83,240

Revenues and royalties payable
 
131,519

 
134,066

Accrued interest payable
 
17,311

 
17,029

Current portion of asset retirement obligations
 
395

 
1,200

Income taxes payable
 

 

Derivative financial instruments
 
3,186

 
2,396

Total current liabilities
 
233,545

 
237,931

Long-term debt
 
1,310,407

 
1,848,972

Deferred income taxes
 

 

Derivative financial instruments
 
13,335

 
26,369

Asset retirement obligations and other long-term liabilities
 
42,745

 
61,067

Commitments and contingencies
 

 

Shareholders’ equity:
 

 

Preferred stock, $0.001 par value; 10,000,000 authorized shares; none issued and outstanding
 

 

Common stock, $0.001 par value; 350,000,000 authorized shares; 217,906,792 shares issued and 217,367,571 shares outstanding at June 30, 2013; 218,126,071 shares issued and 217,586,850 shares outstanding at December 31, 2012
 
215

 
215

Additional paid-in capital
 
3,209,517

 
3,200,067

Accumulated deficit
 
(2,821,371
)
 
(3,043,410
)
Treasury stock, at cost; 539,221 shares at June 30, 2013 and December 31, 2012
 
(7,479
)
 
(7,479
)
Total shareholders’ equity
 
380,882

 
149,393

Total liabilities and shareholders’ equity
 
$
1,980,914

 
$
2,323,732


See accompanying notes.


3


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
150,332

 
$
117,978

 
$
288,555

 
$
252,826

Costs and expenses:
 
 
 
 
 
 
 
 
Oil and natural gas operating costs
 
11,902

 
18,863

 
25,519

 
41,659

Production and ad valorem taxes
 
3,981

 
6,789

 
9,229

 
13,982

Gathering and transportation
 
23,408

 
25,913

 
47,884

 
52,336

Depletion, depreciation and amortization
 
47,388

 
87,337

 
88,696

 
176,919

Write-down of oil and natural gas properties
 

 
428,801

 
10,707

 
704,665

Accretion of discount on asset retirement obligations
 
556

 
964

 
1,246

 
1,911

General and administrative
 
26,574

 
18,637

 
44,558

 
40,142

(Gain) loss on divestitures and other operating items
 
2,640

 
6,710

 
(182,242
)
 
8,335

Total costs and expenses
 
116,449

 
594,014

 
45,597

 
1,039,949

Operating income (loss)
 
33,883

 
(476,036
)
 
242,958

 
(787,123
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(15,105
)
 
(20,369
)
 
(35,297
)
 
(37,133
)
Gain (loss) on derivative financial instruments
 
55,246

 
(15,258
)
 
11,732

 
38,607

Other income
 
158

 
197

 
246

 
440

Equity income
 
11,416

 
15,033

 
24,079

 
7,127

Total other income (expense)
 
51,715

 
(20,397
)
 
760

 
9,041

Income (loss) before income taxes
 
85,598

 
(496,433
)
 
243,718

 
(778,082
)
Income tax expense
 

 

 

 

Net income (loss)
 
$
85,598

 
$
(496,433
)
 
$
243,718

 
$
(778,082
)
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.40

 
$
(2.32
)
 
$
1.13

 
$
(3.63
)
Weighted average common shares outstanding
 
214,788

 
214,164

 
214,786

 
214,154

Diluted:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.40

 
$
(2.32
)
 
$
1.13

 
$
(3.63
)
Weighted average common shares and common share equivalents outstanding
 
216,023

 
214,164

 
215,347

 
214,154


See accompanying notes.


4


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
(in thousands)
 
2013
 
2012
Operating Activities:
 
 
 
 
Net income (loss)
 
$
243,718

 
$
(778,082
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depletion, depreciation and amortization
 
88,696

 
176,919

Share-based compensation expense
 
6,323

 
5,455

Accretion of discount on asset retirement obligations
 
1,246

 
1,911

Write-down of oil and natural gas properties
 
10,707

 
704,665

Income from equity investments
 
(24,079
)
 
(7,127
)
Non-cash change in fair value of derivatives
 
5,779

 
73,353

Deferred income taxes
 

 

Amortization of deferred financing costs and discount on the 2018 Notes
 
6,597

 
6,440

Gain on divestitures
 
(186,350
)
 

Effect of changes in:
 
 
 
 
Accounts receivable
 
17,728

 
107,693

Other current assets
 
(1,786
)
 
4,997

Accounts payable and other current liabilities
 
2,653

 
(15,756
)
Net cash provided by operating activities
 
171,232

 
280,468

Investing Activities:
 
 
 
 
Additions to oil and natural gas properties, gathering systems and equipment
 
(132,363
)
 
(305,969
)
Property acquisitions
 
(33,390
)
 
(2,748
)
Equity method investments
 
(104
)
 
(10,254
)
Proceeds from disposition of property and equipment
 
613,090

 
17,000

Restricted cash
 
27,543

 
95,167

Net changes in advances from Appalachia JV
 
8,276

 
5,193

Net cash provided by (used in) investing activities
 
483,052

 
(201,611
)
Financing Activities:
 
 
 
 
Borrowings under credit agreements
 
46,757

 
53,000

Repayments under credit agreements
 
(644,541
)
 
(93,000
)
Proceeds from issuance of common stock
 
42

 
297

Payment of common stock dividends
 
(21,479
)
 
(17,132
)
Deferred financing costs and other
 
(265
)
 
(1,623
)
Net cash used in financing activities
 
(619,486
)
 
(58,458
)
Net increase in cash
 
34,798

 
20,399

Cash at beginning of period
 
45,644

 
31,997

Cash at end of period
 
$
80,442

 
$
52,396

Supplemental Cash Flow Information:
 
 
 
 
Cash interest payments
 
$
37,059

 
$
42,454

Income tax payments
 

 

Supplemental non-cash investing and financing activities:
 
 
 
 
Capitalized share-based compensation
 
$
3,055

 
$
3,894

Capitalized interest
 
9,817

 
12,525

Issuance of common stock for director services
 
38

 
527

Accrued restricted stock dividends
 
201

 
190

EXCO/HGI Partnership debt upon formation, net
 
58,613

 

See accompanying notes.

5


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
Common Stock
 
Treasury Stock
 
Additional paid-in capital
 
Accumulated deficit
 
Total shareholders’ equity
(in thousands)
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Balance at December 31, 2011
217,245

 
$
215

 
(539
)
 
$
(7,479
)
 
$
3,181,063

 
$
(1,615,467
)
 
$
1,558,332

Issuance of common stock
43

 

 

 

 
824

 

 
824

Share-based compensation

 

 

 

 
9,349

 

 
9,349

Restricted stock issued, net of cancellations
(105
)
 

 

 

 

 

 

Common stock dividends

 

 

 

 

 
(17,322
)
 
(17,322
)
Net loss

 

 

 

 

 
(778,082
)
 
(778,082
)
Balance at June 30, 2012
217,183

 
$
215

 
(539
)
 
$
(7,479
)
 
$
3,191,236

 
$
(2,410,871
)
 
$
773,101

Balance at December 31, 2012
218,126

 
$
215

 
(539
)
 
$
(7,479
)
 
$
3,200,067

 
$
(3,043,410
)
 
$
149,393

Issuance of common stock
8

 

 

 

 
80

 

 
80

Share-based compensation

 

 

 

 
9,370

 

 
9,370

Restricted stock issued, net of cancellations
(227
)
 

 

 

 

 

 

Common stock dividends

 

 

 

 

 
(21,679
)
 
(21,679
)
Net income

 

 

 

 

 
243,718

 
243,718

Balance at June 30, 2013
217,907

 
$
215

 
(539
)
 
$
(7,479
)
 
$
3,209,517

 
$
(2,821,371
)
 
$
380,882

 
See accompanying notes.

6


EXCO RESOURCES, INC.
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 acquisition, exploration, exploitation, development and production of onshore U.S. oil and natural gas properties. Our principal operations are conducted in certain key U.S. oil and natural gas areas including Texas, Louisiana and the Appalachia region. In addition to our oil and natural gas producing operations, we own 50% interests in two midstream joint ventures located in East Texas/North Louisiana and Appalachia. Our midstream joint ventures are treated as a separate business segment.
Our operations are principally conducted through several joint venture arrangements. We manage our business development and other exploration and production activities through our parent entity. A brief description of each joint venture follows:
East Texas/North Louisiana JV
A joint venture with BG Group, plc, or BG Group, covering an undivided 50% interest in our Haynesville/Bossier shale assets in East Texas and North Louisiana, or the East Texas/North Louisiana JV. The East Texas/North Louisiana JV is governed by a joint development agreement with our subsidiary, EXCO Operating Company, LP, or EXCO Operating, serving as operator. We report our interest in the East Texas/North Louisiana JV using proportional consolidation. The East Texas/North Louisiana JV previously held certain conventional shallow producing assets that were contributed to the EXCO/HGI Partnership, as defined below, upon its formation on February 14, 2013. In addition, BG Group sold all of its conventional shallow assets within the East Texas/North Louisiana JV to the EXCO/HGI Partnership in March 2013.
TGGT
A joint venture with BG Group in which we each own a 50% interest in TGGT Holdings, LLC, or TGGT, which holds most of our East Texas/North Louisiana midstream assets. We use the equity method to account for our 50% investment in TGGT.
Appalachia JV
A joint venture with BG Group covering our shallow producing assets and Marcellus shale properties in the Appalachia region, or the Appalachia JV. EXCO and BG Group 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 owned by a jointly owned operating entity, or OPCO, that operates the Appalachia JV's properties. We use the equity method to account for our investment in OPCO and proportionally consolidate our 49.75% interest in the Appalachia JV.
Appalachia Midstream JV
A joint venture with BG Group in which we each own a 50% interest in a midstream company, or the Appalachia Midstream JV, which plans to develop infrastructure and provide take-away capacity in the Marcellus shale. We use the equity method to account for our 50% investment in the Appalachia Midstream JV.
EXCO/HGI Partnership
A joint venture formed on February 14, 2013, with Harbinger Group Inc., or HGI, in which we own a 25.5% economic interest in conventional shallow producing assets in East Texas and North Louisiana and shallow Canyon Sand and other assets in the Permian Basin of West Texas, or the EXCO/HGI Partnership. We report our 25.5% interest in the EXCO/HGI Partnership using proportional consolidation. From January 1, 2013 to February 13, 2013, our operating results reflect 100% of our interest in the properties we contributed to the EXCO/HGI Partnership. From February 14, 2013 to June 30, 2013 , our operating results reflect 25.5% of our interest in the properties we contributed to the EXCO/HGI Partnership.

On July 2, 2013, we entered into definitive agreements to acquire producing and undeveloped oil and natural gas assets in the Haynesville and Eagle Ford shale formations for an aggregate purchase price of approximately $1.0 billion , subject to customary preliminary purchase price adjustments, from subsidiaries of Chesapeake Energy Corporation, or Chesapeake. On July 31, 2013, we entered into a participation agreement with affiliates of Kohlberg Kravis Roberts & Co. L.P., or KKR, to jointly develop certain Eagle Ford assets that we acquired from Chesapeake, or the KKR Participation Agreement. See further discussion of these transactions in "Note 15. Subsequent Events".

7


The accompanying Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 , Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 , Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2013 and 2012 are for EXCO and its consolidated subsidiaries. The condensed consolidated financial statements and related footnotes are presented in accordance with generally accepted accounting principles in the United States, or GAAP.
We have prepared the accompanying unaudited interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and in the opinion of management, such financial statements reflect all adjustments necessary to present fairly the consolidated financial position of EXCO at June 30, 2013 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 our Annual Report on Form 10-K for the year ended December 31, 2012 , filed with the SEC on February 21, 2013 .
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.

2.
Critical accounting policies
We consider accounting policies related to our estimates of proved reserves, accounting for derivatives, business combinations, share-based payments, oil and natural gas properties, goodwill, revenue recognition, asset retirement obligations and income taxes as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. These policies and others are summarized in our Annual Report on Form 10-K for the year ended December 31, 2012 , filed with the SEC on February 21, 2013 .
Recent accounting pronouncement
In February 2013, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date , or ASU 2013-04. ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP. The update is effective for interim and annual periods beginning after December 15, 2013 and is required to be applied retrospectively to all prior periods presented for those obligations that existed upon adoption of ASU 2013-04. We are presently assessing the potential impact of ASU 2013-04.

3.
Divestitures, acquisitions and other significant events
EXCO/HGI Partnership
On February 14, 2013 , we formed the EXCO/HGI Partnership. Pursuant to the agreements governing the transaction, we contributed our conventional shallow producing assets in East Texas and North Louisiana and our shallow Canyon Sand and other assets in the Permian Basin of West Texas to the EXCO/HGI Partnership, in exchange for net proceeds of $574.8 million , after final purchase price adjustments, and a 25.5% economic interest in the partnership. HGI's economic interest in the EXCO/HGI Partnership is 74.5% . The primary strategy of the EXCO/HGI Partnership is to acquire conventional producing oil and natural gas properties to enhance asset value and cash flow.
The contribution of oil and natural gas properties to the EXCO/HGI Partnership resulted in a significant alteration in our depletion rate. In accordance with full cost accounting rules, we recorded a gain of $186.4 million , net of a proportionate reduction in goodwill of $55.1 million , during the six months ended June 30, 2013 .
Immediately following the closing, the EXCO/HGI Partnership entered into an agreement to purchase the remaining shallow Cotton Valley assets within the East Texas/North Louisiana JV from an affiliate of BG Group, for $130.9 million , after customary preliminary purchase price adjustments. The assets acquired as a result of this transaction represented an incremental working interest in properties owned by the EXCO/HGI Partnership. The transaction closed on March 5, 2013 and was funded with borrowings from the EXCO/HGI Partnership's credit agreement, or the EXCO/HGI Partnership Credit Agreement.

8


Acreage transaction
On March 13, 2013 , we closed a sale and joint development agreement with a private party for the sale of an undivided 50% of our interest in certain undeveloped acreage. We received $37.9 million in cash, after final closing adjustments. In addition to the cash consideration received at closing, the purchaser agreed to fund our share of drilling and completion costs within the joint venture area up to $18.9 million , with any remaining unfunded amount paid to us by June 30, 2016.

4.
Asset retirement obligations
The following is a reconciliation of our asset retirement obligations for the six months ended June 30, 2013 :
(in thousands)
 
 
Asset retirement obligations at January 1, 2013
 
$
61,864

Activity during the period:
 
 
Liabilities incurred during the period
 
239

Liabilities settled during the period
 
(115
)
Adjustment to liability due to acquisitions
 
1,895

Adjustment to liability due to divestitures
 
(28,315
)
Accretion of discount
 
1,246

Asset retirement obligations at June 30, 2013
 
36,814

Less current portion
 
395

Long-term portion
 
$
36,419

Our asset retirement obligations are determined using discounted cash flow methodologies based on inputs that are not readily available in public markets. We have no assets that are legally restricted for purposes of settling asset retirement obligations.

5.
Oil and natural gas properties
The accounting for, and disclosure of, oil and natural gas producing activities require that we choose between two GAAP alternatives; the full cost method or the successful efforts method. We use the full cost method of accounting, which involves capitalizing all intangible drilling costs, lease and well equipment and exploration and development costs incurred plus acquired proved and unproved leaseholds. Once we incur costs, they are recorded in the depletable pool of proved properties or in unproved properties, collectively, the full cost pool. Our unproved property costs, which include unproved oil and natural gas properties, properties under development, and major development projects, collectively totaled $367.4 million and $470.0 million  as of June 30, 2013 and December 31, 2012 , respectively, and are not subject to depletion. 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. We expect these costs to be evaluated in one to seven years and transferred to the depletable portion of the full cost pool during that time. There were no impairments of unproved properties during the six months ended June 30, 2013 and 2012 .
We capitalize interest on costs related to the acquisition of undeveloped acreage in accordance with FASB Accounting Standards Codification, or ASC, Subtopic 835-20 , Capitalization of Interest . When the unproved property costs are moved to proved developed and undeveloped oil and natural gas properties, or the properties are sold, we cease capitalizing interest related to these properties.
We calculate depletion using the unit-of-production method. Under this method, the sum of the full cost pool, excluding the book value of unproved properties, and all estimated future development costs less estimated salvage value are divided by the total estimated quantities of proved reserves. This rate is applied to our total production for the quarter, and the appropriate expense is recorded. We capitalize the portion of general and administrative costs, including share-based compensation, that is attributable to our exploration, exploitation and development activities.
Sales, dispositions and other oil and natural gas property retirements are accounted for as adjustments to the full cost pool, with no recognition of gain or loss, unless the disposition would significantly alter the depletion rate and/or the relationship between capitalized costs and proved reserves.

9


Pursuant to Rule 4-10(c)(4) of Regulation S-X, 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, or 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 is less than the full cost pool, we are required to record a ceiling test write-down 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 average price as prescribed by SEC Release No. 33-8995, 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 is computed using the simple average spot price for the trailing twelve month period using the first day of each month. For the period ended June 30, 2013 , the trailing twelve month reference price was $3.44 per Mmbtu for natural gas at Henry Hub, $91.60 per Bbl for the West Texas Intermediate oil at Cushing, Oklahoma, and $40.80 per Bbl for natural gas liquids based on the twelve month average of realized prices. Each of the reference prices for oil and natural gas are further adjusted for quality factors and regional differentials to derive estimated future net revenues. Under full cost accounting rules, any ceiling test write-downs of oil and natural gas properties may not be reversed in subsequent periods. Since we do not designate our derivative financial instruments as hedges, we are not allowed to use the impacts of the derivative financial instruments in our ceiling test computations. For the three months ended June 30, 2013 , we did not recognize a pre-tax ceiling test write-down, and for the three months ended June 30, 2012, we recognized a $428.8 million pre-tax ceiling test write-down to our proved oil and natural gas properties. For the six months ended June 30, 2013 and 2012 , we recognized pre-tax ceiling test write-downs of $10.7 million and $704.7 million , respectively.
The ceiling test calculation is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data and of 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 are often different from the quantities of oil, natural gas and natural gas liquids that are ultimately recovered.

6.
Earnings per share
The following table presents the basic and diluted earnings per share computations:  
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
 
2013
 
2012
 
2013
 
2012
Basic net income (loss) per common share:
 
 
 
 
 
 
 
 
    Net income (loss)
 
$
85,598

 
$
(496,433
)
 
$
243,718

 
$
(778,082
)
    Weighted average common shares outstanding
 
214,788

 
214,164

 
214,786

 
214,154

    Net income (loss) per basic common share
 
$
0.40

 
$
(2.32
)
 
$
1.13

 
$
(3.63
)
Diluted net income (loss) per common share:
 
 
 
 
 
 
 
 
   Net income (loss)
 
$
85,598

 
$
(496,433
)
 
$
243,718

 
$
(778,082
)
Weighted average common shares outstanding
 
214,788

 
214,164

 
214,786

 
214,154

Dilutive effect of:
 
 
 
 
 
 
 
 
Stock options
 
437

 

 

 

Restricted shares
 
798

 

 
561

 

Weighted average common shares and common share equivalents outstanding
 
216,023

 
214,164

 
215,347

 
214,154

    Net income (loss) per diluted common share
 
$
0.40

 
$
(2.32
)
 
$
1.13

 
$
(3.63
)
Diluted earnings per common share are computed in the same manner as basic earnings per share after assuming the issuance of common stock for all potentially dilutive common share equivalents, which include both stock options and restricted stock awards, whether vested or not. The computation of diluted earnings per share excluded 12,133,160 and 17,653,072 antidilutive common share equivalents for the three months ended June 30, 2013 and 2012 , respectively, and 15,837,472 and 17,886,204 antidilutive common share equivalents for the six months ended June 30, 2013 and 2012 , respectively. The antidilutive common share equivalents primarily related to out-of-the-money stock options for all periods presented.


10


7.
Derivative financial instruments
Our primary objective in entering into 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 our 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 derivative financial instrument management activities consists of non-cash income or expense due to changes in the fair value of our derivative financial instruments. Cash charges 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 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.
The table below outlines the classification of our derivative financial instruments on our Condensed Consolidated Balance Sheets and their financial impact in our Condensed Consolidated Statements of Operations.
Fair Value of Derivative Financial Instruments
(in thousands)
 
 
 
June 30, 2013
 
December 31, 2012
Commodity contracts
 
Derivative financial instruments - Current assets
 
$
33,082

 
$
49,500

Commodity contracts
 
Derivative financial instruments - Long-term assets
 
13,562

 
16,554

Commodity contracts
 
Derivative financial instruments - Current liabilities
 
(3,186
)
 
(2,396
)
Commodity contracts
 
Derivative financial instruments - Long-term liabilities
 
(13,335
)
 
(26,369
)
 
 
Net derivative financial instruments
 
$
30,123

 
$
37,289

Effect of Derivative Financial Instruments
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
Cash settlements on derivative financial instruments
 
$
794

 
$
61,815

 
$
17,511

 
$
111,960

Non-cash change in fair value of derivative financial instruments
 
54,452

 
(77,073
)
 
(5,779
)
 
(73,353
)
Gain (loss) on derivative financial instruments
 
$
55,246

 
$
(15,258
)
 
$
11,732

 
$
38,607

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 natural gas and oil derivative instruments are comprised of swap and call option contracts. Swap contracts allow us to receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. Call options are financial contracts that give our trading counterparties the right, but not the obligation, to buy an agreed quantity of oil or natural gas from us at a certain time and price in the future. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess. If the market price settles below the fixed price of the call option, no payment is due from either party. In exchange for selling this option, we received upfront proceeds which we used to obtain a higher fixed price on our swaps.   
We place our derivative financial instruments with the financial institutions that are lenders under our respective credit agreements 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 our counterparties on our derivative financial instruments that allow us to offset our asset position with our liability position in the event of a default by the counterparty. We proportionately consolidate the derivative financial instruments entered into by the EXCO/HGI Partnership, however the contracts of the EXCO/HGI Partnership involve separate master netting agreements with their counterparties and we are not liable in the event of default.

11


The following table presents the volumes and fair value of our oil and natural gas derivative financial instruments (including our 25.5% proportionate interest in the EXCO/HGI Partnership's derivative financial instruments) as of June 30, 2013 :
 
(in thousands, except prices)
 
Volume Mmbtus/Bbls
 
Weighted average strike price per Mmbtu/Bbl
 
Fair value at June 30, 2013
Natural gas:
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
Remainder of 2013
 
44,920

 
$
4.13

 
$
21,759

2014
 
56,648

 
4.25

 
19,131

2015
 
28,288

 
4.31

 
4,870

Calls:
 
 
 
 
 
 
Remainder of 2013
 
10,120

 
4.29

 
(459
)
2014
 
20,075

 
4.29

 
(4,528
)
2015
 
20,075

 
4.29

 
(8,344
)
Total natural gas
 
180,126

 
 
 
$
32,429

Oil:
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
Remainder of 2013
 
70

 
$
94.05

 
$
(75
)
2014
 
93

 
91.87

 
175

2015
 

 

 

Calls:
 
 
 
 
 
 
Remainder of 2013
 

 

 

2014
 
365

 
100.00

 
(1,143
)
2015
 
365

 
100.00

 
(1,263
)
Total oil
 
893

 
 
 
$
(2,306
)
Total oil and natural gas derivatives
 
 
 
 
 
$
30,123

At December 31, 2012 , we had outstanding derivative contracts to mitigate our exposure to price volatility covering 216,263 Mmmbtus of natural gas and 1,095 Mbbls of oil. At June 30, 2013 , the average forward NYMEX oil prices per Bbl for the remainder of 2013 and calendar years 2014 and 2015 were $95.12 , $89.97 , and $85.55 , respectively, and the average forward NYMEX natural gas prices per Mmbtu for the remainder of 2013 and calendar years 2014 and 2015 were $3.64 , $3.91 and $4.14 , respectively.
Our derivative financial instruments covered approximately 57.8% and 41.6% of production volumes for the three months ended June 30, 2013 and 2012 , respectively, and 51.5% and 41.9% of production volumes for the six months ended June 30, 2013 and 2012 , respectively.

8.
Fair value measurements
We value our derivatives and other financial instruments according to FASB ASC Topic 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.

12


Level 3 – Unobservable inputs that are supported by little or no market activity, generally requiring development of fair value assumptions by management.
Fair value of derivative financial instruments
The fair value of our derivative financial instruments may be different from the settlement value based on company-specific inputs, such as credit rating, futures markets and forward curves, and readily available buyers or sellers for such assets or liabilities. During the six months ended June 30, 2013 there were no changes in the fair value level classifications. The following table presents a summary of the estimated fair value of our derivative financial instruments as of June 30, 2013 and December 31, 2012 .
 
 
June 30, 2013
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Oil and natural gas derivative financial instruments
 
$

 
$
30,123

 
$

 
$
30,123

 
 
December 31, 2012
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Oil and natural gas derivative financial instruments
 
$

 
$
37,289

 
$

 
$
37,289

We evaluate derivative assets and liabilities in accordance with master netting agreements with the derivative counterparties, but report them on a gross basis on the Condensed Consolidated Balance Sheets. Net derivative asset values are determined primarily by quoted futures prices and utilization of the counterparties’ credit-adjusted risk-free rate curves and net derivative liabilities are determined by utilization of our credit-adjusted risk-free rate curve or the credit-adjusted risk-free rate curve of the EXCO/HGI Partnership. 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 London Interbank Offered Rate, or 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. In addition, the credit-adjusted risk-free rate for the EXCO/HGI Partnership is based on the cost of debt 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 call option contracts, is discussed below.
Oil derivatives . Our oil derivatives are swap and call option contracts for notional Bbls of oil at fixed (in the case of swap contracts) or interval (in the case of call option contracts) NYMEX West Texas Intermediate, or WTI, oil 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 WTI oil, (iii) the applicable estimated credit-adjusted risk-free rate curve, as described above, and (iv) the implied rate of volatility inherent in the call option contracts. The implied rates of volatility were determined based on average WTI oil prices.
Natural gas derivatives . Our natural gas derivatives are swap and call option contracts for notional Mmbtus of gas at posted price indexes, including NYMEX Henry Hub, or HH, swap and call 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 HH for natural gas swaps, (iii) the applicable credit-adjusted risk-free rate curve, as described above and (iv) the implied rate of volatility inherent in the call option contracts. The implied rates of volatility were determined based on average HH natural gas prices.
See further details on the fair value of our derivative financial instruments in “Note 7. Derivative financial instruments”.
Fair value of other financial instruments
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.
The carrying values of the EXCO Resources Credit Agreement and EXCO/HGI Partnership 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 value of our 7.5% senior unsecured notes due September 15, 2018, or the 2018 Notes, at June 30, 2013 and December 31, 2012 is presented below. The estimated fair value of the 2018 Notes has been calculated based on market quotes.
 

13



 
 
June 30, 2013
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
2018 Notes
 
$
706,875

 
$

 
$

 
$
706,875

 
 
December 31, 2012
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
2018 Notes
 
$
716,250

 
$

 
$

 
$
716,250


9.
Long-term debt
Our total debt is summarized as follows:
(in thousands)
 
June 30, 2013
 
December 31, 2012
EXCO Resources Credit Agreement
 
$
474,234

 
$
1,107,500

2018 Notes
 
750,000

 
750,000

Unamortized discount on 2018 Notes
 
(7,922
)
 
(8,528
)
Total debt excluding the EXCO/HGI Partnership
 
$
1,216,312

 
$
1,848,972

EXCO/HGI Partnership Credit Agreement
 
94,095

 

Total debt
 
$
1,310,407

 
$
1,848,972

Terms and conditions of each of these debt obligations are discussed below.
EXCO Resources Credit Agreement
As of June 30, 2013 , the EXCO Resources Credit Agreement had a borrowing base of $900.0 million , with $474.2 million of outstanding indebtedness and $418.9 million of available borrowing capacity. On June 30, 2013 , the one month LIBOR was 0.2% , which resulted in an interest rate of approximately 2.4% . Upon formation of the EXCO/HGI Partnership, as discussed in "Note 3. Divestitures, acquisitions and other significant events," we used the majority of our proceeds of $574.8 million to pay down the EXCO Resources Credit Agreement and the borrowing base was reduced to $900.0 million .
We used the EXCO Resources Credit Agreement to finance the Haynesville and Eagle Ford acquisitions which are discussed in "Note 15. Subsequent Events". On July 31, 2013 , we amended and restated the EXCO Resources Credit Agreement which increased our borrowing base to $1.6 billion , including a $1.3 billion revolving commitment and a $300.0 million term loan. The credit agreement provides that net proceeds from certain asset sales in excess of the borrowing base value (if any) will be used to reduce the outstanding borrowings by July 31, 2014 . At any time after nine months from the closing date, the lenders have the right to demand that we engage investment bankers to publicly sell or privately place debt securities in an amount that is sufficient (i) to pay off $400.0 million less the amount of net asset sale proceeds received by EXCO and applied to reduce the outstanding borrowings, and (ii) reduce the amounts outstanding under the EXCO Resources Credit Agreement so that there is at least $100.0 million in available borrowing capacity. The term loan portion of the facility is expected to be replaced with a new term loan containing terms and conditions customary for a transaction of this nature.
Under the EXCO Resources Credit Agreement, the next borrowing base redetermination will occur on April 1, 2014. Subsequent redeterminations will occur semi-annually with us and the lenders having the right to request interim unscheduled redeterminations in certain circumstances. The interest rate grid ranges from LIBOR plus 175 bps to 275 bps (or ABR plus 75 bps to 175 bps), depending on our borrowing base usage. The interest rate grid is increased by 100 bps per annum until the net proceeds from certain asset sales reduce outstanding borrowings by $400.0 million . If the term loan portion of the EXCO Resources Credit Agreement is not replaced as expected, the interest rate grid may be increased by an additional 100 bps per annum. The maturity date for the EXCO Resources Credit Agreement is July 31, 2018.
The majority of our subsidiaries are guarantors under the EXCO Resources Credit Agreement. The EXCO Resources Credit Agreement permits investments, loans and advances to the unrestricted subsidiaries related to our joint ventures with certain limitations, and allows us to repurchase up to $200.0 million of our common stock, of which $7.5 million has been repurchased to date. The repurchase of our common stock is prohibited until the net proceeds received from certain asset sales reduce outstanding borrowings by $400.0 million . There were no share repurchases during the six months ended June 30, 2013.
Borrowings under the EXCO Resources Credit Agreement are collateralized by first lien mortgages providing a security interest of not less than 80% of the engineered value, as defined in the agreement, in our oil and natural gas properties covered

14


by the borrowing base. We are permitted to have derivative financial instruments covering no more than 100% of forecasted production from total proved reserves, as defined in the agreement, during the first two years of the forthcoming five-year period, 90% of the forecasted production for any month during the third year of the forthcoming five-year period and 85% of the forecasted production from total proved reserves during the fourth and fifth years of the forthcoming five-year period.
The EXCO Resources Credit Agreement sets forth the terms and conditions under which we are permitted to pay a cash dividend on our common stock and provides that we may declare and pay cash dividends on our common stock in an amount not to exceed a cumulative total of $50.0 million in any four consecutive fiscal quarters, provided that, as of each payment date and after giving effect to the dividend payment date, (i) no default has occurred and is continuing, (ii) we have at least 10% of our borrowing base available under the EXCO Resources Credit Agreement, and (iii) payment of such dividend is permitted under the indenture governing the 2018 Notes.
As of June 30, 2013 , we were in compliance with the financial covenants contained in the EXCO Resources Credit Agreement, which require that we:
maintain a consolidated current ratio (as defined in the EXCO Resources Credit Agreement) of at least 1.0 to 1.0 as of the end of any fiscal quarter; and
not permit our ratio of consolidated funded indebtedness to consolidated EBITDAX (as defined in the EXCO Resources Credit Agreement) to be greater than 4.5 to 1.0 at the end of any fiscal quarter.
While we believe our existing capital resources, including our cash flow from operations and borrowing capacity under the EXCO Resources Credit Agreement is sufficient to conduct our operations through 2013 and into 2014, there are certain risks arising from depressed oil and natural gas prices and declines in production volumes that could impact our ability to meet debt covenants in future periods. In particular, our ratio of consolidated funded indebtedness to consolidated EBITDAX, as defined in the EXCO Resources Credit Agreement, is computed using the trailing twelve month EBITDAX and only includes operations from non-guarantor subsidiaries and unconsolidated joint ventures to the extent that cash is distributed to entities under the credit agreement. As a result, our ability to maintain compliance with this covenant may be negatively impacted when oil and/or natural gas prices remain depressed for an extended period of time.
We plan to repay $400.0 million of outstanding borrowings under the EXCO Resources Credit Agreement through the sale of assets. If our cash flow, capital resources and planned asset sales are insufficient to repay our debt obligations and finance capital expenditure programs, we may be forced to sell additional assets, issue additional equity or debt securities or restructure our indebtedness. These options may not be available on commercially reasonable terms. In addition, the sale of assets or issuance of debt securities would have to be completed in compliance with the financial and other restrictive covenants in the EXCO Resources Credit Agreement and the indenture governing the 2018 Notes.
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, our jointly-held equity investments with BG Group and the EXCO/HGI Partnership. Our equity investments with BG Group, other than OPCO, have been designated as unrestricted subsidiaries under the indenture governing the 2018 Notes.
As of June 30, 2013 , $750.0 million in principal was outstanding on the 2018 Notes. The unamortized discount on the 2018 Notes at June 30, 2013 was $7.9 million . Interest accrues at 7.5% and is payable semi-annually in arrears on March 15th and September 15th of each year.
The indenture governing the 2018 Notes contains covenants, which may limit our ability and the ability of our restricted subsidiaries to:
incur or guarantee additional debt and issue certain types of preferred stock;
pay dividends on our capital stock (over $50.0 million per annum) or redeem, repurchase or retire our capital stock or subordinated debt;
make certain investments;
create liens on our assets;
enter into sale/leaseback transactions;
create restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
engage in transactions with our affiliates;
transfer or issue shares of stock of subsidiaries;
transfer or sell assets; and

15


consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries.

EXCO/HGI Partnership Credit Agreement
In connection with its formation, the EXCO/HGI Partnership entered into a credit agreement, or the EXCO/HGI Partnership Credit Agreement, with an initial borrowing base of $400.0 million , of which $230.0 million was drawn at closing. Borrowings under the EXCO/HGI Partnership Credit Agreement are secured by properties owned by the EXCO/HGI Partnership and we do not guarantee the EXCO/HGI Partnership's debt. The EXCO/HGI Partnership is not a guarantor to the EXCO Resources Credit Agreement or the 2018 Notes.
As of June 30, 2013 , $369.0 million was drawn under this agreement and our proportionate share of the obligation was $94.1 million . The interest rate grid ranges from LIBOR plus 175 bps to 275 bps (or ABR plus 75 bps to 175 bps), depending on the percentages of drawn balances to the borrowing base as defined in the agreement. The borrowing base is redetermined semi-annually, with the EXCO/HGI Partnership and the lenders having the right to request interim unscheduled redeterminations in certain circumstances. The EXCO/HGI Partnership entered into the First Amendment to the EXCO/HGI Partnership Credit Agreement on March 5, 2013, which increased the borrowing base to $470.0 million as a result of the acquisition of the shallow Cotton Valley assets from an affiliate of BG Group. The EXCO/HGI Partnership Credit Agreement matures on February 14, 2018.
Borrowings under the EXCO/HGI Partnership Credit Agreement are collateralized by first lien mortgages providing a security interest of not less than 80% of the engineered value, as defined in the EXCO/HGI Partnership Credit Agreement, of the oil and natural gas properties evaluated by the lenders for purposes of establishing the borrowing base. The EXCO/HGI Partnership is permitted to have derivative financial instruments covering no more than 100% of the forecasted production from proved developed producing reserves (as defined in the agreement) for any month during the first two years of the forthcoming five year period, 90% of the forecasted production from proved developed producing reserves for any month during the third year of the forthcoming five year period and 85% of the forecasted production from proved developed producing reserves for any month during the fourth and fifth years of the forthcoming five year period.
As of June 30, 2013 , the EXCO/HGI Partnership was in compliance with the financial covenants contained in the EXCO/HGI Partnership Credit Agreement, which require that it:
maintain a consolidated current ratio (as defined in the agreement) of at least 1.0 to 1.0 as of the end of any fiscal quarter; and
not permit the ratio of consolidated funded indebtedness (as defined in the agreement) to consolidated EBITDAX (as defined in the agreement) to be greater than 4.5 to 1.0 at the end of any fiscal quarter.
The foregoing descriptions are not complete and are qualified in their entirety by the EXCO Resources Credit Agreement, the indenture governing the 2018 Notes and the EXCO/HGI Partnership Credit Agreement.

10.    Dividends
On May 30, 2013 , our board of directors approved a cash dividend of $0.05 per share for the second quarter of 2013 . The total cash dividend was $10.8 million , of which $10.7 million was paid on June 28, 2013 to holders of record on June 14, 2013 and the remainder was accrued to be paid to holders of restricted shares upon vesting. Total dividends paid to our shareholders for the six months ended June 30, 2013 were $21.5 million .
Any future declaration of dividends, as well as the establishment of record and payment dates, is subject to limitations under the EXCO Resources Credit Agreement, the indenture governing the 2018 Notes and the approval of our board of directors.

11.    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 ceiling test write-downs to the carrying value of our oil and natural gas properties that are subject to valuation allowances. Our valuation allowances decreased $110.3 million for the six months ended June 30, 2013 . As a result of cumulative financial operating losses, we have recognized net valuation allowances of approximately $810.2 million as of June 30, 2013 . 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 allowance does not impact future utilization of the underlying tax attributes.



16


12.    Segment information
Our reportable business segments consist of exploration and production and midstream. The exploration and production segment is responsible for acquisition, exploration, exploitation, development and production of oil, natural gas and natural gas liquids. The midstream segment, which consists of TGGT and the Appalachia Midstream JV, is accounted for using the equity method and is responsible for purchasing, gathering, transporting and treating natural gas.
Our management evaluates TGGT and the Appalachia Midstream JV’s performance on a stand-alone basis. The revenues and expenses used to compute the midstream segment's profit represent TGGT and Appalachia Midstream JV’s results of operations without regard to our 50% ownership. Since we use the equity method of accounting for TGGT, we eliminate these revenues and expenses when reconciling to our consolidated results of operations and report our net share of the midstream segment's operations as equity income (loss). See “Note 13. Equity investments” for additional details related to our equity investments, including our midstream segment.

17


Summarized financial information concerning our reportable segments is shown in the following table:
(in thousands)
 
Exploration and production
 
Midstream
 
Equity investee and intercompany eliminations
 
Consolidated total
For the three months ended June 30, 2013:
 
 
 
 
 
 
 
 
    Third party revenues
 
$
150,332

 
$
57,669

 
$
(57,669
)
 
$
150,332

    Intersegment revenues
 

 

 

 

        Total revenues
 
$
150,332

 
$
57,669

 
$
(57,669
)
 
$
150,332

Segment profit
 
$
111,041

 
$
41,736

 
$
(41,736
)
 
$
111,041

Equity income (loss)
 
$
(576
)
 
$
11,992

 
$

 
$
11,416

 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2012:
 
 
 
 
 
 
 
 
    Third party revenues
 
$
117,978

 
$
63,932

 
$
(63,932
)
 
$
117,978

    Intersegment revenues
 

 

 

 

        Total revenues
 
$
117,978

 
$
63,932

 
$
(63,932
)
 
$
117,978

Segment profit
 
$
66,413

 
$
49,157

 
$
(49,157
)
 
$
66,413

Equity income (loss)
 
$
(1,337
)
 
$
16,370

 
$

 
$
15,033

 
 
 
 
 
 
 
 
 
For the six months ended June 30, 2013
 
 
 
 
 
 
 
 
    Third party revenues
 
$
288,555

 
$
114,502

 
$
(114,502
)
 
$
288,555

    Intersegment revenues
 

 

 

 

        Total revenues
 
$
288,555

 
$
114,502

 
$
(114,502
)
 
$
288,555

Segment profit
 
$
205,923

 
$
84,337

 
$
(84,337
)
 
$
205,923

Equity income (loss)
 
$
(1,125
)
 
$
25,204

 
$

 
$
24,079

 
 
 
 
 
 
 
 
 
For the six months ended June 30, 2012
 
 
 
 
 
 
 
 
    Third party revenues
 
$
252,826

 
$
126,856

 
$
(126,856
)
 
$
252,826

    Intersegment revenues
 

 

 

 

        Total revenues
 
$
252,826

 
$
126,856

 
$
(126,856
)
 
$
252,826

Segment profit
 
$
144,849

 
$
91,478

 
$
(91,478
)
 
$
144,849

Equity income (loss)
 
$
(1,745
)
 
$
8,872

 
$

 
$
7,127

 
 
 
 
 
 
 
 
 
As of June 30, 2013
 
 
 
 
 
 
 
 
     Capital expenditures
 
$
132,234

 
$
14,828

 
$
(14,828
)
 
$
132,234

     Goodwill
 
$
163,155

 
$

 
$

 
$
163,155

     Total assets
 
$
1,980,914

 
$
1,252,240

 
$
(1,252,240
)
 
$
1,980,914

 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
 
 
 
 
 
 
 
     Capital expenditures
 
$
501,847

 
$
134,167

 
$
(134,167
)
 
$
501,847

     Goodwill
 
$
218,256

 
$

 
$

 
$
218,256

     Total assets
 
$
2,323,732

 
$
1,254,217

 
$
(1,254,217
)
 
$
2,323,732


18


The following table reconciles the segment profits reported above to income (loss) before income taxes:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
Segment profit
 
$
111,041

 
$
66,413

 
$
205,923

 
$
144,849

Depletion, depreciation and amortization
 
(47,388
)
 
(87,337
)
 
(88,696
)
 
(176,919
)
Write-down of oil and natural gas properties
 

 
(428,801
)
 
(10,707
)
 
(704,665
)
Accretion of discount on asset retirement obligations
 
(556
)
 
(964
)
 
(1,246
)
 
(1,911
)
General and administrative
 
(26,574
)
 
(18,637
)
 
(44,558
)
 
(40,142
)
Gain (loss) on divestitures and other operating items
 
(2,640
)
 
(6,710
)
 
182,242

 
(8,335
)
Interest expense
 
(15,105
)
 
(20,369
)
 
(35,297
)
 
(37,133
)
Gain (loss) on derivative financial instruments
 
55,246

 
(15,258
)
 
11,732

 
38,607

Other income
 
158

 
197

 
246

 
440

Equity income
 
11,416

 
15,033

 
24,079

 
7,127

Income (loss) before income taxes
 
$
85,598

 
$
(496,433
)
 
$
243,718

 
$
(778,082
)

13.    Equity investments
We hold equity investments in four entities with BG Group, which are described below. We use the equity method of accounting for each investment.
We have a 50% ownership in TGGT, which holds interests in midstream assets in East Texas and North Louisiana.
We own a 50% interest in OPCO, which operates the Appalachia JV properties, subject to oversight from a management board having equal representation from EXCO and BG Group.
We own a 50% interest in the Appalachia Midstream JV, through which we and BG Group plan to develop infrastructure and provide take-away capacity in the Marcellus shale.
We own a 50% interest in an entity that manages certain surface acreage.
The following tables present summarized consolidated financial information of our equity investments and a reconciliation of our investment to our proportionate 50% interest.
(in thousands)
 
June 30, 2013
 
December 31, 2012
Assets
 
 
 
 
Total current assets
 
$
155,756

 
$
151,098

Property and equipment, net
 
1,224,474

 
1,228,231

Other assets
 
5,078

 
6,408

Total assets
 
$
1,385,308

 
$
1,385,737

Liabilities and members’ equity
 
 
 
 
Total current liabilities
 
$
115,187

 
$
120,408

Total long term liabilities
 
450,375

 
492,071

Members’ equity:
 
 
 
 
Total members' equity
 
819,746

 
773,258

Total liabilities and members’ equity
 
$
1,385,308

 
$
1,385,737

 

19


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
246

 
$
87

 
$
423

 
$
192

Midstream
 
57,669

 
63,932

 
114,502

 
126,856

Total revenues
 
57,915

 
64,019

 
114,925

 
127,048

Costs and expenses:
 
 
 
 
 
 
 
 
Oil and natural gas production
 
77

 
59

 
151

 
116

Midstream operating
 
15,933

 
14,775

 
30,165

 
35,378

Write-down of oil and natural gas properties
 

 
1,230

 

 
1,230

Asset impairments, net of insurance recoveries
 
983

 

 
1,247

 
35,343

General and administrative
 
3,568

 
6,345

 
7,479

 
13,753

Depletion, depreciation and amortization
 
11,314

 
9,060

 
22,540

 
18,362

Other expenses
 
4,034

 
3,392

 
6,839

 
10,220

Total costs and expenses
 
35,909

 
34,861

 
68,421

 
114,402

Income before income taxes
 
22,006

 
29,158

 
46,504

 
12,646

Income tax expense
 
112

 
30

 
222

 
268

Net income
 
$
21,894

 
$
29,128

 
$
46,282

 
$
12,378

EXCO’s share of equity income before amortization
 
$
10,947

 
$
14,564

 
$
23,141

 
$
6,189

Amortization of the difference in the historical basis of our contribution
 
$
469

 
$
469

 
$
938

 
$
938

EXCO’s share of equity income after amortization
 
$
11,416

 
$
15,033

 
$
24,079

 
$
7,127


 (in thousands)
 
June 30, 2013
 
December 31, 2012
Equity investments
 
$
371,190

 
$
347,008

Basis adjustment (1)
 
45,755

 
45,755

Cumulative amortization of basis adjustment (2)
 
(7,072
)
 
(6,134
)
EXCO’s 50% interest in equity investments
 
$
409,873

 
$
386,629

(1)
Our equity in TGGT and OPCO, at inception, exceeded the book value of our investments by an aggregate of $45.8 million , comprised of an aggregate $57.2 million difference in the historical basis of our contribution and the fair value of BG Group’s contribution, offset by $11.4 million of goodwill included in our investment in TGGT.
(2)
The aggregate $57.2 million basis difference is being amortized over the estimated life of the associated assets.

14.    Related party transactions
TGGT provides us with gathering, treating and well connect services in the ordinary course of business. In addition, TGGT also purchases natural gas from us in certain areas. OPCO serves as the operator of our wells in the Appalachia JV. There are service agreements between us and TGGT and OPCO whereby we provide administrative and technical services for which we are reimbursed. For the three and six months ended June 30, 2013 and 2012 , these transactions included the following:
 

20


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
(in thousands)
 
TGGT
 
OPCO
 
TGGT
 
OPCO
 
TGGT
 
OPCO
 
TGGT
 
OPCO
Amounts paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gathering, treating and well connection fees (1)
 
$
43,180

 
$

 
$
54,726

 
$

 
$
87,613

 
$

 
$
108,824

 
$

Advances to operator
 

 
4,478

 

 
21,908

 

 
21,910

 

 
26,777

Amounts received:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas purchases
 
1,425

 

 
3,618

 

 
3,073

 

 
8,725

 

General and administrative services
 
5,704

 
10,012

 
4,025

 
15,989

 
8,469

 
19,975

 
10,039

 
28,718

Other
 
17

 

 
774

 

 
52

 

 
1,444

 

  Total
 
$
7,146

 
$
10,012

 
$
8,417

 
$
15,989

 
$
11,594

 
$
19,975

 
$
20,208

 
$
28,718

 
(1)
Represents the gross billings from TGGT.

As of June 30, 2013 and December 31, 2012 , the amounts owed under the service agreements were as follows:

 
 
June 30, 2013
 
December 31, 2012
(in thousands)
 
TGGT
 
OPCO
 
TGGT
 
OPCO
Amounts due to EXCO
 
$
2,662

 
$
3,928

 
$
2,483

 
$
2,956

Amounts due from EXCO (1)
 
13,498

 

 
12,540

 


(1)
OPCO is the operator of our wells in the Appalachia JV and we advance funds to OPCO on an as needed basis, which are recorded in "Other current assets" on our Condensed Consolidated Balance Sheets. Any amounts we owe 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" on our Condensed Consolidated Balance Sheets.

15.    Subsequent Events
    
On July 2, 2013, we entered into definitive agreements to acquire producing and undeveloped oil and natural gas assets in the Haynesville and Eagle Ford shale formations for an aggregate purchase price of approximately $1.0 billion , subject to customary preliminary purchase price adjustments, from Chesapeake. Upon execution of these agreements, we deposited $31.6 million and $68.1 million into escrow accounts for the acquisition of the Haynesville and Eagle Ford assets, respectively. The escrow accounts will remain in place after closing and will primarily be used to settle title and environmental defect adjustments.

We amended and restated the EXCO Resources Credit Agreement to facilitate these acquisitions, which increased the borrowing base to $1.6 billion , including a $1.3 billion revolving commitment and a $300.0 million term loan. The credit agreement provides that net proceeds from certain asset sales in excess of the borrowing base value (if any) will be used to reduce the outstanding borrowings by July 31, 2014. At any time after nine months from the closing date, the lenders have the right to demand that we engage investment bankers to publicly sell or privately place debt securities in an amount that is sufficient (i) to pay off $400.0 million less the amount of net asset sale proceeds received by EXCO and applied to reduce the outstanding borrowings, and (ii) reduce the amounts outstanding under the EXCO Resources Credit Agreement so that there is at least $100.0 million in available borrowing capacity. The term loan portion of the facility is expected to be replaced with a new term loan containing terms and conditions customary for a transaction of this nature. See further discussion of the EXCO Resources Credit Agreement within "Note 9. Long-term debt".

We closed the acquisition of the Haynesville assets on July 12, 2013 for a purchase price of $288.2 million , after customary preliminary purchase price adjustments. The acquisition was funded with borrowings from the EXCO Resources Credit Agreement. The acquisition included certain producing wells and non-producing oil, natural gas and mineral leases located in our core Haynesville shale operating area in Caddo Parish and DeSoto Parish, Louisiana. These properties included Chesapeake's non-operated interests in 170 wells operated by EXCO on approximately 5,600 net acres, and operated interests in 11 producing wells on approximately 4,000 net acres. The acquisition added approximately 55 identified drilling locations in the Haynesville shale formation to our drilling inventory. These assets are subject to BG Group's preferential right to acquire

21


a 50% interest, which was formally offered to BG Group on July 13, 2013. Their election must be made within 60 days of our offer.

We closed the acquisition of the Eagle Ford assets on July 31, 2013 for a purchase price of $685.3 million , after customary preliminary purchase price adjustments. The acquisition included certain producing wells and non-producing oil, natural gas and mineral leases in the Eagle Ford shale in the counties of Zavala, Dimmit, La Salle and Frio in South Texas. These properties include operated interests in 120 wells on approximately 55,000 net acres. The acquisition added approximately 300 identified drilling locations to our drilling inventory. In addition, we entered into a farm-out agreement with Chesapeake covering an additional 147,000 net acres adjacent to the acquired properties. Pursuant to the terms of the farm-out agreement, Chesapeake retains an overriding royalty interest in wells drilled on acreage covered by the farm-out agreement, with an option to convert the overriding royalty interest to a working interest at payout of the well.

In connection with closing the acquisition of the Eagle Ford assets, we entered into the KKR Participation Agreement and sold an undivided 50% interest in the undeveloped acreage we acquired for approximately $130.9 million , after preliminary closing adjustments. Proceeds from the sale of properties under the KKR Participation Agreement were used to reduce outstanding borrowings under the EXCO Resources Credit Agreement. After giving effect to the acquisition and the KKR payment, the EXCO Resources Credit Agreement borrowing base and outstanding borrowings were reduced by $130.9 million . This resulted in a borrowing base of $1.5 billion under the EXCO Resources Credit Agreement, with $1.3 billion of outstanding indebtedness including $269.1 million remaining under the asset sale requirement as of July 31, 2013.

The KKR Participation Agreement provides that EXCO and KKR will jointly fund future costs to develop the Eagle Ford assets. With respect to each well drilled, EXCO will assign half of its undivided 50% interest in such well to KKR such that KKR will fund and own 75% of each well drilled and EXCO will fund and own 25% of each well drilled. When each quarterly tranche of wells drilled has been on production for one year, EXCO is required to offer to purchase KKR's 75% working interest at fair market value as defined in the KKR Participation Agreement, subject to specific well criteria and return hurdles. With respect to the first year (first four quarters) of the development program, we are required to make our first offer during the fourth quarter of 2014 for wells that have been on line for approximately one year.

We are currently in the process of performing the purchase price allocations for these acquisitions, and these transactions will be reflected in our condensed consolidated financial statements for the quarter ended September 30, 2013.

22



16.    Condensed consolidating financial statements
As of June 30, 2013 , the majority of EXCO’s subsidiaries were guarantors under the EXCO Resources Credit Agreement and the indenture governing the 2018 Notes. All of our non-guarantor subsidiaries were considered unrestricted subsidiaries under the indenture governing the 2018 Notes, with the exception of our equity investment in OPCO. As of and for the six months ended June 30, 2013 :
Our equity method investment in OPCO represented $16.2 million of equity method investments and contributed $1.2 million of equity method losses; and
Our interests in jointly held entities with BG Group, with the exception of OPCO, represented $355.0 million of our equity method investments and contributed $25.3 million of our equity method income.
Borrowings under the EXCO/HGI Partnership Credit Agreement are secured by properties owned by the EXCO/HGI Partnership and we do not guarantee the EXCO/HGI Partnership's debt. The EXCO/HGI Partnership is not a guarantor to the EXCO Resources Credit Agreement or the 2018 Notes.
Set forth below are condensed consolidating financial statements of EXCO, the guarantor subsidiaries and the non-guarantor subsidiaries. The 2018 Notes, which were issued by EXCO Resources, Inc., are jointly and severally guaranteed by some 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 are wholly-owned subsidiaries of Resources and the guarantees are unconditional as it relates to the assets of the Guarantor Subsidiaries.
The following financial information presents consolidating financial statements, which include:
Resources;
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.

23


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
June 30, 2013
 (in thousands)
 
 Resources
 
 Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
 Assets
 
 
 
 
 
 
 
 
 
 
 Current assets:
 
 
 
 
 
 
 
 
 
 
 Cash and cash equivalents
 
$
106,051

 
$
(29,993
)
 
$
4,384

 
$

 
$
80,442

 Restricted cash
 

 
42,542

 

 

 
42,542

 Other current assets
 
47,561

 
156,323

 
9,449

 

 
213,333

         Total current assets
 
153,612

 
168,872

 
13,833

 

 
336,317

 Equity investments
 

 

 
371,190

 

 
371,190

 Oil and natural gas properties (full cost accounting method):
 
 
 
 
 
 
 
 
 
 
Unproved oil and natural gas properties and development costs not being amortized
 
98

 
363,536

 
3,773

 

 
367,407

Proved developed and undeveloped oil and natural gas properties
 
331,581

 
2,251,912

 
116,115

 

 
2,699,608

     Accumulated depletion
 
(329,872
)
 
(1,695,909
)
 
(4,141
)
 

 
(2,029,922
)
     Oil and natural gas properties, net
 
1,807

 
919,539

 
115,747

 

 
1,037,093

 Gas gathering, office, field and other equipment, net
 
5,290

 
12,904

 
23,277

 

 
41,471

 Investments in and advances to affiliates, net
 
1,446,069

 

 

 
(1,446,069
)
 

 Deferred financing costs, net
 
16,735

 

 
1,363

 

 
18,098

 Derivative financial instruments
 
13,077

 

 
485

 

 
13,562

 Goodwill
 
13,293

 
149,862

 

 

 
163,155

 Other assets
 
1

 
27

 

 

 
28

         Total assets
 
$
1,649,884

 
$
1,251,204

 
$
525,895

 
$
(1,446,069
)
 
$
1,980,914

 Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 Current liabilities
 
$
38,845

 
$
183,318

 
$
11,382

 
$

 
$
233,545

 Long-term debt
 
1,216,312

 

 
94,095

 

 
1,310,407

 Deferred income taxes
 

 

 

 

 

 Other long-term liabilities
 
13,845

 
34,111

 
8,124

 

 
56,080

 Payable to parent
 

 
1,708,506

 
38,207

 
(1,746,713
)
 

         Total shareholders' equity
 
380,882

 
(674,731
)
 
374,087

 
300,644

 
380,882

         Total liabilities and shareholders' equity
 
$
1,649,884

 
$
1,251,204

 
$
525,895

 
$
(1,446,069
)
 
$
1,980,914


24


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2012
 (in thousands)
 
 Resources
 
 Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
 Assets
 
 
 
 
 
 
 
 
 
 
 Current assets:
 
 
 
 
 
 
 
 
 
 
 Cash and cash equivalents
 
$
65,791

 
$
(20,147
)
 
$

 
$

 
$
45,644

 Restricted cash
 

 
70,085

 

 

 
70,085

 Other current assets
 
63,333

 
182,804

 

 

 
246,137

         Total current assets
 
129,124

 
232,742

 

 

 
361,866

 Equity investments
 

 

 
347,008

 

 
347,008

 Oil and natural gas properties (full cost accounting method):
 
 
 
 
 
 
 
 
 
 
Unproved oil and natural gas properties and development costs not being amortized
 
48,179

 
421,864

 

 

 
470,043

Proved developed and undeveloped oil and natural gas properties
 
513,668

 
2,202,099

 

 

 
2,715,767

     Accumulated depletion
 
(328,560
)
 
(1,617,005
)
 

 

 
(1,945,565
)
     Oil and natural gas properties, net
 
233,287

 
1,006,958

 

 

 
1,240,245

 Gas gathering, office, field and other equipment, net
 
7,701

 
109,490

 

 

 
117,191

 Investments in and advances to affiliates, net
 
1,622,731

 

 

 
(1,622,731
)
 

 Deferred financing costs, net
 
22,584

 

 

 

 
22,584

 Derivative financial instruments
 
16,554

 

 

 

 
16,554

 Goodwill
 
38,100

 
180,156

 

 

 
218,256

 Other assets
 
1

 
27

 

 

 
28

         Total assets
 
$
2,070,082

 
$
1,529,373

 
$
347,008

 
$
(1,622,731
)
 
$
2,323,732

 Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 Current liabilities
 
$
37,031

 
$
200,900

 
$

 
$

 
$
237,931

 Long-term debt
 
1,848,972

 

 

 

 
1,848,972

 Deferred income taxes
 

 

 

 

 

 Other long-term liabilities
 
34,686

 
52,750

 

 

 
87,436

 Payable to parent
 

 
2,172,526

 

 
(2,172,526
)
 

         Total shareholders' equity
 
149,393

 
(896,803
)
 
347,008

 
549,795

 
149,393

         Total liabilities and shareholders' equity
 
$
2,070,082

 
$
1,529,373

 
$
347,008

 
$
(1,622,731
)
 
$
2,323,732

 
 
 
 
 
 
 
 
 
 
 

25


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended June 30, 2013

(in thousands)
 
Resources
 
Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
74

 
$
137,318

 
$
12,940

 
$

 
$
150,332

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas production
 
71

 
10,559

 
5,253

 

 
15,883

Gathering and transportation
 

 
22,500

 
908

 

 
23,408

Depletion, depreciation and amortization
 
1,192

 
42,761

 
3,435

 

 
47,388

Write-down of oil and natural gas properties
 

 

 

 

 

Accretion of discount on asset retirement obligations
 
4

 
396

 
156

 

 
556

General and administrative
 
9,640

 
16,421

 
513

 

 
26,574

(Gain) loss on divestitures and other operating items
 
745

 
1,904

 
(9
)
 

 
2,640

    Total costs and expenses
 
11,652

 
94,541

 
10,256

 

 
116,449

Operating income (loss)
 
(11,578
)
 
42,777

 
2,684

 

 
33,883

Other income (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(14,298
)
 

 
(807
)
 

 
(15,105
)
Gain on derivative financial instruments
 
51,495

 
455

 
3,296

 

 
55,246

Other income
 
82

 
76

 

 

 
158

Equity income
 

 

 
11,416

 

 
11,416

Equity in earnings of subsidiaries
 
59,897

 

 

 
(59,897
)
 

    Total other income
 
97,176

 
531

 
13,905

 
(59,897
)
 
51,715

Income before income taxes
 
85,598

 
43,308

 
16,589

 
(59,897
)
 
85,598

Income tax expense
 

 

 

 

 

Net income
 
$
85,598

 
$
43,308

 
$
16,589

 
$
(59,897
)
 
$
85,598


26


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended June 30, 2012

(in thousands)
 
Resources
 
Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
18,991

 
$
98,987

 
$

 
$

 
$
117,978

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas production
 
4,754

 
20,898

 

 

 
25,652

Gathering and transportation
 

 
25,913

 

 

 
25,913

Depletion, depreciation and amortization
 
6,420

 
80,917

 

 

 
87,337

Write-down of oil and natural gas properties
 

 
428,801

 

 

 
428,801

Accretion of discount on asset retirement obligations
 
130

 
834

 

 

 
964

General and administrative
 
794

 
17,843

 

 

 
18,637

Other operating items
 
(23
)
 
6,733

 

 

 
6,710

    Total costs and expenses
 
12,075

 
581,939

 

 

 
594,014

Operating income (loss)
 
6,916

 
(482,952
)
 

 

 
(476,036
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(20,366
)
 
(3
)
 

 

 
(20,369
)
Loss on derivative financial instruments
 
(14,044
)
 
(1,214
)
 

 

 
(15,258
)
Other income
 
57

 
140

 

 

 
197

Equity income
 

 

 
15,033

 

 
15,033

Equity in earnings (losses) of subsidiaries
 
(468,996
)
 

 

 
468,996

 

    Total other income (expense)
 
(503,349
)
 
(1,077
)
 
15,033

 
468,996

 
(20,397
)
Income (loss) before income taxes
 
(496,433
)
 
(484,029
)
 
15,033

 
468,996

 
(496,433
)
Income tax expense
 

 

 

 

 

Net income (loss)
 
$
(496,433
)
 
$
(484,029
)
 
$
15,033

 
$
468,996

 
$
(496,433
)

27


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the six months ended June 30, 2013
(in thousands)
 
Resources
 
Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
8,120

 
$
261,792

 
$
18,643

 
$

 
$
288,555

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas production
 
2,283

 
24,664

 
7,801

 

 
34,748

Gathering and transportation
 

 
46,507

 
1,377

 

 
47,884

Depletion, depreciation and amortization
 
3,799

 
80,289

 
4,608

 

 
88,696

Write-down of oil and natural gas properties
 

 
10,707

 

 

 
10,707

Accretion of discount on asset retirement obligations
 
54

 
945

 
247

 

 
1,246

General and administrative
 
10,293

 
33,384

 
881

 

 
44,558

Gain on divestitures and other operating items
 
(25,229
)
 
(157,000
)
 
(13
)
 

 
(182,242
)
    Total costs and expenses
 
(8,800
)
 
39,496

 
14,901

 

 
45,597

Operating income
 
16,920

 
222,296

 
3,742

 

 
242,958

Other income (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(34,175
)
 

 
(1,122
)
 

 
(35,297
)
Gain (loss) on derivative financial instruments
 
11,693

 
(235
)
 
274

 

 
11,732

Other income
 
129

 
115

 
2

 

 
246

Equity income
 

 

 
24,079

 

 
24,079

Equity in earnings of subsidiaries
 
249,151

 

 

 
(249,151
)
 

    Total other income (expense)
 
226,798

 
(120
)
 
23,233

 
(249,151
)
 
760

Income before income taxes
 
243,718

 
222,176

 
26,975

 
(249,151
)
 
243,718

Income tax expense
 

 

 

 

 

Net income
 
$
243,718

 
$
222,176

 
$
26,975

 
$
(249,151
)
 
$
243,718




28



EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
For the six months ended June 30, 2012
(in thousands)
 
Resources
 
Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas
 
$
42,264

 
$
210,562

 
$

 
$

 
$
252,826

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas production
 
9,879

 
45,762

 

 

 
55,641

Gathering and transportation
 

 
52,336

 

 

 
52,336

Depletion, depreciation and amortization
 
(472
)
 
177,391

 

 

 
176,919

Write-down of oil and natural gas properties
 

 
704,665

 

 

 
704,665

Accretion of discount on asset retirement obligations
 
256

 
1,655

 

 

 
1,911

General and administrative
 
4,569

 
35,573

 

 

 
40,142

Other operating items
 
19

 
8,316

 

 

 
8,335

    Total costs and expenses
 
14,251

 
1,025,698

 

 

 
1,039,949

Operating income (loss)
 
28,013

 
(815,136
)
 

 

 
(787,123
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(37,130
)
 
(3
)
 

 

 
(37,133
)
Gain on derivative financial instruments
 
35,179

 
3,428

 

 

 
38,607

Other income
 
93

 
347

 

 

 
440

Equity income
 

 

 
7,127

 

 
7,127

Equity in earnings (losses) of subsidiaries
 
(804,237
)
 

 

 
804,237

 

    Total other income (expense)
 
(806,095
)
 
3,772

 
7,127

 
804,237

 
9,041

Income (loss) before income taxes
 
(778,082
)
 
(811,364
)
 
7,127

 
804,237

 
(778,082
)
Income tax expense
 

 

 

 

 

Net income (loss)
 
$
(778,082
)
 
$
(811,364
)
 
$
7,127

 
$
804,237

 
$
(778,082
)


29


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended June 30, 2013
 (in thousands)
 
 Resources
 
 Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
(3,892
)
 
$
168,302

 
$
6,822

 
$

 
$
171,232

Investing Activities:
 
 
 
 
 
 
 
 
 
 
Additions to oil and natural gas properties, gathering systems and equipment and property acquisitions
 
(8,907
)
 
(120,434
)
 
(36,412
)
 

 
(165,753
)
Restricted cash
 

 
27,543

 

 

 
27,543

Equity method investments
 

 
(104
)
 

 

 
(104
)
Proceeds from disposition of property and equipment
 
244,499

 
368,591

 

 

 
613,090

Distribution received from EXCO/HGI Partnership
 
1,275

 

 

 
(1,275
)
 

Net changes in advances from Appalachia JV
 

 
8,276

 

 

 
8,276

Advances/investments with affiliates
 
462,020

 
(462,020
)
 

 

 

Net cash provided by (used in) investing activities
 
698,887

 
(178,148
)
 
(36,412
)
 
(1,275
)
 
483,052

Financing Activities:
 
 
 
 
 
 
 
 
 
 
Borrowings under credit agreements
 
10,000

 

 
36,757

 

 
46,757

Repayments under credit agreements
 
(643,266
)
 

 
(1,275
)
 

 
(644,541
)
Proceeds from issuance of common stock
 
42

 

 

 

 
42

Payment of common stock dividends
 
(21,479
)
 

 

 

 
(21,479
)
EXCO/HGI Partnership capital distribution
 

 

 
(1,275
)
 
1,275

 

Deferred financing costs and other
 
(32
)
 

 
(233
)
 

 
(265
)
Net cash provided by (used in) financing activities
 
(654,735
)
 

 
33,974

 
1,275

 
(619,486
)
Net increase (decrease) in cash
 
40,260

 
(9,846
)
 
4,384

 

 
34,798

Cash at beginning of period
 
65,791

 
(20,147
)
 

 

 
45,644

Cash at end of period
 
$
106,051

 
$
(29,993
)
 
$
4,384

 
$

 
$
80,442


30


EXCO RESOURCES, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended June 30, 2012
 (in thousands)
 
 Resources
 
 Guarantor Subsidiaries
 
 Non-Guarantor Subsidiaries
 
 Eliminations
 
 Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
118,650

 
$
161,818

 
$

 
$

 
$
280,468

Investing Activities:
 
 
 
 
 
 
 
 
 
 
Additions to oil and natural gas properties, gathering systems and equipment and property acquisitions
 
(21,095
)
 
(287,622
)
 

 

 
(308,717
)
Restricted cash
 

 
95,167

 

 

 
95,167

Equity method investments
 

 
(10,254
)
 

 

 
(10,254
)
Proceeds from disposition of property and equipment
 
15,397

 
1,603

 

 

 
17,000

Net changes in advances from Appalachia JV
 

 
5,193

 

 

 
5,193

Advances/investments with affiliates
 
(64,722
)
 
64,722

 

 

 

Net cash used in investing activities
 
(70,420
)
 
(131,191
)
 

 

 
(201,611
)
Financing Activities:
 
 
 
 
 
 
 
 
 
 
Borrowings under credit agreements
 
53,000

 

 

 

 
53,000

Repayments under credit agreements
 
(93,000
)
 

 

 

 
(93,000
)
Proceeds from issuance of common stock
 
297

 

 

 

 
297

Payment of common stock dividends
 
(17,132
)
 

 

 

 
(17,132
)
Deferred financing costs and other
 
(1,623
)
 

 

 

 
(1,623
)
Net cash used in financing activities
 
(58,458
)
 

 

 

 
(58,458
)
Net increase (decrease) in cash
 
(10,228
)
 
30,627

 

 

 
20,399

Cash at beginning of period
 
78,664

 
(46,667
)
 

 

 
31,997

Cash at end of period
 
$
68,436

 
$
(16,040
)
 
$

 
$

 
$
52,396


31


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
Forward-looking statements
This Quarterly Report on Form 10-Q 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:

our future financial and operating performance and results;
our business strategy;
market prices for oil, natural gas and natural gas liquids;
our future use of derivative financial instruments; and
our plans and forecasts.
We have based these forward-looking statements on our current assumptions, expectations and projections about future events.
We use the words “may,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “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 our financial condition and/or state other “forward-looking” information. We do 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 our actual results or financial condition to materially differ from our expectations in this Quarterly Report on Form 10-Q, including, but not limited to:

fluctuations in the prices of oil, natural gas and natural gas liquids;
the availability of foreign oil, natural gas and natural gas liquids;
future capital requirements and availability of financing;
our ability to meet our current and future debt service obligations;
disruption of credit and capital markets and the ability of financial institutions to honor their commitments;
estimates of reserves and economic assumptions;
geological concentration of our reserves;
risks associated with drilling and operating wells;
exploratory risks, primarily related to our activities in shale formations including our recent acquisition in the Eagle Ford shale;
risks associated with the operation of natural gas pipelines and gathering systems;
discovery, acquisition, development and replacement of oil and natural gas reserves;
cash flow and liquidity;
timing and amount of future production of oil and natural gas;
availability of drilling and production equipment;
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;
general economic conditions, including costs associated with drilling and operation of our properties;
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; and

32

Table of Contents

our ability to effectively integrate companies and properties that we acquire.
We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. We caution users of the financial statements not to place undue reliance on any forward-looking statements. When considering our forward-looking statements, keep in mind the cautionary statements in this Quarterly Report on Form 10-Q, and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2012 , filed with the Securities and Exchange Commission, or the SEC, on February 21, 2013 .
Our 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 our financial condition, liquidity, results of operations, the amount of oil or natural gas that we can produce economically and the ability to fund our 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.
Overview
We are an independent oil and natural gas company engaged in the acquisition, exploration, exploitation, development and production of onshore U.S. oil and natural gas properties. Our principal operations are conducted in certain key U.S. oil and natural gas areas including Texas, Louisiana, and the Appalachia region. In addition to our oil and natural gas producing operations, we own 50% interests in two midstream joint ventures located in East Texas/North Louisiana and Appalachia.
Our primary strategy includes evaluating acquisitions that meet our strategic and financial objectives, and exploiting our shale resource plays. We plan to carry out this strategy by leveraging our management and technical team's experience, exploiting our multi-year inventory of development drilling locations in our shale plays, actively seeking acquisition opportunities both inside and outside our existing operating areas, managing our liquidity and maintaining financial flexibility. These approaches enhance our ability to execute our business plan over the entire commodity price cycle, protect our returns on investments and manage our capital structure.
Our current acquisition strategy focuses on producing properties with upside development opportunities. These acquisitions are dependent on oil and natural gas prices, availability of producing properties and attractive acreage, acceptable rates of return and availability of borrowing capacity or capital from other sources. While we expect to continue to evaluate acreage acquisition opportunities in our shale areas, we believe the current market provides greater opportunities from producing property acquisitions rather than undeveloped acreage acquisitions.
Like all oil and natural gas exploration and production companies, we face the challenge of natural production declines. Oil and natural gas production from a given well naturally decreases over time. We attempt to offset the impact of this natural decline by drilling to identify and develop additional reserves and adding reserves through acquisitions.

Recent Developments

Haynesville and Eagle Ford Acquisitions
On July 2, 2013, we entered into definitive agreements to acquire producing and undeveloped oil and natural gas assets in the Haynesville and Eagle Ford shale formations for an aggregate purchase price of approximately $1.0 billion, subject to customary preliminary purchase price adjustments, from subsidiaries of Chesapeake Energy Corporation, or Chesapeake. Upon execution of these agreements, we deposited $31.6 million and $68.1 million into escrow accounts for the acquisition of the Haynesville and Eagle Ford assets, respectively. The escrow accounts will remain in place after closing and will primarily be used to settle title and environmental defect adjustments.
We amended and restated the EXCO Resources Credit Agreement to facilitate these acquisitions, which increased the borrowing base to $1.6 billion, including a $1.3 billion revolving commitment and a $300.0 million term loan. The credit agreement provides that net proceeds from certain asset sales in excess of the borrowing base value (if any) will be used to reduce the outstanding borrowings by July 31, 2014. At any time after nine months from the closing date, the lenders have the right to demand that we engage investment bankers to publicly sell or privately place debt securities in an amount that is sufficient (i) to pay off $400.0 million less the amount of net asset sale proceeds received by EXCO and applied to reduce the outstanding borrowings, and (ii) reduce the amounts outstanding under the EXCO Resources Credit Agreement so that there is at least $100.0 million in available borrowing capacity. The term loan portion of the facility is expected to be replaced with a new term loan containing terms and conditions customary for a transaction of this nature. See further discussion of the EXCO Resources Credit Agreement within "Note 9. Long-term debt" in the Notes to our Condensed Consolidated Financial Statements.

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Table of Contents

We closed the acquisition of the Haynesville assets on July 12, 2013 for a purchase price of $288.2 million, after customary preliminary purchase price adjustments. The acquisition was funded with borrowings from the EXCO Resources Credit Agreement. The acquisition included certain producing wells and non-producing oil, natural gas and mineral leases located in our core Haynesville shale operating area in Caddo Parish and DeSoto Parish, Louisiana. These properties included Chesapeake's non-operated interests in 170 wells operated by EXCO on approximately 5,600 net acres, and operated interests in 11 producing wells on approximately 4,000 net acres. The acquisition added approximately 55 identified drilling locations in the Haynesville shale formation to our drilling inventory. These assets are subject to BG Group's preferential right to acquire a 50% interest, which was formally offered to BG Group on July 13, 2013. Their election must be made within 60 days of our offer.
We closed the acquisition of the Eagle Ford assets on July 31, 2013 for a purchase price of $685.3 million, after customary preliminary purchase price adjustments. The acquisition included certain producing wells and non-producing oil, natural gas and mineral leases in the Eagle Ford shale in the counties of Zavala, Dimmit, La Salle and Frio in South Texas. These properties include operated interests in 120 wells on approximately 55,000 net acres. The acquisition added approximately 300 identified drilling locations to our drilling inventory. In addition, we entered into a farm-out agreement with Chesapeake covering an additional 147,000 net acres adjacent to the acquired properties. Pursuant to the terms of the farm-out agreement, Chesapeake retains an overriding royalty interest in wells drilled on acreage covered by the farm-out agreement, with an option to convert the overriding royalty interest to a working interest at payout of the well.
In connection with closing the acquisition of the Eagle Ford assets, we entered into a participation agreement with Kohlberg Kravis Roberts & Co. L.P., or KKR, and sold an undivided 50% interest in the undeveloped acreage we acquired for approximately $130.9 million, after preliminary closing adjustments, or the KKR Participation Agreement. Proceeds from the sale of properties unde r the KKR Participation Agreement were used to reduce outstanding borrowings under the EXCO Resources Credit Agreement. After giving effect to the acquisition and the KKR payment, the EXCO Resources Credit Agreement borrowing base and outstanding borrowings were reduced by $130.9 million. This resulted in a borrowing base of $1.5 billion under the EXCO Resources Credit Agreement, with $1.3 billion of outstanding indebtedness including $269.1 million remaining under the asset sale requirement as of July 31, 2013.
The KKR Participation Agreement provides that EXCO and KKR will jointly fund future costs to develop the Eagle Ford assets. With respect to each well drilled, EXCO will assign half of its undivided 50% interest in such well to KKR such that KKR will fund and own 75% of each well drilled and EXCO will fund and own 25% of each well drilled. When each quarterly tranche of wells drilled has been on production for one year, EXCO is required to offer to purchase KKR's 75% working interest at fair market value as defined in the KKR Participation Agreement, subject to specific well criteria and return hurdles. With respect to the first year (first four quarters) of the development program, we are required to make our first offer during the fourth quarter of 2014 for wells that have been on line for approximately one year. The parties have agreed on approximately 300 identified locations to be drilled over a five year period.

EXCO/HGI Partnership
On February 14, 2013 , we formed a partnership, or the EXCO/HGI Partnership, with Harbinger Group Inc., or HGI. Pursuant to the agreements governing the transaction, we contributed our conventional non-shale assets in East Texas and North Louisiana and our shallow Canyon Sand and other assets in the Permian Basin of West Texas to the EXCO/HGI Partnership in exchange for net proceeds of $574.8 million , after final purchase price adjustments, and a 25.5% economic interest in the EXCO/HGI Partnership. HGI's economic interest in the EXCO/HGI Partnership is 74.5% . The primary strategy of the EXCO/HGI Partnership is to acquire conventional producing oil and natural gas properties to enhance asset value and cash flow. Proceeds from the formation of the EXCO/HGI Partnership were used to reduce our outstanding indebtedness under the EXCO Resources Credit Agreement.
Immediately following the closing, the EXCO/HGI Partnership entered into an agreement to purchase the remaining shallow Cotton Valley assets within our joint venture with an affiliate of BG Group, for $130.9 million after customary preliminary purchase price adjustments. The assets acquired as a result of this transaction represented an incremental working interest in properties owned by the EXCO/HGI Partnership. The transaction closed on March 5, 2013 and was funded with borrowings from the EXCO/HGI Partnership's credit agreement, or the EXCO/HGI Partnership Credit Agreement.

Acreage transaction
On March 13, 2013 , we closed a sale and joint development agreement with a private party for the sale of an undivided 50% of our interest in certain undeveloped acreage. We received $37.9 million in cash, after final closing adjustments. In addition to the cash consideration received at closing, the purchaser agreed to fund our share of drilling and completion costs within the joint venture area up to $18.9 million , with any remaining unfunded amount paid to us by June 30, 2016.

34

Table of Contents

Critical accounting policies
We consider accounting policies related to our estimates of proved reserves, accounting for derivatives, business combinations, share-based payments, oil and natural gas properties, goodwill, revenue recognition, asset retirement obligations and income taxes as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2012 , filed with the SEC on February 21, 2013 .

35

Table of Contents

Our results of operations
A summary of key financial data for the three and six months ended June 30, 2013 and 2012 related to our results of operations is presented below:
  
 
 
Three Months Ended June 30,
 
Quarter to quarter 
change
 
Six Months Ended June 30,
 
Period to period change
(dollars in thousands, except per unit prices)
 
2013
 
2012
 
 
2013
 
2012
 
Production:
 
 
 
 
 
 
 
 
 
 
 
 
Oil (Mbbls)
 
50

 
182

 
(132
)
 
152

 
374

 
(222
)
Natural gas liquids (Mbbls)
 
43

 
131

 
(88
)
 
125

 
253

 
(128
)
Natural gas (Mmcf)
 
37,695

 
48,162

 
(10,467
)
 
77,288

 
95,154

 
(17,866
)
Total production (Mmcfe) (1)
 
38,253

 
50,040

 
(11,787
)
 
78,950

 
98,916

 
(19,966
)
Average daily production (Mmcfe)
 
420

 
550

 
(130
)
 
436

 
543

 
(107
)
Revenues before derivative financial instrument activities:
Oil
 
$
4,524

 
$
15,721

 
$
(11,197
)
 
$
12,858

 
$
34,371

 
$
(21,513
)
Natural gas liquids
 
1,461

 
5,259

 
(3,798
)
 
4,554

 
11,713

 
(7,159
)
Natural gas
 
144,347

 
96,998

 
47,349

 
271,143

 
206,742

 
64,401

Total revenues
 
$
150,332

 
$
117,978

 
$
32,354

 
$
288,555

 
$
252,826

 
$
35,729

Oil and natural gas derivative financial instruments:
Cash settlements on derivative financial instruments
 
$
794

 
$
61,815

 
$
(61,021
)
 
$
17,511

 
$
111,960

 
$
(94,449
)
Non-cash change in fair value of derivative financial instruments
 
54,452

 
(77,073
)
 
131,525

 
(5,779
)
 
(73,353
)
 
67,574

Total derivative financial instrument activities
 
$
55,246

 
$
(15,258
)
 
$
70,504

 
$
11,732

 
$
38,607

 
$
(26,875
)
Average sales price (before cash settlements of derivative financial instruments):
Oil (per Bbl)
 
$
90.48

 
$
86.38

 
$
4.10

 
$
84.59

 
$
91.90

 
$
(7.31
)
Natural gas liquids (per Bbl)
 
33.98

 
40.15

 
(6.17
)
 
36.43

 
46.30

 
(9.87
)
Natural gas (per Mcf)
 
3.83

 
2.01

 
1.82

 
3.51

 
2.17

 
1.34

Natural gas equivalent (per Mcfe)
 
3.93

 
2.36

 
1.57

 
3.65

 
2.56

 
1.09

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Oil and natural gas operating costs
 
$
11,902

 
$
18,863

 
$
(6,961
)
 
$
25,519

 
$
41,659

 
$
(16,140
)
Production and ad valorem taxes
 
3,981

 
6,789

 
(2,808
)
 
9,229

 
13,982

 
(4,753
)
Gathering and transportation
 
23,408

 
25,913

 
(2,505
)
 
47,884

 
52,336

 
(4,452
)
Depletion
 
45,366

 
83,515

 
(38,149
)
 
84,357

 
169,031

 
(84,674
)
Depreciation and amortization
 
2,022

 
3,822

 
(1,800
)
 
4,339

 
7,888

 
(3,549
)
General and administrative (2)
 
26,574

 
18,637

 
7,937

 
44,558

 
40,142

 
4,416

Interest expense
 
15,105

 
20,369

 
(5,264
)
 
35,297

 
37,133

 
(1,836
)
Costs and expenses (per Mcfe):
 
 
 
 
 
 
 
 
 
 
 
 
Oil and natural gas operating costs
 
$
0.31

 
$
0.38

 
$
(0.07
)
 
$
0.32

 
$
0.42

 
$
(0.10
)
Production and ad valorem taxes
 
0.10

 
0.14

 
(0.04
)
 
0.12

 
0.14

 
(0.02
)
Gathering and transportation
 
0.61

 
0.52

 
0.09

 
0.61

 
0.53

 
0.08

Depletion
 
1.19

 
1.67

 
(0.48
)
 
1.07

 
1.71

 
(0.64
)
Depreciation and amortization
 
0.05

 
0.08

 
(0.03
)
 
0.05

 
0.08

 
(0.03
)
General and administrative
 
0.69

 
0.37

 
0.32

 
0.56

 
0.41

 
0.15

Net income (loss)
 
$
85,598

 
$
(496,433
)
 
$
582,031

 
$
243,718

 
$
(778,082
)
 
$
1,021,800


(1)
Mmcfe is calculated by converting one barrel of oil or natural gas liquids into six Mcf of natural gas.
(2)
Share-based compensation expense included in general and administrative expenses was $4.6 million and $2.6 million for the three months ended June 30, 2013 and 2012 , respectively, and $6.3 million and $5.5 million for the six months ended June 30, 2013 and 2012 , respectively.

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Table of Contents

Following is a discussion of our financial condition and results of operations for the three and six months ended June 30, 2013 and 2012 . The comparability of our results of operations was impacted by:

the formation of the EXCO/HGI Partnership in the first quarter of 2013;
fluctuations in oil, natural gas and natural gas liquids prices, which impact our oil and natural gas reserves, revenues, cash flows and net income or loss;
ceiling test write-downs in 2013 and 2012;
asset impairments and other non-recurring costs;
mark-to-market gains and losses from our derivative financial instruments;
changes in proved reserves and production volumes and their impact on depletion;
the impact of declining natural gas production volumes from our significantly reduced horizontal drilling activities in shale formations; and
significant changes in the amount of our long-term debt.
General
The availability of a ready market and prices for oil, natural gas and natural gas liquids are dependent upon a number of factors that are beyond our control. These factors include, among other things:
the level of domestic production and economic activity;
the domestic oversupply of natural gas;
the inability to export domestic oil, natural gas and natural gas liquids;
the level of domestic and industrial demand for natural gas for utilities and manufacturing operations;
the available capacity at natural gas storage facilities and quantities of inventories in storage;
the availability of imported oil and natural gas;
actions taken by foreign oil producing nations;
the cost and availability of natural gas pipelines with adequate capacity and other transportation facilities;
the cost and availability of other competitive fuels;
fluctuating and seasonal demand for oil, natural gas, natural gas liquids and refined products;
the extent of governmental regulation and taxation (under both present and future legislation) of the exploration, production, refining, transportation, pricing, use and allocation of oil, natural gas, refined products and substitute fuels; and
trends in fuel use and government regulations that encourage less fuel use and encourage or mandate alternative fuel use.
Accordingly, in light of the many uncertainties affecting the supply and demand for oil, natural gas, natural gas liquids and refined petroleum products, we cannot accurately predict the prices or marketability of oil, natural gas and natural gas liquids from any producing well in which we have or may acquire an interest.
Marketing arrangements
We produce oil, natural gas and natural gas liquids. We do not refine or process the oil, natural gas or natural gas liquids we produce. We sell the majority of the oil we produce under short-term contracts using market sensitive pricing. The majority of our contracts are based on NYMEX pricing, which is typically calculated as the average of the daily closing prices of oil to be delivered one month in the future. We also sell a portion of our oil at F.O.B. field prices posted by the principal purchaser of oil where our producing properties are located. Our sales contracts are of a type common within the industry, and we usually negotiate a separate contract for each property. Generally, we sell our oil to purchasers and refiners near the areas of our producing properties.
We sell the majority of our natural gas under individually negotiated gas purchase contracts using market sensitive pricing. Our sales contracts vary in length from spot market sales of a single day to term agreements that may extend for a year or more. Our natural gas customers include utilities, natural gas marketing companies and a variety of commercial and industrial end users. The natural gas purchase contracts define the terms and conditions unique to each of these sales. The price received for natural gas sold on the spot market varies daily, reflecting changing market conditions. Some of our natural gas is sold under contracts which provide for sharing in a percentage of proceeds of natural gas liquids extracted by third party plants.
We may be unable to market all of the oil and natural gas we produce. If our oil and natural gas can be marketed, we may be unable to negotiate favorable pricing and contractual terms. Changes in oil or natural gas prices may significantly affect our revenues, cash flows, the value of our oil and natural gas properties and the estimates of recoverable oil and natural gas reserves. Further, significant declines in the prices of oil or natural gas may have a material adverse effect on our business and on our financial condition.

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Table of Contents

We engage in oil and natural gas production activities in geographic regions where, from time to time, the supply of oil or natural gas available for delivery exceeds the demand. If this occurs, companies purchasing oil or natural gas in these areas may reduce the amount of oil or natural gas that they purchase from us. If we cannot locate other buyers for our production or for any of our oil or natural gas reserves, we may shut in our oil or natural gas wells for certain periods of time. If this occurs, we may incur additional payment obligations under our oil and natural gas leases and, under certain circumstances, the oil and natural gas leases might be terminated. Economic conditions, particularly low oil and natural gas prices, may negatively impact the liquidity and creditworthiness of our purchasers and may expose us to risk with respect to the ability to collect payments for the oil and natural gas we deliver.
Summary
For the three months ended June 30, 2013 , we reported net income of $85.6 million compared to a net loss of $496.4 million for the three months ended June 30, 2012 . The net income for the three months ended June 30, 2013 was primarily the result of income from operations and unrealized gains on derivative instruments. For the six months ended June 30, 2013 , we reported net income of $243.7 million compared to a net loss of $778.1 million for the six months ended June 30, 2012 . The net income for the six months ended June 30, 2013 was primarily the result of income from operations and the gain on the divestiture of certain oil and natural gas properties and related assets in connection with the formation of the EXCO/HGI Partnership. The net losses for the comparable periods in the prior year were primarily the result of ceiling test write-downs due to low natural gas prices. Average natural gas equivalent prices for the three and six months ended June 30, 2013 averaged $3.93 and $3.65 per Mcfe, respectively, compared with average natural gas equivalent prices for the three and six months ended June 30, 2012 of $2.36 and $2.56 per Mcfe, respectively.
We use oil and natural gas swap and call option contracts to manage our exposure to commodity price fluctuations, protect our returns on investments and achieve a more predictable cash flow from our operations. We do not designate our derivative financial instruments as hedges. As a result, we mark non-cash changes in the fair value of unsettled derivative financial instruments to market at the end of each reporting period and recognize the change in our results of operations. The impacts of realized and unrealized changes in the fair value of derivative financial instruments resulted in net gains of $55.2 million and net losses of $15.3 million for the three months ended June 30, 2013 and 2012 , respectively, and net gains of $11.7 million and $38.6 million for the six months ended June 30, 2013 and 2012 , respectively.
Presentation of results of operations of the EXCO/HGI Partnership
Our discussion of production, revenues and direct operating expenses is based on our producing regions and the EXCO/HGI Partnership. The EXCO/HGI Partnership includes conventional non-shale assets in East Texas, North Louisiana and the Permian Basin. Prior to the formation of the EXCO/HGI Partnership on February 14, 2013 , the operating results of the properties contributed by EXCO were included within the "East Texas/North Louisiana" and "Permian and other" regions within our discussion of production, revenues and direct operating expenses. The operating results of the EXCO/HGI Partnership represent our proportionate interest subsequent to its formation on February 14, 2013.
Oil and natural gas production, revenues and prices
We are presenting information on a pro forma basis to provide a more meaningful analysis of our on-going production activity as a result of the formation of the EXCO/HGI Partnership. These pro forma adjustments reflect the contribution of properties by EXCO in connection with the formation of the EXCO/HGI Partnership and include the EXCO/HGI Partnership's acquisition of shallow Cotton Valley assets from an affiliate of BG Group. The pro forma adjustments reflect our production as if the formation of the EXCO/HGI Partnership and acquisition of the Cotton Valley assets had occurred on January 1, 2012.

38

Table of Contents

 
 
Three Months Ended June 30,
 
 
 
 
 
 
2013
 
2012
 
Quarter to quarter change
(in Mmcfe)
 
Production
 
Pro forma adjustments
 
Pro forma production
 
Production
 
Pro forma adjustments
 
Pro forma production
 
Production
 
Pro forma production
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
29,850

 

 
29,850

 
43,980

 
(7,011
)
 
36,969

 
(14,130
)
 
(7,119
)
Appalachia
 
5,840

 

 
5,840

 
3,744

 

 
3,744

 
2,096

 
2,096

Permian and other
 
24

 

 
24

 
2,316

 
(2,285
)
 
31

 
(2,292
)
 
(7
)
EXCO/HGI Partnership
 
2,539

 

 
2,539

 

 
2,935

 
2,935

 
2,539

 
(396
)
        Total
 
38,253

 

 
38,253

 
50,040

 
(6,361
)
 
43,679

 
(11,787
)
 
(5,426
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
2013
 
2012
 
Period to period change
(in Mmcfe)
 
Production
 
Pro forma adjustments
 
Pro forma production
 
Production
 
Pro forma adjustments
 
Pro forma production
 
Production
 
Pro forma production
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
63,299

 
(3,094
)
 
60,205

 
86,923

 
(14,475
)
 
72,448

 
(23,624
)
 
(12,243
)
Appalachia
 
10,906

 

 
10,906

 
7,389

 

 
7,389

 
3,517

 
3,517

Permian and other
 
1,027

 
(972
)
 
55

 
4,604

 
(4,508
)
 
96

 
(3,577
)
 
(41
)
EXCO/HGI Partnership
 
3,718

 
1,361

 
5,079

 

 
6,016

 
6,016

 
3,718

 
(937
)
Total
 
78,950

 
(2,705
)
 
76,245

 
98,916

 
(12,967
)
 
85,949

 
(19,966
)
 
(9,704
)
The following table presents our production, revenue and average sales prices for the three and six months ended June 30, 2013 and 2012 :
 
 
Three Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Quarter to quarter change
(dollars in thousands, except per unit rate)
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
29,850

 
$
112,798

 
$
3.78

 
43,980

 
$
90,246

 
$
2.05

 
(14,130
)
 
$
22,552

 
$
1.73

Appalachia
 
5,840

 
24,520

 
4.20

 
3,744

 
8,741

 
2.33

 
2,096

 
15,779

 
1.87

Permian and other
 
24

 
75

 
3.13

 
2,316

 
18,991

 
8.20

 
(2,292
)
 
(18,916
)
 
(5.07
)
EXCO/HGI Partnership
 
2,539

 
12,939

 
5.10

 

 

 

 
2,539

 
12,939

 
5.10

        Total
 
38,253

 
$
150,332

 
$
3.93

 
50,040

 
$
117,978

 
$
2.36

 
(11,787
)
 
$
32,354

 
$
1.57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Period to period change
(dollars in thousands, except per unit rate)
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
 
Production (Mmcfe)
 
Revenue
 
$/Mcfe
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
63,299

 
$
219,585

 
$
3.47

 
86,923

 
$
191,323

 
$
2.20

 
(23,624
)
 
$
28,262

 
$
1.27

Appalachia
 
10,906

 
42,207

 
3.87

 
7,389

 
19,239

 
2.60

 
3,517

 
22,968

 
1.27

Permian and other
 
1,027

 
8,120

 
7.91

 
4,604

 
42,264

 
9.18

 
(3,577
)
 
(34,144
)
 
(1.27
)
EXCO/HGI Partnership
 
3,718

 
18,643

 
5.01

 

 

 

 
3,718

 
18,643

 
5.01

        Total
 
78,950

 
$
288,555

 
$
3.65

 
98,916

 
$
252,826

 
$
2.56

 
(19,966
)
 
$
35,729

 
$
1.09

Production in our East Texas/North Louisiana region for the three months ended June 30, 2013 decrease d by 14.1 Bcfe from the comparable period in the prior year. The decrease in production was primarily due to the impact of the contribution of properties to the EXCO/HGI Partnership of 7.0 Bcfe, as well as normal production declines from our reduced drilling program.

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Table of Contents

During the three months ended June 30, 2013 , we operated three horizontal rigs in the East Texas/North Louisiana region, as compared to an average of eight rigs during the three months ended June 30, 2012 . The increase in production of 2.1 Bcfe in Appalachia was a result of our drilling and completion activities in the Marcellus shale which resulted in 32 additional wells coming on line subsequent to June 30, 2012. The decrease in production in the Permian and other region was primarily the result of the contribution of properties to the EXCO/HGI Partnership. The EXCO/HGI Partnership's production consisted of 2.0 Bcfe from East Texas/North Louisiana and 0.5 Bcfe from the Permian basin.
For the three months ended June 30, 2013 , oil and natural gas revenues were $150.3 million , a 27.4% increase from the oil and natural gas revenues of $118.0 million for the three months ended June 30, 2012 . The increase in revenues was primarily the result of an increase in natural gas prices, which was partially offset by lower revenues arising from the contribution of properties to the EXCO/HGI Partnership and normal production declines. Our average natural gas sales price, excluding the impact of derivative financial instruments, was $3.83 per Mcf for the three months ended June 30, 2013 compared with $2.01 per Mcf for the three months ended June 30, 2012 , an increase of 90.5% . Our average sales price of oil per Bbl, excluding the impact of derivative financial instruments, increased 4.7% to $90.48 per Bbl for the three months ended June 30, 2013 from $86.38 per Bbl for the three months ended June 30, 2012 . Our average sales price of natural gas liquids per Bbl decreased 15.4% to $33.98 per Bbl for the three months ended June 30, 2013 from $40.15 per Bbl for the three months ended June 30, 2012 .
Production in our East Texas/North Louisiana region for the six months ended June 30, 2013 decrease d by 23.6 Bcfe from the comparable period in the prior year. The decrease in production was primarily due to the impact of the contribution of properties to the EXCO/HGI Partnership of 11.4 Bcfe, as well as normal production declines from our reduced drilling program. During the six months ended June 30, 2013 , we operated three horizontal rigs in the East Texas/North Louisiana region, as compared to an average of 11 rigs during the six months ended June 30, 2012 . The increase in production of 3.5 Bcfe in Appalachia was a result of our drilling and completion activities in the Marcellus shale. The decrease in production in the Permian and other region was primarily the result of the contribution of properties to the EXCO/HGI Partnership. The EXCO/HGI Partnership's production consisted of 2.9 Bcfe from East Texas/North Louisiana and 0.8 Bcfe from the Permian basin.
For the six months ended June 30, 2013 and 2012 , oil and natural gas revenues were $288.6 million and $252.8 million , respectively. The increase in revenues was primarily the result of an increase in natural gas prices, which was partially offset by lower revenues arising from the contribution of properties to the EXCO/HGI Partnership and normal production declines. Our average natural gas sales price, excluding the impact of derivative financial instruments, was $3.51 per Mcf for the six months ended June 30, 2013 compared to $2.17 per Mcf for the six months ended June 30, 2012 . Our average sales price of oil per Bbl, excluding the impact of derivative financial instruments, decreased 8.0% to $84.59 per Bbl for the six months ended June 30, 2013 from $91.90 per Bbl for the six months ended June 30, 2012 . Our average sales price of natural gas liquids per Bbl decreased 21.3% to $36.43 per Bbl for the six months ended June 30, 2013 from $46.30 per Bbl for the six months ended June 30, 2012 .

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Table of Contents

Oil and natural gas operating costs
The following tables present our operating costs for the three and six months ended June 30, 2013 and 2012 :
 
 
Three Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Quarter to quarter change
(in thousands)
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
3,515

 
$
1,293

 
$
4,808

 
$
10,092

 
$
1,932

 
$
12,024

 
$
(6,577
)
 
$
(639
)
 
$
(7,216
)
Appalachia
 
3,145

 

 
3,145

 
3,671

 

 
3,671

 
(526
)
 

 
(526
)
Permian and other
 
62

 

 
62

 
2,990

 
178

 
3,168

 
(2,928
)
 
(178
)
 
(3,106
)
EXCO/HGI Partnership
 
3,330

 
557

 
3,887

 

 

 

 
3,330

 
557

 
3,887

Total
 
$
10,052

 
$
1,850

 
$
11,902

 
$
16,753

 
$
2,110

 
$
18,863

 
$
(6,701
)
 
$
(260
)
 
$
(6,961
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Quarter to quarter change
(per Mcfe)
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
0.12

 
$
0.04

 
$
0.16

 
$
0.23

 
$
0.04

 
$
0.27

 
$
(0.11
)
 
$

 
$
(0.11
)
Appalachia
 
0.54

 

 
0.54

 
0.98

 

 
0.98

 
(0.44
)
 

 
(0.44
)
Permian and other
 
2.58

 

 
2.58

 
1.29

 
0.08

 
1.37

 
1.29

 
(0.08
)
 
1.21

EXCO/HGI Partnership
 
1.31

 
0.22

 
1.53

 

 

 

 
1.31

 
0.22

 
1.53

Operating costs per Mcfe
 
$
0.26

 
$
0.05

 
$
0.31

 
$
0.34

 
$
0.04

 
$
0.38

 
$
(0.08
)
 
$
0.01

 
$
(0.07
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Period to period change
(in thousands)
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
8,922

 
$
2,888

 
$
11,810

 
$
21,393

 
$
5,742

 
$
27,135

 
$
(12,471
)
 
$
(2,854
)
 
$
(15,325
)
Appalachia
 
6,423

 

 
6,423

 
8,081

 

 
8,081

 
(1,658
)
 

 
(1,658
)
Permian and other
 
1,522

 

 
1,522

 
6,145

 
298

 
6,443

 
(4,623
)
 
(298
)
 
(4,921
)
EXCO/HGI Partnership
 
4,982

 
782

 
5,764

 

 

 

 
4,982

 
782

 
5,764

Total
 
$
21,849

 
$
3,670

 
$
25,519

 
$
35,619

 
$
6,040

 
$
41,659

 
$
(13,770
)
 
$
(2,370
)
 
$
(16,140
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
2013
 
2012
 
Period to period change
(per Mcfe)
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
 
Lease operating expenses
 
Workovers and other
 
Total
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
0.14

 
$
0.05

 
$
0.19

 
$
0.25

 
$
0.07

 
$
0.32

 
$
(0.11
)
 
$
(0.02
)
 
$
(0.13
)
Appalachia
 
0.59

 

 
0.59

 
1.09

 

 
1.09

 
(0.50
)
 

 
(0.50
)
Permian and other
 
1.48

 

 
1.48

 
1.33

 
0.06

 
1.39

 
0.15

 
(0.06
)
 
0.09

EXCO/HGI Partnership
 
1.34

 
0.21

 
1.55

 

 

 

 
1.34

 
0.21

 
1.55

Total
 
$
0.28

 
$
0.04

 
$
0.32

 
$
0.36

 
$
0.06

 
$
0.42

 
$
(0.08
)
 
$
(0.02
)
 
$
(0.10
)


41

Table of Contents

Our oil and natural gas operating costs for the three months ended June 30, 2013 were $11.9 million compared with $18.9 million for the three months ended June 30, 2012 . Our oil and natural gas operating costs for the six months ended June 30, 2013 were $25.5 million compared with $41.7 million for the six months ended June 30, 2012 . The decreases compared to the comparable periods in the prior year were primarily due to the contribution of properties to the EXCO/HGI Partnership and the implementation of cost saving initiatives throughout our organization.
As shown in the tables above, on a per Mcfe basis, oil and natural gas operating costs for the three months ended June 30, 2013 decreased $0.07 per Mcfe, a decrease of 18.4% , from the same period in 2012 . Operating costs for the six months ended June 30, 2013 were $0.32 per Mcfe, a decrease of 23.8% from the same period in 2012 . The net decrease s in oil and natural gas operating costs per Mcfe compared to the comparable periods in the prior year were primarily due to the implementation of cost savings initiatives. Examples of these actions include shutting in marginal producing wells with high-cost water production, decreased compression expenditures and modification of our chemical treating programs. The net decrease in oil and natural gas operating costs per Mcfe is also attributable to the contribution of properties to EXCO/HGI Partnership, which typically have higher costs per Mcfe compared to the rest of our properties.

Midstream operations
We own a 50% equity interest in TGGT Holdings, LLC, or TGGT, and the Appalachia Midstream JV, which provide midstream services to our joint ventures and natural gas producers. Our midstream operations earn fees from the gathering, treating and compression of natural gas. Additional operating margins are derived from the purchase and resale of natural gas to third parties. Our midstream joint ventures do not own any natural gas processing facilities. We use the equity method of accounting for both of our midstream joint ventures.
In the first half of 2013, TGGT continued to reduce its operating expenses through an effective asset optimization program. In addition,TGGT's capital expenditures decreased from $97.0 million during the six months ended June 30, 2012 to $15.0 million during the six months ended June 30, 2013 , primarily due to the completion of major treating projects in 2012 and reductions in drilling activity in 2013. While throughput during the three and six months ended June 30, 2013 was similar to the prior year, we expect throughput to decline in the second half of 2013 due to normal production declines and reduced drilling activity in the Haynesville shale.
Gathering and transportation
Gathering and transportation expenses totaled $23.4 million , or $0.61 per Mcfe, for the three months ended June 30, 2013 , compared to $25.9 million , or $0.52 per Mcfe, for the three months ended June 30, 2012 . Gathering and transportation expenses for the six months ended June 30, 2013 and 2012 were $47.9 million , or $0.61 per Mcfe, and $52.3 million , or $0.53 per Mcfe, respectively. The increase s in gathering and transportation expense on a per Mcfe rate were primarily due to lower production volumes and the fixed costs associated with firm transportation.
We have entered into firm transportation agreements with pipeline companies to facilitate sales of our Haynesville volumes and report these firm transportation costs as a component of gathering and transportation expenses. As of June 30, 2013 , our firm transportation commitments average 809 Mmcf per day through 2015 , with average annual minimum expenses of approximately $92.5 million per year. These firm transportation commitments average 738 Mmcf per day in 2016 and trend down to 400 Mmcf per day in 2021, with average annual minimum expenses of approximately $89.5 million per year in 2016 which trend down to $48.9 million in 2021.
Production and ad valorem taxes
The following table presents our production and ad valorem taxes on a per Mcfe basis and percentage of revenue basis for the three and six months ended June 30, 2013 and 2012 . Overall, our production and ad valorem tax rates per Mcfe were $0.10 per Mcfe for the three months ended June 30, 2013 compared with $0.14 per Mcfe for the three months ended June 30, 2012 . Our production and ad valorem tax rates per Mcfe were $0.12 per Mcfe for the six months ended June 30, 2013 compared with $0.14 per Mcfe for the six months ended June 30, 2012 .

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Three Months Ended June 30,
 
 
2013
 
2012
(in thousands, except per unit rate)
 
Production and ad valorem taxes
 
% of revenue
 
Taxes $/Mcfe
 
Production and ad valorem taxes
 
% of revenue
 
Taxes $/Mcfe
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
1,883

 
1.7
%
 
$
0.06

 
$
4,380

 
4.9
%
 
$
0.10

Appalachia
 
725

 
3.0
%
 
0.12

 
822

 
9.4
%
 
0.22

Permian and other
 
6

 
8.0
%
 
0.25

 
1,587

 
8.4
%
 
0.69

EXCO/HGI Partnership
 
1,367

 
10.6
%
 
0.54

 

 

 

Total
 
$
3,981

 
2.6
%
 
$
0.10

 
$
6,789

 
5.8
%
 
$
0.14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2013
 
2012
(in thousands, except per unit rate)
 
Production and ad valorem taxes
 
% of revenue
 
Taxes $/Mcfe
 
Production and ad valorem taxes
 
% of revenue
 
Taxes $/Mcfe
Producing region:
 
 
 
 
 
 
 
 
 
 
 
 
East Texas/North Louisiana
 
$
5,033

 
2.3
%
 
$
0.08

 
$
8,849

 
4.6
%
 
$
0.10

Appalachia
 
1,400

 
3.3
%
 
0.13

 
1,696

 
8.8
%
 
0.23

Permian and other
 
758

 
9.3
%
 
0.74

 
3,437

 
8.1
%
 
0.75

EXCO/HGI Partnership
 
2,038

 
10.9
%
 
0.55

 

 

 

Total
 
$
9,229

 
3.2
%
 
$
0.12

 
$
13,982

 
5.5
%
 
$
0.14


For the three months ended June 30, 2013 , production and ad valorem taxes decreased by $2.8 million compared to the same period in 2012 . On a percentage of revenue basis, production and ad valorem taxes were 2.6% and 5.8% of oil and natural gas revenues for the three months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013 , production and ad valorem taxes decreased by $4.8 million compared to the same period in 2012 . Production and ad valorem taxes were 3.2% of oil and natural gas revenues for the six months ended June 30, 2013 and 5.5% of oil and natural gas revenues for the six months ended June 30, 2012 .
In our East Texas/North Louisiana area, we are presently receiving severance tax holidays on certain Haynesville shale wells which reduce the effective rate of these taxes. During the period from July 1, 2012 to June 30, 2013, wells that did not have a severance tax holiday were charged a severance tax rate of $0.148 per Mcf. Prior to the adjustment of the severance tax rate in July 2012, wells that did not have a severance tax holiday were charged a severance tax rate of $0.164 per Mcf. In July 2013, the state of Louisiana decreased its severance tax rate to $0.118 per Mcf. The conventional assets held by the EXCO/HGI Partnership are not currently receiving severance tax holidays, which resulted in a higher rate per Mcfe compared to our other properties.
In February 2012, the Commonwealth of Pennsylvania enacted a comprehensive reform to Pennsylvania’s Oil and Gas Act, or the Act, which requires an impact fee to be paid on all unconventional wells spud. The Act contained a retroactive fee to be assessed on all unconventional wells spud prior to December 31, 2011. Our retroactive fee of $2.0 million was paid in September 2012, and recorded in “(Gain) loss on divestitures and other operating items” on our Condensed Consolidated Statement of Operations for the six months ended June 30, 2012. The estimated on-going fee is recorded in " Production and ad valorem taxes " on the Condensed Consolidated Statement of Operations. For the three and six months ended June 30, 2013 , we recorded $0.4 million and $0.8 million, respectively, for our estimated impact fees. For the three and six months ended June 30, 2012, we recorded $0.5 million and $1.0 million , respectively, for our estimated impact fees. The production and ad valorem taxes decreased on per Mcfe basis due to higher production and fewer wells spud during the current year in the Appalachia region.
Production taxes are set by state and local governments and vary as to the tax rate and the value to which that rate is applied. Ad valorem tax rates also vary widely. In Louisiana, where a substantial percentage of our production is derived, production taxes are levied on a per Mcf basis. Therefore, the resulting dollar value of production is not sensitive to changes in prices for natural gas, except for tax holiday exemptions, if any. In our other operating areas, particularly Texas, production

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taxes are based on a fixed percentage of gross value of products sold. While severance tax holidays are available in Texas as our production increases, our realized production and ad valorem tax rates may become more sensitive to prices.
Depletion, depreciation and amortization
Our depletion expense for the three months ended June 30, 2013 decrease d by $38.1 million compared to the same period in 2012 . Our depletion expense for the six months ended June 30, 2013 decrease d by $84.7 million compared to the same period in 2012 . The decrease s were primarily the result of lower production volumes due to the contribution of properties to the EXCO/HGI Partnership and ceiling test write-downs which lowered our depletable base. The decrease in our depletable base was partially offset by higher future development costs as a result of an increase in proved undeveloped reserves as of June 30, 2013 . On a per Mcfe basis, our depletion rate for the three months ended June 30, 2013 was $1.19 compared with $1.67 for the comparable period in 2012 . The depletion rate for the six months ended June 30, 2013 was $1.07 compared with $1.71 for the comparable period in 2012 .
Our depreciation and amortization costs for the three and six months ended June 30, 2013 decrease d by $1.8 million and $3.5 million , or 47.1% and 45.0% , respectively, compared to the same periods in 2012 . The decreases were due to contribution of natural gas gathering assets to the EXCO/HGI Partnership and the sale of other corporate assets in the prior year.
Accretion of discount on asset retirement obligations for the three and six months ended June 30, 2013 was $0.6 million and $1.2 million , respectively, compared with $1.0 million and $1.9 million , respectively, for the three and six months ended June 30, 2012 . The decrease s were a result of the contribution of properties to the EXCO/HGI Partnership.
Write-down of oil and natural gas properties
There were no ceiling test write-downs for the three months ended June 30, 2013 . For the six months ended June 30, 2013 , we recognized a pre-tax ceiling test write-down of $10.7 million primarily due to low natural gas prices for the trailing 12 months at the end of the first quarter of 2013. For the three and six months ended June 30, 2012 , we recognized pre-tax ceiling test write-downs of $428.8 million and $704.7 million , respectively, due primarily to low natural gas prices.
The ceiling test computation is based on the arithmetic average of reference prices on the first day of the month for the 12 months preceding each balance sheet date. If oil, natural gas, or natural gas liquids prices significantly decrease in future periods, we may incur additional ceiling test write-downs.
General and administrative
The following table presents our general and administrative expenses for the three and six months ended June 30, 2013 and 2012 :
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
(in thousands, except per unit rate)
 
2013
 
2012
 
Quarter to quarter change
 
2013
 
2012
 
Period to period change
General and administrative costs:
 
 
 
 
 
 
 
 
 
 
 
 
Gross general and administrative expense
 
$
39,576

 
$
36,576

 
$
3,000

 
$
71,707

 
$
77,056

 
$
(5,349
)
Technical services and service agreement charges
 
(6,550
)
 
(6,969
)
 
419

 
(12,885
)
 
(14,273
)
 
1,388

Operator overhead reimbursements
 
(2,067
)
 
(5,160
)
 
3,093

 
(5,166
)
 
(10,400
)
 
5,234

Capitalized salaries and share-based compensation
 
(4,385
)
 
(5,810
)
 
1,425

 
(9,098
)
 
(12,241
)
 
3,143

General and administrative expense
 
$
26,574

 
$
18,637

 
$
7,937

 
$
44,558

 
$
40,142

 
$
4,416

General and administrative expense per Mcfe
 
$
0.69

 
$
0.37

 
$
0.32

 
$
0.56

 
$
0.41

 
$
0.15


Our general and administrative costs for the three months ended June 30, 2013 and 2012 were $26.6 million , or $0.69 per Mcfe, and $18.6 million , or $0.37 per Mcfe, respectively. Our general and administrative costs for the six months ended June 30, 2013 were $44.6 million , or $0.56 per Mcfe, compared to $40.1 million , or $0.41 per Mcfe, for the same period in 2012 . Significant components of the changes in general and administrative expense for the three and six months ended June 30, 2013 compared to the respective periods in 2012 were a result of:

increased gross general and administrative expenses of $3.0 million for the three months ended June 30, 2013 compared to the same period in prior year, primarily due to $2.8 million in severance and employee relocation costs

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associated with the centralization of certain functions from the Appalachia region. Also, share-based compensation increased $1.6 million primarily due to the modification of share-based payments in connection with the retirement of our former President and Chief Financial Officer. These increased costs were partially offset by a reduction in employee headcount and contract labor costs compared to the same period in prior year. Gross general and administrative expenses decreased $5.3 million for the six months ended June 30, 2013 compared to the same period in prior year, which was primarily related to a reduction in employee headcount and contract labor costs;
decreased technical service recoveries of $0.4 million and $1.4 million for the three and six months ended June 30, 2013, respectively, compared to the same periods in the prior year arising from decreased employee costs;
decreased overhead recoveries of $3.1 million and $5.2 million for the three and six months ended June 30, 2013, respectively, compared to the same periods in the prior year, arising from reductions in our drilling program and the contribution of properties to the EXCO/HGI Partnership; and
decreased capitalized salaries and share-based compensation of $1.4 million and $3.1 million for the three and six months ended June 30, 2013 as a result of a reduction in employee headcount and development activities.

(Gain) loss on divestitures and other operating items
Our (gain) loss on divestitures and other operating items for the three and six months ended June 30, 2013 was a net loss of $2.6 million and a net gain of $182.2 million , respectively, compared with net losses of $6.7 million and $8.3 million for the three and six months ended June 30, 2012 , respectively. The net gain for the six months ended June 30, 2013 was primarily related to the gain of $186.4 million as a result of the contribution of certain oil and natural gas properties to the EXCO/HGI Partnership. Partially offsetting the gain were expenses incurred in connection with the acquisition of the Eagle Ford and Haynesville properties from Chesapeake, costs related to the various legal settlements, losses related to equipment sales and the recovery of royalty payments. The net loss for the six months ended June 30, 2012 was primarily related to the first quarter $2.0 million retroactive Pennsylvania impact fee discussed in "Production and ad valorem taxes" and a second quarter charge of $6.7 million related to resolution of title defect disputes from prior period divestitures. We elected to report the retroactive portion of the Pennsylvania impact fee as a component of other operating items as the retroactive amount would disproportionately impact comparative periods in future quarters. These expenses were offset by miscellaneous gains from inventory sales.

Interest Expense
The following table presents our interest expense for the three and six months ended June 30, 2013 and 2012 :
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
(in thousands)
 
2013
 
2012
 
Quarter to quarter change
 
2013
 
2012
 
Period to period change
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
2018 Notes
 
$
14,368

 
$
14,346

 
$
22

 
$
28,731

 
$
28,686

 
$
45

EXCO Resources Credit Agreement
 
3,559

 
7,791

 
(4,232
)
 
9,273

 
14,995

 
(5,722
)
EXCO/HGI Partnership Credit Agreement
 
691

 

 
691

 
1,013

 

 
1,013

Amortization and write-off of deferred financing costs
 
1,178

 
4,407

 
(3,229
)
 
5,991

 
5,879

 
112

Capitalized interest
 
(4,738
)
 
(6,223
)
 
1,485

 
(9,817
)
 
(12,525
)
 
2,708

Other
 
47

 
48

 
(1
)
 
106

 
98

 
8

Total interest expense
 
$
15,105

 
$
20,369

 
$
(5,264
)
 
$
35,297

 
$
37,133

 
$
(1,836
)

Our interest expense for the three months ended June 30, 2013 decreased $5.3 million from the comparable period in 2012 . The decrease was primarily due to a reduction in our indebtedness under the EXCO Resources Credit Agreement and the acceleration of deferred financing costs incurred in the prior year. This was partially offset by decreased capitalized interest related to lower values of unproved oil and natural gas properties, and interest expense incurred under the EXCO/HGI Partnership Credit Agreement. Our interest expense for the six months ended June 30, 2013 decreased $1.8 million from the comparable period in 2012 . The decrease was primarily due to a reduction in interest expense as a result of the repayment of indebtedness under the EXCO Resources Credit Agreement. This was partially offset by decreased capitalized interest related to lower values of unproved oil and natural gas properties, and interest expense incurred under the EXCO/HGI Partnership Credit Agreement.

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Derivative financial instruments
We enter into derivative financial instruments to manage our exposure to commodity prices, 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 derivative financial instrument management activities consists of non-cash income or expenses due to changes in the fair value of our derivative financial instruments. Cash charges 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 expect that our income will continue to be significantly impacted in future periods by changes in the value of our derivative financial instruments as a result of volatility in oil and natural gas prices and the amount of future production volumes subject to derivative financial instruments.
The following table presents our realized and unrealized gains and losses from our oil and natural gas derivative financial instruments. Our derivative activity is reported as "Gain (loss) on derivative financial instruments" in our Condensed Consolidated Statements of Operations.
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
(in thousands)
 
2013
 
2012
 
Quarter to quarter change
 
2013
 
2012
 
Period to period change
Derivative financial instrument activities:
 
 
 
 
 
 
 
 
 
 
 
 
Cash settlements on derivative financial instruments
 
$
794

 
$
61,815

 
$
(61,021
)
 
$
17,511

 
$
111,960

 
$
(94,449
)
Non-cash change in fair value of derivative financial instruments
 
54,452

 
(77,073
)
 
131,525

 
(5,779
)
 
(73,353
)
 
67,574

Total derivative financial instrument activities
 
$
55,246

 
$
(15,258
)
 
$
70,504

 
$
11,732

 
$
38,607

 
$
(26,875
)
The following table presents our natural gas equivalent prices before and after the impact of the cash settlement of our derivative financial instruments:
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
Average realized pricing:
 
2013
 
2012
 
Quarter to quarter change
 
2013
 
2012
 
Period to period change
Natural gas equivalent per Mcfe
 
$
3.93

 
$
2.36

 
$
1.57

 
$
3.65

 
$
2.56

 
$
1.09

Cash settlements on derivative financial instruments, per Mcfe
 
0.02

 
1.24

 
(1.22
)
 
0.22

 
1.13

 
(0.91
)
Net price per Mcfe, including derivative financial instruments
 
$
3.95

 
$
3.60

 
$
0.35

 
$
3.87

 
$
3.69

 
$
0.18

Our total cash receipts on derivative financial instruments were $0.8 million , or $0.02 per Mcfe, for the three months ended June 30, 2013 , compared to cash receipts of $61.8 million , or $1.24 per Mcfe, for the same period in 2012 . Our total cash receipts on derivative financial instruments were $17.5 million , or $0.22 per Mcfe, for the six months ended June 30, 2013 , compared to cash receipts of $112.0 million , or $1.13 per Mcfe, for the six months ended June 30, 2012 . The significant fluctuations between settlements on our derivative financial instruments demonstrate volatility in commodity prices.
Our non-cash mark-to-market changes in the value of our oil and natural gas derivative financial instruments for the three and six months ended June 30, 2013 resulted in net gains of $54.5 million and net losses of $5.8 million , respectively, compared to losses of $77.1 million and $73.4 million , respectively, for the same periods in the prior year. The significant fluctuations were also attributable to high volatility in oil and natural gas prices between each of the periods. The ultimate settlement amount of the unrealized portion of the derivative financial instruments is dependent on future commodity prices.
We expect to continue our comprehensive derivative financial instrument program as part of our overall business strategy to enhance our ability to execute our business plan over the entire commodity price cycle, protect our return on investments and manage our capital structure.
Income taxes
Our effective income tax rate for the three and six months ended June 30, 2013 and 2012 was zero, primarily due to prior losses arising from ceiling test write-downs, which created deferred tax assets. These deferred tax assets have been fully reserved with valuation allowances. Our accumulated valuation allowance as of June 30, 2013 was approximately $810.2

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million and can be used against future deferred financial income. We will continue to recognize deferred tax valuation allowances until the realization of deferred benefits become more likely than not. The effective income tax rates, excluding the impact of the valuation allowances, would have been 44.2% and 45.3% for the three and six months ended June 30, 2013 , respectively, and 39.6% and 38.9% for the three and six months ended June 30, 2012 , respectively.
Selected EXCO/HGI Partnership information
As discussed in "Note 3. Divestitures, acquisitions and other significant events" in the Notes to our Condensed Consolidated Financial Statements, the EXCO/HGI Partnership was formed on February 14, 2013, which resulted in the reduction of our economic interest in certain oil and natural gas properties contributed to the partnership. On March 5, 2013, the EXCO/HGI Partnership purchased the remaining shallow Cotton Valley assets in the East Texas/North Louisiana JV from an affiliate of BG Group. The following table presents selected pro forma operating and financial information for the three and six months ended June 30, 2013 and 2012 as if these transactions had occurred on January 1, 2012:
 
 
Three Months Ended June 30,
 
 
2013
 
2012
(dollars in thousands, except per unit rate)
 
Historical EXCO
 
Pro forma adjustments
 
Pro forma EXCO
 
Historical EXCO
 
Pro forma adjustments
 
Pro forma EXCO
Production:
 
 
 
 
 
 
 
 
 
 
 
 
    Total production (Mmcfe)
 
38,253

 

 
38,253

 
50,040

 
(6,361
)
 
43,679

     Average production (Mmcfe/d)
 
420

 

 
420

 
550

 
(70
)
 
480

Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
    Revenues, excluding derivatives
 
$
150,332

 
$

 
$
150,332

 
$
117,978

 
$
(25,156
)
 
$
92,822

    Average realized price ($/Mcfe)
 
3.93

 

 
3.93

 
2.36

 
3.95

 
2.13

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
    Direct operating costs
 
11,902

 

 
11,902

 
18,863

 
(7,415
)
 
11,448

      Per Mcfe
 
0.31

 

 
0.31

 
0.38

 
1.17

 
0.26

    Production and ad valorem taxes
 
3,981

 

 
3,981

 
6,789

 
(3,244
)
 
3,545

      Per Mcfe
 
0.10

 

 
0.10

 
0.14

 
0.51

 
0.08

    Gathering and transportation
 
23,408

 

 
23,408

 
25,913

 
(1,745
)
 
24,168

      Per Mcfe
 
0.61

 

 
0.61

 
0.52

 
0.27

 
0.55

Excess of revenues over operating expenses
 
$
111,041

 
$

 
$
111,041

 
$
66,413

 
$
(12,752
)
 
$
53,661

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2013
 
2012
(dollars in thousands, except per unit rate)
 
Historical EXCO
 
Pro forma adjustments
 
Pro forma EXCO
 
Historical EXCO
 
Pro forma adjustments
 
Pro forma EXCO
Production:
 
 
 
 
 
 
 
 
 
 
 
 
    Total production (Mmcfe)
 
78,950

 
(2,705
)
 
76,245

 
98,916

 
(12,967
)
 
85,949

     Average production (Mmcfe/d)
 
436

 
(15
)
 
421

 
543

 
(71
)
 
472

Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
    Revenues, excluding derivatives
 
$
288,555

 
$
(12,657
)
 
$
275,898

 
$
252,826

 
$
(55,914
)
 
$
196,912

    Average realized price ($/Mcfe)
 
3.65

 
4.68

 
3.62

 
2.56

 
4.31

 
2.29

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
    Direct operating costs
 
25,519

 
(3,489
)
 
22,030

 
41,659

 
(15,835
)
 
25,824

      Per Mcfe
 
0.32

 
1.29

 
0.29

 
0.42

 
1.22

 
0.30

    Production and ad valorem taxes
 
9,229

 
(1,545
)
 
7,684

 
13,982

 
(6,775
)
 
7,207

      Per Mcfe
 
0.12

 
0.57

 
0.10

 
0.14

 
0.52

 
0.08

    Gathering and transportation
 
47,884

 
(782
)
 
47,102

 
52,336

 
(4,247
)
 
48,089

      Per Mcfe
 
0.61

 
0.29

 
0.62

 
0.53

 
0.33

 
0.56

Excess of revenues over operating expenses
 
$
205,923

 
$
(6,841
)
 
$
199,082

 
$
144,849

 
$
(29,057
)
 
$
115,792


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The pro forma information is not necessarily indicative of what actually would have occurred if the transaction had been completed as of January 1, 2012, nor is it necessarily indicative of future consolidated results of operations.

Our liquidity, capital resources and capital commitments

Overview

Our primary sources of capital resources and liquidity are internally generated cash flows from operations, borrowing capacity under the EXCO Resources Credit Agreement, dispositions of non-strategic assets, joint ventures and capital markets when conditions are favorable. Factors that could impact our liquidity, capital resources and capital commitments in 2013 and future years include the following:
Ÿ
the level of planned drilling activities;
Ÿ
the results of our ongoing drilling programs;
Ÿ
our ability to fund, finance or repay financing incurred in connection with acquisitions of oil and natural gas properties;
Ÿ
the integration of acquisitions of oil and natural gas properties or other assets;
Ÿ
our ability to reduce and maintain lower operating, general and administrative expenses and capital expenditure programs in response to continued low natural gas prices;
Ÿ
reduced oil and natural gas revenues resulting from, among other things, depressed natural gas prices and lower production from reductions to our drilling and development activities;
Ÿ
our ability to mitigate commodity price volatility with derivative financial instruments;
Ÿ
potential acquisitions and/or sales of oil and natural gas properties or other assets;
Ÿ
reductions to our borrowing base; and
Ÿ
our ability to maintain compliance with debt covenants.

Recent events affecting liquidity

In July 2013, we closed the acquisition of oil and natural gas assets in the Haynesville and Eagle Ford shale formations from Chesapeake. We amended and restated the EXCO Resources Credit Agreement to facilitate these acquisitions, which increased the borrowing base to $1.6 billion, including a $1.3 billion revolving commitment and a $300.0 million term loan. The credit agreement provides that net proceeds from certain asset sales in excess of the borrowing base value (if any) will be used to reduce the outstanding borrowings by July 31, 2014. At any time after nine months from the closing date, the lenders have the right to demand that we engage investment bankers to publicly sell or privately place debt securities in an amount that is sufficient (i) to pay off $400.0 million less the amount of net asset sale proceeds received by EXCO and applied to reduce the outstanding borrowings, and (ii) reduce the amounts outstanding under the EXCO Resources Credit Agreement so that there is at least $100.0 million in available borrowing capacity. The term loan portion of the facility is expected to be replaced with a new term loan containing terms and conditions customary for a transaction of this nature. We closed the sale of 50% of the undeveloped Eagle Ford acreage we purchased from Chesapeake to KKR on July 31, 2013, and applied the proceeds of approximately $130.9 million to reduce outstanding borrowings under the EXCO Resources Credit Agreement. These acquisitions resulted in an increase to our indebtedness of $829.9 million, net of proceeds received from the KKR Participation Agreement.

We entered into the KKR Participation Agreement to mitigate the impact of development expenditures on our capital resources and liquidity. While we are required to make offers to purchase KKR's interest on certain wells, we may not have sufficient funds or borrowing capacity under the EXCO Resources Credit Agreement to complete the acquisitions. In the event we fail to purchase a group of wells that KKR is obligated to sell, there are remedies available to KKR which allow KKR to reject future EXCO offers, terminate the KKR Participation Agreement, or pursue its other legal remedies. This could require us to seek alternative financing to make offers to preserve KKR's obligation to sell to us, or negatively impact our ability to grow our Eagle Ford assets via acquisitions of KKR's producing properties. The acquisitions of the Haynesville and Eagle Ford assets and the amendment to the EXCO Resources Credit Agreement will have a material impact on our liquidity and results of operations. In addition, the significant increases to debt under the EXCO Resources Credit Agreement may affect our ability to pay dividends until further asset sales are closed.

Upon the formation of the EXCO/HGI Partnership on February 14, 2013, we received net proceeds of $574.8 million, after final purchase price adjustments. We used the proceeds to reduce outstanding borrowings under the EXCO Resources Credit Agreement. The EXCO/HGI Partnership plans on funding their operations with internally generated cash flows and

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borrowings under the EXCO/HGI Partnership Credit Agreement. In addition, we utilized cash flows from operations and other divestitures in order to reduce our indebtedness by an additional $60.0 million during the six months ended June 30, 2013.
 
During the first six months of 2013, prices of natural gas rose modestly which offset lower volumes as a result of the contribution of properties to the EXCO/HGI Partnership and normal production declines. While we believe that our capital resources from existing cash balances, anticipated cash flow from operating activities and available borrowing capacity under the EXCO Resources Credit Agreement will be adequate to execute our corporate strategies and to meet debt service obligations, we are managing 2013 with expectations that natural gas markets will continue to experience an extended period of low natural gas prices due to excess supply. Accordingly, our ability to effectively manage our capital budget and sell assets to repay the asset sale requirement of the EXCO Resources Credit Agreement is critical to our financial condition, liquidity and our results of operations.
    
As previously discussed, there have been several material transactions which occurred subsequent to June 30, 2013 that will have a significant impact on our liquidity. These transactions are expected to increase our operating cash outflows and capital expenditures throughout the remainder of 2013. Significant items affecting our resources and liquidity include:

Capital expenditures in the Eagle Ford shale for wells that were in progress at the date of the acquisition. These capital expenditures are not included in the KKR Participation Agreement. As a result, EXCO is required to pay its working interest share of these expenditures without the cost sharing benefits of the KKR Participation Agreement;
Infrastructure expenditures to establish offices and operating facilities in the Eagle Ford shale;
Increased capital expenditures in the Haynesville shale as a result of our higher working interest in wells we currently operate and expected new development on the sections acquired from Chesapeake. Actual future expenditures will be impacted by BG Group's decision to participate in the Haynesville shale acquisition;
Fees associated with the amendment to the EXCO Resources Credit Agreement;
Increased personnel costs to operate and manage the properties acquired; and
Transaction-related costs in connection with negotiations and due diligence costs incurred on the Haynesville and Eagle Ford acquisitions, as well as costs incurred in connection with the KKR Participation Agreement.

The following table presents our liquidity as of June 30, 2013 and our pro forma liquidity as if each of these significant transactions had occurred on June 30, 2013:
 
 
 
 
Pro forma adjustments
 
 
(in thousands)
 
June 30, 2013
 
Haynesville acquisition
 
Credit agreement amendment (6)
 
Eagle Ford acquisition
 
KKR agreement
 
Pro forma liquidity
Cash (1) (2)
 
$
118,600

 
$
(46,341
)
 
$

 
$

 
$

 
$
72,259

Drawings under the EXCO Resources Credit Agreement
 
474,234

 
241,903

 
(266,486
)
 
285,349

 

 
735,000

Asset sale requirement under the EXCO Resources Credit Agreement
 

 

 

 
400,000

 
(130,904
)
 
269,096

Term loan under the EXCO Resources Credit Agreement
 

 

 
300,000

 

 

 
300,000

2018 Notes (3)
 
750,000

 

 

 

 

 
750,000

Total debt (4)
 
1,224,234

 
 
 
 
 
 
 
 
 
2,054,096

Net debt
 
$
1,105,634

 
 
 
 
 

 
 
 
$
1,981,837

Borrowing base
 
$
900,000

 
$

 
$
700,000

 
$

 
$
(130,904
)
 
$
1,469,096

Unused borrowing base (5)
 
$
418,878

 
 
 
 
 
 
 
 
 
$
158,112

Unused borrowing base plus cash (1) (5)
 
$
537,478

 
 
 
 
 
 
 
 
 
$
230,371


(1)
Includes restricted cash of $42.5 million at June 30, 2013 .
(2)
Excludes our proportionate share of cash related to the EXCO/HGI Partnership of $4.4 million at June 30, 2013 .
(3)
Excludes unamortized bond premium of $7.9 million at June 30, 2013 .
(4)
Excludes our proportionate share of the debt related to the EXCO/HGI Partnership of $94.1 million as of June 30, 2013 .
(5)
Net of $6.9 million in letters of credit as of June 30, 2013 .

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(6)
The amendment to the EXCO Resources Credit Agreement increased our borrowing base to $1.6 billion, including a $1.3 billion revolving commitment and a $300.0 million term loan. The reduction in drawings under the EXCO Resources Credit Agreement is presented net of estimated fees and interest of $33.5 million.

The pro forma information is not considered to be complete and excludes the impact of all other transactions subsequent to June 30, 2013 .

Credit agreements and long-term debt

As of June 30, 2013, our consolidated debt consisted of the EXCO Resources Credit Agreement, the 2018 Notes and our 25.5% proportionate share of the EXCO/HGI Partnership Credit Agreement (see "Note 9. Long-term debt" in the Notes to our Condensed Consolidated Financial Statements for a further description of each agreement) as of June 30, 2013. While our proportionate share of the EXCO/HGI Partnership's debt is consolidated, we are not a guarantor of the debt. We utilize the equity method of accounting for our investment in TGGT and therefore do not consolidate TGGT's debt. We are not a guarantor to any of TGGT's debt.
As of June 30, 2013 , EXCO and the EXCO/HGI Partnership were in compliance with the financial covenants contained in their respective credit agreements, which are presented in the following table. Management believes the following table contains important information related to our liquidity and compliance with the financial covenants of each agreement. However, the information is not complete and is qualified in its entirety by the terms of the EXCO Resources Credit Agreement and the EXCO/HGI Partnership Credit Agreement.
 
 
As of June 30, 2013
(dollars in millions)
 
Borrowing base
 
Outstanding
 
Covenant type (2)
 
Required ratio (3)
 
Actual ratio
EXCO Resources:
 
 
 
 
 
 
 
 
 
 
EXCO Resources Credit Agreement (1)
 
$
900.0

 
$
474.2

 
Current ratio
 
> 1.0
 
3.3
 
 
 
 
 
 
Leverage ratio
 
< 4.5
 
2.8
EXCO/HGI Partnership:
 
 
 
 
 
 
 
 
 
 
EXCO/HGI Partnership Credit Agreement (4)
 
$
470.0

 
$
369.0

 
Current ratio
 
> 1.0
 
3.5
 
 
 
 
 
 
Leverage ratio
 
< 4.5
 
3.7
(1)
The interest rate grid ranges from LIBOR plus 175 bps to 275 bps (or ABR plus 75 bps to 175 bps), depending on the percentages of drawn balances to the borrowing base as defined in the EXCO Resources Credit Agreement. The interest rate grid is increased by 100 bps per annum until the net proceeds from certain asset sales reduce outstanding borrowings by $400.0 million. If the term loan portion of the EXCO Resources Credit Agreement is not replaced as expected, the interest rate grid may be increased by an additional 100 bps per annum. The EXCO Resources Credit Agreement matures on July 31, 2018.
(2)
As defined in the respective credit agreements.
(3)
Maximum leverage permitted, or minimum coverage required per the respective credit agreement.
(4)
Interest rates range from LIBOR plus 175-275 bps or ABR plus 75-175 bps depending on borrowing base usage. The EXCO/HGI Partnership Credit Agreement matures in February 14, 2018.

The 2018 Notes mature in September 2018 and have a fixed interest rate of 7.5%. The indenture governing the 2018 Notes contains incurrence covenants which restrict our ability to incur additional indebtedness or pledge assets.

There are certain risks arising from the depressed oil and/or natural gas prices that could impact our ability to meet debt covenants in future periods. In particular, our ratio of consolidated funded indebtedness to consolidated EBITDAX, as defined in the EXCO Resources Credit Agreement, is computed using a trailing 12-month computation of EBITDAX and only includes operations from non-guarantor subsidiaries and unconsolidated joint ventures to the extent that cash is distributed to entities under the credit agreement. Our results of operations, cash flows from operations and proved reserves in future periods will be reduced by the 74.5% economic interest in the EXCO/HGI Partnership acquired by HGI in the first quarter of 2013 . As a result, our ability to maintain compliance with this covenant is negatively impacted when oil and/or natural gas prices and/or production decline over an extended period of time. In addition, our recent acquisitions in the Eagle Ford and Haynesville shale formations resulted in a significant increase in our consolidated indebtedness. Our ability to maintain compliance with our

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financial covenants is dependent on our ability to effectively integrate these properties as well as their future development and production.

We plan to repay $400.0 million of outstanding borrowings under the EXCO Resources Credit Agreement through the sale of assets. If our cash flow, capital resources and planned asset sales are insufficient to repay our debt obligations and finance capital expenditure programs, we may be forced to sell additional assets, issue additional equity or debt securities or restructure our indebtedness. These options may not be available on commercially reasonable terms. In addition, the sale of assets or issuance of debt securities would have to be completed in compliance with the financial and other restrictive covenants in the EXCO Resources Credit Agreement and the indenture governing the 2018 Notes. Furthermore, the increase in our indebtedness may limit our ability to pay dividends as a result of covenants within the EXCO Resources Credit Agreement.

Capital Expenditures

For the six months ended June 30, 2013, our capital expenditures totaled $128.9 million, of which $107.7 million was related to drilling and development activities. Drilling and development activities during the first six months of 2013 primarily consisted of three operated drilling rigs in the Haynesville shale and one operated drilling rig in the Appalachia region. These capital expenditures exclude the EXCO/HGI Partnership, which funded its capital expenditures through internally generated cash flow and credit agreement. The following table presents capital expenditures for the six months ended June 30, 2013.
 
 
Six Months Ended June 30,
(in thousands)
 
2013
Capital expenditures:
 
 
Development capital
 
$
107,678

Gas gathering and water pipelines
 

Lease acquisitions and seismic
 
2,449

Corporate and other
 
18,723

    Total
 
$
128,850

Our capital expenditures for the remainder of 2013 will be significantly impacted by the acquisitions of assets in the Eagle Ford and Haynesville shale formations completed during the third quarter of 2013.
In the Eagle Ford shale, which represents a new operating area, three operated rigs were drilling at the closing of the acquisition. In addition, we will incur additional costs for our working interest share of 22 wells that had been drilled but are awaiting completion. These additional costs are not included in the KKR Participation Agreement. Our drilling plans and related capital expenditure budget for the remainder of 2013 will be determined in conjunction with KKR pursuant to the KKR Participation Agreement. The parties have agreed on approximately 300 identified locations to be drilled over a five-year period. At closing, we agreed to drill 30 wells with KKR by December 31, 2013, with a drilling program of up to five operated rigs.
We operated three drilling rigs in the Haynesville shale during the six months ended June 30, 2013. The acquisition of Haynesville assets from Chesapeake included 11 undeveloped sections containing approximately 55 identified drilling locations. Drilling and completion activities on the recently acquired sections from Chesapeake are subject to a number of factors, including BG Group's election to participate in the acquisition and agreement on a related drilling program.
Management is currently evaluating the above required expenditures arising from these acquisitions. Our 2013 drilling plans in the Appalachia region have not been revised and we continue to appraise wells in the Northeast Pennsylvania area. In the Permian region, the first well covered by a joint development agreement with a private party will be spud during the third quarter of 2013. The private party will serve as the operator and expects to run one drilling rig through the remainder of 2013. The private party agreed to fund our share of drilling and completion costs within the joint venture area up to $18.9 million. The capital expenditure budget in certain areas may be adjusted or impacted by debt covenants contained within the EXCO Resources Credit Agreement.
The capital budget for the EXCO/HGI Partnership for 2013 is approximately $40.0 million, which is primarily focused on its Permian Basin assets in West Texas and its assets in North Louisiana. The program targets high probability of success projects that provide acceptable rates of return in the current commodity price environment. The EXCO/HGI Partnership plans to run one operated rig in the Permian Basin area targeting the Canyon Sand formation. The EXCO/HGI Partnership's capital program also includes recompletion projects in North Louisiana targeting the Hosston formation.

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TGGT's capital budget for 2013 is approximately $40.0 million, which is primarily associated with field infrastructure pipelines to support projected drilling activity in North Louisiana and legacy East Texas areas.
Historical sources and uses of funds
Our primary sources of cash for the six months ended June 30, 2013 were cash flows from operations, proceeds from the contribution of assets to the EXCO/HGI Partnership, and other asset divestitures. We have focused on limiting capital expenditures within our expected cash flows from operations and implemented company-wide cost reduction efforts. We were able to reduce our borrowings under the EXCO Resources Credit Agreement by $633.3 million during the six months ended June 30, 2013 .
Net increases (decreases) in cash are summarized as follows:
 
 
Six Months Ended June 30,
(in thousands)
 
2013
 
2012
Net cash provided by operating activities
 
$
171,232

 
$
280,468

Net cash provided by (used in) investing activities
 
483,052

 
(201,611
)
Net cash provided by (used in) financing activities
 
(619,486
)
 
(58,458
)
Net increase in cash
 
$
34,798

 
$
20,399


Operating activities
The primary factors impacting our cash flows from operations generally include: (i) levels of production from our oil and natural gas properties, (ii) prices we receive from sales of oil, natural gas and natural gas liquids production, including settlement proceeds or payments related to our oil and natural gas derivatives, (iii) operating costs of our oil and natural gas properties, (iv) costs of our general and administrative activities and (v) interest expense. Our cash flows from operating activities have historically been impacted by fluctuations in oil and natural gas prices and our production volumes. In addition, the formation of the EXCO/HGI Partnership resulted in a reduction of 74.5% of our interest in certain conventional non-shale assets, which has reduced our cash flows from operating activities in the current period and will reduce cash flows from operating activities related to these assets in future periods.
Net cash provided by operating activities for the six months ended June 30, 2013 was $171.2 million compared to $280.5 million for the six months ended June 30, 2012 . The decrease is primarily attributable to lower settlement proceeds on our derivatives and less favorable working capital conversions. Settlements on derivative contracts decreased by $94.5 million for the six months ended June 30, 2013 compared to the same period in the prior year. The decrease in cash flows as a result of lower production from our interest in the properties contributed to the EXCO/HGI Partnership was offset by higher realized prices for the six months ended June 30, 2013 compared to the same period in the prior year.
Investing activities
Our investing activities consist primarily of drilling and development expenditures, acquisitions and divestitures. Our current focus is directed toward producing property acquisitions with undeveloped upside potential. These acquisitions are dependent on oil and natural gas prices, availability of producing properties and attractive acreage, acceptable rates of return and availability of borrowing capacity under the EXCO Resources Credit Agreement or from other capital sources.
For the six months ended June 30, 2013 , our cash flows provided by investing activities were $483.1 million , compared with $201.6 million of cash flows used in investing activities for the six months ended June 30, 2012 . The increase in cash flows provided was primarily attributable to the $574.8 million in proceeds as a result of the contribution of properties to the EXCO/HGI Partnership, the divestiture of certain properties for $37.9 million , and lower capital expenditures due to our reduced drilling program. This was partially offset by our proportionate share of the EXCO/HGI Partnership's acquisition of the shallow Cotton Valley assets from an affiliate of BG Group.
Financing activities
For the six months ended June 30, 2013 , our outstanding borrowings under the EXCO Resources Credit Agreement were reduced by $633.3 million primarily due to the proceeds received from the contribution of assets to the EXCO/HGI Partnership, cash flows from operations and other divestitures. In addition, cash payments for dividends on our common stock totaled $21.5 million during the period. This was partially offset by the additional borrowings of the EXCO/HGI Partnership to fund the acquisition of shallow Cotton Valley assets from an affiliate of BG Group.

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Derivative financial instruments
Our production is generally sold at prevailing market prices. However, we periodically enter into oil and natural gas derivative contracts for a portion of our production when market conditions are deemed favorable and oil and natural gas prices exceed our minimum internal price targets. Our objective in entering into oil and natural gas derivative contracts is to mitigate the impact of commodity price fluctuations and achieve a more predictable cash flow associated with our operations. These transactions limit our exposure to declines in prices, but also limit the benefits we would realize if oil and natural gas prices increase.                     
Our derivative financial instruments are comprised of oil and natural gas swap and call option contracts. We do not designate these instruments as hedging instruments for financial accounting purposes and, accordingly, we recognize the change in the respective instruments' fair value currently in earnings, as a gain or loss on oil and natural gas derivatives. As of June 30, 2013 , we had derivative financial instruments in place for the volumes and prices shown below:
(in thousands, except prices)
 
NYMEX gas volume - Mmbtu
 
Weighted average contract price per Mmbtu
 
 NYMEX oil volume - Bbls
 
Weighted average contract price per Bbl
Swaps:
 
 
 
 
 
 
 
 
Q3 2013
 
22,460

 
$
4.13

 
35

 
$
94.05

Q4 2013
 
22,460

 
4.13

 
35

 
94.05

2014
 
56,648

 
4.25

 
93

 
91.87

2015
 
28,288

 
4.31

 

 

Calls:
 
 
 
 
 
 
 
 
Q3 2013
 
5,060

 
4.29

 

 

Q4 2013
 
5,060

 
4.29

 

 

2014
 
20,075

 
4.29

 
365

 
100.00

2015
 
20,075

 
4.29

 
365

 
100.00

We proportionately consolidate the derivative financial instruments entered into by the EXCO/HGI Partnership. However, we are not liable in the event of default on the EXCO/HGI Partnership's derivative contracts. As of June 30, 2013 , our proportionate share of the EXCO/HGI Partnership's natural gas derivative swap contracts included approximately 19,000 Mmbtus per day at an average price of $3.72 during 2013, and 10,000 Mmbtus per day at an average price of $4.14 during 2014. Our proportionate share of the EXCO/HGI Partnership's oil derivative swap contracts included approximately 383 Bbls per day at an average price of $94.05 during 2013, and 255 Bbls per day at an average price of $91.87 during 2014. The EXCO/HGI Partnership had derivative financial instruments that covered approximately 69.7% of production volumes during the period from its inception until June 30, 2013 .
See further details on our derivative financial instruments in "Note 7. Derivative financial instruments" and "Note 8. Fair value measurements" in the Notes to our Condensed Consolidated Financial Statements.
Off-balance sheet arrangements
As of June 30, 2013 , we had no arrangements or any guarantees of off-balance sheet debt to third parties.
Contractual obligations and commercial commitments
There have been no material changes outside the ordinary course of business to our contractual obligations and commercial commitments since December 31, 2012.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Some of the information below contains forward-looking statements. The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices, and interest rates charged on borrowings. The disclosure is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures. Our market risk sensitive instruments were entered into for hedging and investment purposes, not for trading purposes.


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Commodity price risk
Our objective in entering into derivative financial instruments is to manage our exposure to commodity price fluctuations, protect our returns on investments, and achieve a more predictable cash flow in connection with our financing activities and borrowings related to these activities. These transactions limit exposure to declines in prices, but also limit the benefits we would realize if oil and natural gas prices increase. When prices for oil and natural gas are volatile, a significant portion of the effect of our derivative financial instrument management activities consists of non-cash income or expense due to changes in the fair value of our derivative financial instrument contracts. Cash charges or gains only arise from payments made or received on monthly settlements of contracts or if we terminate a contract prior to its expiration.
Our major market risk exposure is in the pricing applicable to our oil and natural gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices for natural gas. Pricing for oil and natural gas production is volatile.
Our use of derivative financial instruments could have the effect of reducing our revenues and the value of our
securities. For the six months ended June 30, 2013 , a $1.00 increase in the average commodity price per Mcfe would have resulted in an increase in cash settlement payments (or a decrease in settlements received) of approximately $40.6 million . The ultimate settlement amount of our outstanding derivative financial instrument contracts is dependent on future commodity prices. We may incur significant unrealized losses in the future from our use of derivative financial instruments to the extent market prices increase and our derivatives contracts remain in place.
Interest rate risk
Our exposure to interest rate changes is related primarily to borrowings under the EXCO Resources Credit Agreement, and the EXCO/HGI Partnership Credit Agreement. The interest rate per annum on the 2018 Notes is fixed at 7.5%. Interest is payable on borrowings under the EXCO Resources Credit Agreement and EXCO/HGI Partnership Credit Agreement based on a floating rate as more fully described in “Note 9. Long-term debt” in the Notes to our Condensed Consolidated Financial Statements. At June 30, 2013 , we had approximately $474.2 million in outstanding borrowings under the EXCO Resources Credit Agreement and approximately $94.1 million for our proportionate share of outstanding borrowings under the EXCO/HGI Partnership Credit Agreement. A 1% change in interest rates (100 bps) based on the variable borrowings as of June 30, 2013 would result in an increase or decrease in our interest expense of $5.7 million per year. The interest we pay on these borrowings is set periodically based upon market rates.

Item 4.
Controls and Procedures
Disclosure controls and procedures.  Pursuant to Rule 13a-15(b) under the Exchange Act, EXCO’s management has evaluated, under the supervision and with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this report. This evaluation included consideration of various processes and procedures to ensure that information that is required to be disclosed by EXCO in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to EXCO’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based upon this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2013 , our disclosure controls and procedures were effective.
Changes in internal control over financial reporting. There were no changes in EXCO's internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, EXCO's internal control over financial reporting.
PART II—OTHER INFORMATION
 
Item 1.
Legal Proceedings
In the ordinary course of business, we are periodically a party to various litigation matters. We do not believe that any resulting liability from existing legal proceedings, individually or in the aggregate, will have a material adverse effect on our results of operations or financial condition.




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Item 1A.
Risk Factors

During the second quarter of 2013, there were no material changes to the Risk Factors disclosed in our Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 21, 2013, except for the following:

To fund the acquisitions of oil and natural gas assets in the Haynesville and Eagle Ford shale formations, we incurred a substantial amount of indebtedness which may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our debt.

To f inance the acquisitions of the oil and natural gas assets in the Haynesville and Eagle Ford shale formations, we entered into the amended EXCO Resources Credit Agreement on July 31, 2013. The borrowing base under the EXCO Resources Credit Agreement was increased to $1.6 billion, which included a $1.3 billion revolving commitment and a $300.0 million term loan. At any time after nine months from the closing date, the lenders have the right to demand that we engage investment bankers to publicly sell or privately place debt securities in an amount that is sufficient (i) to pay off $400.0 million less the amount of net asset sale proceeds received by EXCO and applied to reduce the outstanding borrowings, and (ii) reduce the amounts outstanding under the EXCO Resources Credit Agreement so that there is at least $100.0 million in available borrowing capacity. The term loan portion of the facility is expected to be replaced with a new term loan containing terms and conditions customary for a transaction of this nature.

Our business may not generate sufficient cash flow from operations to enable us to repay our indebtedness, including our 2018 Notes, the EXCO Resources Credit Agreement, and the asset sale requirement thereunder, to fund planned capital expenditures and to fund our other liquidity needs. We plan to repay a portion of the EXCO Resources Credit Agreement through the sale of assets. If our cash flow, capital resources and planned asset sales are insufficient to repay our debt obligations and finance capital expenditure programs, we may be forced to sell additional assets, issue additional equity or debt securities or restructure our indebtedness. These options may not be available on commercially reasonable terms, or at all. In addition, the sale of assets or issuance of debt securities would have to be completed in compliance with the financial and other restrictive covenants in the EXCO Resources Credit Agreement and the indenture governing the 2018 Notes.

If we cannot make scheduled payments on our indebtedness, we will be in default and holders of the 2018 Notes could declare all outstanding principal and interest to be due and payable, the lenders under the EXCO Resources Credit Agreement could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations. Further, failing to comply with the financial and other restrictive covenants in the EXCO Resources Credit Agreement or the indenture governing the 2018 Notes could result in an event of default, which could adversely affect our business, financial condition and results of operations.

If we are unable to complete the joint development of our assets in the Eagle Ford shale formations with KKR, we may need to find alternative sources of capital, which may not be available on favorable terms, or at all.

On July 31, 2013, we closed the acquisition of certain producing and non-producing oil, natural gas and mineral leases and wells in the Eagle Ford shale located in Zavala, Dimmit, La Salle and Frio counties in South Texas. In connection with the closing of the acquisition of the Eagle Ford assets, we sold an undivided 50% interest in the undeveloped acreage to affiliates of KKR for approximately $130.9 million. With respect to each well drilled, EXCO will assign half of its undivided 50% interest in such well to KKR such that KKR will fund and own 75% of each well drilled and EXCO will fund and own 25% of each well drilled. There can be no assurance that KKR will elect to proceed with subsequent phases of the development of our Eagle Ford assets. If we cannot identify an alternative joint venture partner or partners for our Eagle Ford assets, sell assets at acceptable valuations or ar e unable to complete the joint development of our Eagle Ford assets, we will need to utilize cash flow from other operations or will need to find alternative sources of capital to finance the development of the Eagle Ford assets, which may slow the development of these assets and have a material adverse effect on our operations and prospects.

Our ability to develop properties in new or emerging formations may be subject to more uncertainties than drilling in areas that are more developed or have a longer history of established production.

The results of our drilling in new or emerging formations, including the Eagle Ford shale formation, are more uncertain initially than drilling results in areas that are developed, have established production or where we have a longer history of operation. Because new or emerging formations have limited or no production history, we are less able to use past drilling results in those areas to help predict future drilling results. Further, part of our strategy for the Eagle Ford shale

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formation involves the use of horizontal drilling and completion techniques that have been successful in other shale formations. Our experience with horizontal drilling in these areas to date, as well as the industry's drilling and production history, while growing, is limited. The ultimate success of these drilling and completion techniques will be better evaluated over time as more wells are drilled and production profiles are better established.

If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, and/or natural gas and oil prices decline, our investment in these areas may not be as attractive as we anticipate and we could incur material write-downs of undeveloped properties and the value of our undeveloped acreage could decline in the future, which could have a material adverse effect on our business and results of operations.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer repurchases of common shares
The following table details our repurchase of common shares for the three months ended June 30, 2013 :

Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1, 2013 - April 30, 2013
 

 
$

 

 
$ 192.5 million
May 1, 2013 - May 31, 2013
 

 

 

 
192.5 million
June 1, 2013 - June 30, 2013
 

 

 

 
192.5 million
       Total
 

 
$

 

 
 
 
(1)
On July 19, 2010, we announced a $200.0 million share repurchase program.

Item 6.
Exhibits
See “Index to Exhibits” for a description of our exhibits.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
EXCO RESOURCES, INC.
 
 
(Registrant)
 
 
 
 
Date:
August 6, 2013
By:
/s/ Douglas H. Miller
 
 
 
Douglas H. Miller
 
 
 
Chairman and Chief Executive Officer
 
 
 
 
 
 
By:
/s/ Mark F. Mulhern
 
 
 
Mark F. Mulhern
 
 
 
Executive Vice President and Chief Financial Officer

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INDEX TO EXHIBITS
  
Exhibit
Number
Description of Exhibits ________________________________________________________________________________________
 
 2.1
Unit Purchase and Contribution Agreement, dated November 5, 2012, by and among EXCO Resources, Inc., EXCO Operating Company, LP, EXCO/HGI JV Assets, LLC and HGI Energy Holdings, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated November 5, 2012 and filed on November 9, 2012 and incorporated by reference herein.

2.2
First Amendment to Unit Purchase and Contribution Agreement and Closing Agreement, dated as of February 14, 2013, by and among EXCO Resources, Inc., EXCO Operating Company, LP, EXCO/HGI JV Assets, LLC and HGI Energy Holdings, LLC, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2013 filed on May 1, 2013 and incorporated by reference herein.
  
3.1
Third Amended and Restated Articles of Incorporation of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated February 8, 2006 and filed on February 14, 2006 and incorporated by reference herein.
  
3.2
Articles of Amendment to the Third Amended and Restated Articles of Incorporation of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated August 30, 2007 and filed on September 5, 2007 and incorporated by reference herein.
 
3.3
Second Amended and Restated Bylaws of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K, dated March 4, 2009 and filed on March 6, 2009 and incorporated by reference herein.
 
3.4
Statement of Designation of Series A-l 7.0% Cumulative Convertible Perpetual Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
  
3.5
Statement of Designation of Series A-2 7.0% Cumulative Convertible Perpetual Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
  
3.6
Statement of Designation of Series B 7.0% Cumulative Convertible Perpetual Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
 
3.7
Statement of Designation of Series C 7.0% Cumulative Convertible Perpetual Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
 
3.8
Statement of Designation of Series A-l Hybrid Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
 
3.9
Statement of Designation of Series A-2 Hybrid Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
  
 3.10
Statement of Designation of Series A Junior Participating Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K, dated January 12, 2011 and filed on January 13, 2011 and incorporated by reference herein.
 
 4.1
Indenture, dated September 15, 2010, by and between EXCO Resources, Inc. and Wilmington Trust Company, as trustee, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated September 10, 2010 and filed on September 15, 2010 and incorporated by reference herein.


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 4.2
First Supplemental Indenture, dated September 15, 2010, by and among EXCO Resources, Inc., certain of its subsidiaries and Wilmington Trust Company, as trustee, including the form of 7.500% Senior Notes due 2018, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated September 10, 2010 and filed on September 15, 2010 and incorporated by reference herein.

4.3
Second Supplemental Indenture, dated as of February 12, 2013, by and among EXCO Resources, Inc., EXCO/HGI JV Assets, LLC, EXCO Holding MLP, Inc. and Wilmington Trust Company, as trustee, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated February 12, 2013 and filed on February 19, 2013 and incorporated by reference herein.
 
4.4
Specimen Stock Certificate for EXCO's common stock, filed as an Exhibit to EXCO's Amendment No. 2 to the Form S-l (File No. 333-129935), filed on January 27, 2006 and incorporated by reference herein.
  
4.5
First Amended and Restated Registration Rights Agreement, by and among EXCO Holdings Inc. and the Initial Holders (as defined therein), effective January 5, 2006, filed as an Exhibit to EXCO's Amendment No. 1 to its Registration Statement on Form S-l (File No. 333-129935), filed on January 6, 2006 and incorporated by reference herein.
 
10.1
Amended and Restated 2005 Long-Term Incentive Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated November 14, 2007 and filed on November 16, 2007 and incorporated by reference herein.*
 
10.2
Form of Incentive Stock Option Agreement for the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated November 14, 2007 and filed on November 16, 2007 and incorporated by reference herein.*
  
10.3
Form of Nonqualified Stock Option Agreement for the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated November 14, 2007 and filed on November 16, 2007 and incorporated by reference herein.*
 
10.4
Form of Restricted Stock Award Agreement for the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated August 4, 2011 and filed on August 10, 2011 and incorporated by reference herein.*
 
10.5
Fourth Amended and Restated EXCO Resources, Inc. Severance Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated March 16, 2011 and filed on March 22, 2011 and incorporated by reference herein.*
 
10.6
Amended and Restated 2007 Director Plan of EXCO Resources, Inc., filed as an Exhibit to EXCO's Current Report on Form 8-K (File No. 001-32743), dated November 14, 2007 and filed on November 16, 2007 and incorporated by reference herein.*
  
10.7
Amendment Number One to the Amended and Restated 2007 Director Plan of EXCO Resources, Inc., filed as an Exhibit to EXCO's Annual Report on Form 10-K for 2009 filed February 24, 2010 and incorporated by reference herein.*
  
10.8
Letter Agreement, dated March 28, 2007, with OCM Principal Opportunities Fund IV, L.P. and OCM EXCO Holdings, LLC, filed as an Exhibit to EXCO's Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
  
10.9
Letter Agreement, dated March 28, 2007, with Ares Corporate Opportunities Fund, ACOF EXCO, L.P., ACOF EXCO 892 Investors, L.P., Ares Corporate Opportunities Fund II, L.P., Ares EXCO, L.P. and Ares EXCO 892 Investors, L.P, filed as an Exhibit to EXCO's Form 8-K (File No. 001-32743), dated March 28, 2007 and filed on April 2, 2007 and incorporated by reference herein.
 
10.10
Amendment Number One to the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, filed as an exhibit to EXCO's Current Report on Form 8-K, dated June 4, 2009 and filed on June 10, 2009 and incorporated by reference herein.*
 

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10.11
Amendment Number Two to the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, dated as of October 6, 2011, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated October 6, 2011 and filed on October 7, 2011 and incorporated by reference herein.*

10.12
Amendment Number Three to the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan, dated as of June 11, 2013, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 11, 2013 and filed on June 12, 2013 and incorporated by reference herein.*

10.13
Form of Restricted Stock Award Agreement, filed herewith.*
 
10.14
Joint Development Agreement, dated August 14, 2009, by and among BG US Production Company, LLC, EXCO Operating Company, LP and EXCO Production Company, LP, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated August 11, 2009 and filed on August 17, 2009 and incorporated by reference herein.
 
10.15
Amendment to Joint Development Agreement, dated February 1, 2011, by and among BG US Production Company, LLC and EXCO Operating Company, LP, filed as an Exhibit to EXCO's Annual Report on Form 10-K for 2010 filed February 24, 2011 and incorporated by reference herein.
           
10.16
Amended and Restated Limited Liability Company Agreement of TGGT Holdings, LLC, dated August 14, 2009, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated August 11, 2009 and filed on August 17, 2009 and incorporated by reference herein.
 
      
10.17
 First Amendment to Amended and Restated Limited Liability Company Agreement of TGGT Holdings, LLC, dated January 31, 2011, filed as an Exhibit to EXCO's Annual Report on Form 10-K for 2010 filed February 24, 2011 and incorporated by reference herein.
 
      
10.18
Joint Development Agreement, dated as of June 1, 2010, by and among EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company, (PA), LLC, BG Production Company, (WV), LLC and EXCO Resources (PA), LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.19
Amendment to Joint Development Agreement, dated February 4, 2011, by and among EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC, BG Production Company, (PA), LLC, BG Production Company, (WV), LLC and EXCO Resources (PA), LLC, filed as an Exhibit to EXCO's Annual Report on Form 10-K for 2010 filed February 24, 2011 and incorporated by reference herein.
 
      
10.20
Second Amended and Restated Limited Liability Company Agreement of EXCO Resources (PA), LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and EXCO Resources (PA), LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.21
Second Amended and Restated Limited Liability Company Agreement of Appalachia Midstream, LLC, dated June 1, 2010, by and among EXCO Holding (PA), Inc., BG US Production Company, LLC and Appalachia Midstream, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.22
Letter Agreement, dated June 1, 2010 and effective as of May 9, 2010, by and between EXCO Holding (PA), Inc. and BG US Production Company, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
     
10.23
Guaranty, dated May 9, 2010, by BG Energy Holdings Limited in favor of EXCO Holding (PA), Inc., EXCO Production Company (PA), LLC and EXCO Production Company (WV), LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.24
Performance Guaranty, dated May 9, 2010, by EXCO Resources, Inc. in favor of BG US Production Company, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      

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10.25
Guaranty, dated June 1, 2010, by BG North America, LLC in favor of (i) EXCO Production Company (PA), LLC, EXCO Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and EXCO Holding (PA), Inc, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.26
Guaranty, dated June 1, 2010, by EXCO Resources, Inc., in favor of: (i) BG Production Company (PA), LLC, BG Production Company (WV), LLC and EXCO Resources (PA), LLC; and (ii) EXCO Resources (PA), LLC and BG US Production Company, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated June 1, 2010 and filed on June 7, 2010 and incorporated by reference herein.
 
      
10.27
Credit Agreement, dated as of April 30, 2010, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc., as Sole Book runner and Lead Arranger, Wells Fargo Securities, LLC, as Co-Lead Arranger, Bank of America, N.A. and BNP Paribas, as Co-Lead Arrangers and Co-Syndication Agents, Royal Bank of Canada, as Co-Lead Arranger and Co-Documentation Agent, Wells Fargo Bank, National Association, as Co-Documentation Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated July 16, 2010 and filed on July 22, 2010 and incorporated by reference herein.
 
      
10.28
First Amendment to Credit Agreement, dated as of July 16, 2010, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Bank of America, N.A. and BNP Paribas, as Co-Lead Arrangers and Co-Syndication Agents, Royal Bank of Canada, as Co-Lead Arranger and Co-Documentation Agent, Wells Fargo Bank, National Association, as Co-Documentation Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated July 16, 2010 and filed on July 22, 2010 and incorporated by reference herein.
 
      
10.29
Second Amendment to Credit Agreement, dated as of September 15, 2010, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Bank of America, N.A. and BNP Paribas, as Co-Lead Arrangers and Co-Syndication Agents, Royal Bank of Canada, as Co-Lead Arranger and Co-Documentation Agent, and Wells Fargo Bank, National Association, as Co-Documentation Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated September 10, 2010 and filed on September 15, 2010 and incorporated by reference herein.
 
      
10.30
Third Amendment to Credit Agreement, dated as of April 1, 2011, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated April 1, 2011 and filed on April 4, 2011 and incorporated by reference herein.
 
      
10.31
Fourth Amendment to Credit Agreement, dated as of November 8, 2011, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated November 8, 2011 and filed on November 9, 2011 and incorporated by reference herein.
 
      
10.32
Fifth Amendment to Credit Agreement, dated as of November 8, 2011, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated November 8, 2011 and filed on November 9, 2011 and incorporated by reference herein.
 
      
10.33
Sixth Amendment to Credit Agreement, dated as of April 27, 2012, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2012, filed on May 2, 2012 and incorporated by reference herein.
 
      
10.34
Form of Director Indemnification Agreement, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated November 10, 2010 and filed on November 12, 2010 and incorporated by reference herein.
 
      
10.35
Credit Agreement, dated January 31, 2011, by and among TGGT Holdings, LLC, its subsidiaries, as borrowers (or guarantor as to one TGGT subsidiary), JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc., as sole bookrunner and co-lead arranger, BNP Paribas, Citibank, N.A., The Royal Bank of Scotland PLC and Wells Fargo Securities, LLC, as co-lead arrangers, and the lenders named therein, filed as an

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Exhibit to EXCO's Annual Report on Form 10-K for 2010 filed February 24, 2011 and incorporated by reference herein.
 
      
10.36
First Amendment to Credit Agreement, dated January 25, 2012, by and among TGGT Holdings, LLC, TGG Pipeline, Ltd. And Talco Midstream Assets, Ltd., as Borrowers, TGGT GP Holdings, LLC and certain subsidiaries of Borrowers, as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan Securities LLC, as Sole Bookrunner and Co-Lead Arranger, Wells Fargo Securities, LLC, Bank of America, N.A., BMO Harris Financing, Inc., Royal Bank of Canada, Morgan Stanley Senior Funding, Inc., UBS Loan Finance LLC and The Royal Bank of Scotland plc, as Co-Lead Arrangers, and the lenders party thereto, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated January 25, 2012 and filed on January 31, 2012 and incorporated by reference herein.
 
      
10.37
EXCO Resources, Inc. Retention Bonus Plan, dated August 4, 2011, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated August 4, 2011 and filed on August 10, 2011 and incorporated by reference herein.*
 
      
10.38
Amended and Restated Agreement of Limited Partnership of EXCO/HGI Production Partners, LP, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2013 filed on May 1, 2013 and incorporated by reference herein.
 
      
10.39
Form of Amended and Restated Limited Liability Company Agreement of EXCO/HGI GP, LLC, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2013 filed on May 1, 2013 and incorporated by reference herein.

10.40
Letter Agreement, dated November 5, 2012, by and among EXCO Resources, Inc., EXCO Operating Company, LP, Harbinger Group Inc. and HGI Energy Holdings, LLC, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated November 5, 2012 and filed on November 9, 2012 and incorporated by reference herein.
 
      
10.41
Seventh Amendment to Credit Agreement, dated as of October 30, 2012, by and among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated October 30, 2012 and filed on November 5, 2012 and incorporated by reference herein.
        
10.42
Transition Consulting Agreement, dated February 28, 2013, by and between EXCO Resources, Inc. and Stephen F. Smith, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated February 28, 2013 and filed on March 6, 2013 and incorporated by reference herein.*
        
10.43
Letter Agreement, dated March 1, 2013, by and between EXCO Resources, Inc. and Mark Mulhern, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated February 28, 2013 and filed on March 6, 2013 and incorporated by reference herein.*
        
10.44
EXCO Resources, Inc. 2013 Management Incentive Plan, filed as an Exhibit to EXCO's Current Report on Form 8-K, dated February 28, 2013 and filed on March 6, 2013 and incorporated by reference herein.*
        
10.45
Credit Agreement, dated as of February 14, 2013, among EXCO/HGI JV Assets, LLC, as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities LLC, as Sole Book runner and Lead Arranger, Bank of America, N.A. and Deutsche Bank Trust Company Americas, as Co-Syndication Agents, and UBS Securities LLC and BMO Harris Financing, Inc., as Co-Documentation Agents, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2013 filed on May 1, 2013 and incorporated by reference herein.
        
10.46
First Amendment to Credit Agreement, dated as of March 5, 2013, by and among EXCO/HGI JV Assets, LLC, as Borrower, certain subsidiaries of Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2013 filed on May 1, 2013 and incorporated by reference herein.

10.47
Eighth Amendment to Credit Agreement, dated as of July 2, 2013, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lender parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed herewith.


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10.48
Ninth Amendment to Credit Agreement, dated as of July 12, 2013, among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lender parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed herewith.

10.49
Amended and Restated Credit Agreement among EXCO Resources, Inc., as Borrower, certain subsidiaries of Borrower, as Guarantors, the lender parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to EXCO's Form 8-K, dated as of July 31, 2013 and filed on August 6, 2013 and incorporated by reference herein.

10.50
Participation Agreement, dated July 31, 2013, among Admiral A Holding L.P., Admiral B Holding L.P. and EXCO Operating Company, LP, filed herewith.
        
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer of EXCO Resources, Inc., filed herewith.
 
      
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer of EXCO Resources, Inc., filed herewith.
 
      
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer of EXCO Resources, Inc., filed herewith.
 
      
101.INS**
 XBRL Instance Document.
 
      
101.SCH**
 XBRL Taxonomy Extension Schema Document.
 
      
101.CAL**
 XBRL Taxonomy Calculation Linkbase Document.
 
      
101.DEF**
 XBRL Taxonomy Definition Linkbase Document.
 
      
101.LAB**
 XBRL Taxonomy Label Linkbase Document.
 
      
101.PRE**
XBRL Taxonomy Presentation Linkbase Document.
    
*
These exhibits are management contracts.
**
Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
        



63


Exhibit 10.13

RESTRICTED STOCK AWARD AGREEMENT

EXCO RESOURCES, INC.
AMENDED AND RESTATED 2005 LONG-TERM INCENTIVE PLAN

1.     Award of Restricted Stock . Pursuant to the EXCO Resources, Inc. Amended and Restated 2005 Long-Term Incentive Plan (the “ Plan ”) for Employees, Consultants, and Outside Directors of EXCO Resources, Inc., a Texas corporation (the “ Company ”) and its Subsidiaries,
_________________________________
(the “ Participant ”)
has been granted a Restricted Stock Award under the Plan for _____________ shares of Common Stock of the Company (the “ Awarded Shares ”). The Date of Grant of this Restricted Stock Award is ___________, 20___, and it shall be effective as of the date it is signed and dated by both parties hereto.
2.     Subject to Plan . This Award Agreement is subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement. To the extent the terms of the Plan are inconsistent with the provisions of this Agreement, this Agreement shall control. The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. This Award Agreement is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.
3.     Vesting . Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Awarded Shares shall be vested upon the first trading day (the “ Attainment Date ”) immediately following any thirty (30) consecutive trading day period during which the Fair Market Value of a share of the Company’s Common Stock equals or exceeds [ $10.00/$15.00 ] per share for the duration of such thirty (30) consecutive trading day period as follows:
(a)     if the Attainment Date occurs on or before the first anniversary of the Date of Grant, fifty percent (50%) of the total Awarded Shares shall be fully vested on the first anniversary of the Date of Grant and the remaining (50%) of the total Awarded Shares shall be fully vested on the second anniversary of the Date of Grant, provided the Participant is employed by (or, if the Participant is a Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on the applicable vesting date .
(b)    if the Attainment Date occurs after the first anniversary of the Date of Grant but on or before the second anniversary of the Date of Grant, and provided the vesting provisions under Section 3(a) do not apply, fifty percent (50%) of the total Awarded Shares shall be fully vested on the Attainment Date and the remaining (50%) of the total Awarded Shares shall be fully vested on the second anniversary of the Date of Grant, provided the Participant is employed by (or, if the Participant is a Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on the applicable vesting date .
(c)    if the Attainment Date occurs after the second anniversary of the Date of Grant but before the fifth anniversary of the Date of Grant, and provided the vesting provisions under Section 3(a) or Section 3(b) do not apply, one hundred percent (100%) of the total Awarded Shares shall be fully vested on the Attainment Date, provided the Participant is employed by (or, if the Participant is a Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on the vesting date .
Notwithstanding the foregoing, all of the unvested Awarded Shares shall be automatically fully vested upon the first to occur of a Change in Control, the death of the Participant or the Total and Permanent Disability of the Participant, provided the Participant is still employed by (or, if the Participant is a Consultant or an Outside Director, providing services to) the Company as of the date such event.
4.     Forfeiture of Awarded Shares . Except as otherwise provided in Section 3 , the Participant shall immediately forfeit all unvested Awarded Shares on the date of the Participant’s Termination of Service for any reason prior to the time the Awarded Shares become vested in accordance with Section 3 . In addition, in the event the vesting provisions of Section 3(a) , Section 3(b) , or Section (c) are not triggered, then one hundred percent (100%) of the total Awarded Shares shall be forfeited on the fifth anniversary of the Date of Grant. Upon forfeiture, the Company may, in its sole discretion in accordance with Section 6.4 of the Plan, elect to, pay to the Participant, as soon as practicable after the event causing forfeiture, in cash, an amount equal to the lesser of the total consideration paid by the Participant for such forfeited shares or the Fair Market Value of such forfeited shares as of the date of Termination of Service. Upon any forfeiture, all rights of the Participant with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligation on the part of the Company.
5.     Restrictions on Awarded Shares . Subject to the provisions of the Plan and the terms of this Agreement, from the Date of Grant until the date the Awarded Shares are vested in accordance with Section 3 and are no longer subject to forfeiture in accordance with Section 4 (the “ Restriction Period ”), the Participant shall not be permitted to sell, transfer, pledge, hypothecate, margin, assign or otherwise encumber any of the Awarded Shares, other than by will or the laws of decent and distribution. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Awarded Shares whenever it may determine that, by reason of changes in applicable laws or changes in circumstances after the date of this Agreement, such action is appropriate.
6.     Legend . The following legend shall be placed on all certificates representing Awarded Shares (in addition to any legend required under applicable state securities laws):
On the face of the certificate:
“TRANSFER OF THIS STOCK IS RESTRICTED IN ACCORDANCE WITH CONDITIONS PRINTED ON THE REVERSE OF THIS CERTIFICATE.”
On the reverse:
“THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH THAT CERTAIN EXCO RESOURCES, INC. AMENDED AND RESTATED 2005 LONG-TERM INCENTIVE PLAN, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY IN DALLAS, TEXAS, AND THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT, DATED AS OF August 8, 2013, BY AND BETWEEN THE COMPANY AND _____________________. NO TRANSFER OR PLEDGE OF THE SHARES EVIDENCED HEREBY MAY BE MADE EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SAID PLAN AND AWARD AGREEMENT. BY ACCEPTANCE OF THIS CERTIFICATE, ANY HOLDER, TRANSFEREE OR PLEDGEE HEREOF AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SAID PLAN AND AWARD AGREEMENT.”
All Awarded Shares owned by the Participant shall be subject to the terms of this Agreement and shall be represented by a certificate or certificates bearing the foregoing legend.
7.     Delivery of Certificates . Certificates for Awarded Shares free of restriction under this Agreement shall be delivered to the Participant promptly after, and only after, the Restriction Period has expired without forfeiture pursuant to Section 4 . The Participant, by his acceptance of the Awarded Shares and execution of this Agreement, irrevocably grants the Company a power of attorney to transfer any shares forfeited pursuant to Section 4 to the Company and agrees to execute any documents requested by the Company in connection with any such forfeiture and transfer.
8.     Rights of a Shareholder; Voting . Subject to the terms and conditions of this Agreement, the Participant shall have, with respect to such Awarded Shares, all of the rights of a shareholder of the Company, including the right to vote the shares, and the right to receive any dividends or other distributions thereon, subject to the provisions of this Section 8 . Any stock dividends paid with respect to Awarded Shares (whether vested or unvested) shall at all times be treated as Awarded Shares and shall be subject to all restrictions placed on Awarded Shares; any such stock dividends paid with respect to Awarded Shares shall vest as the unvested Awarded Shares become vested. Any cash dividends paid with respect to unvested Awarded Shares shall at all times be subject to the provisions of this Agreement (including the vesting and forfeiture provisions set forth above); any such cash dividends paid with respect to unvested Awarded Shares shall vest as the unvested Awarded Shares become vested, and shall be paid to the Participant on the date the Awarded Shares to which such cash dividends relate become vested. The Participant, as record holder of the Awarded Shares, has the exclusive right to vote, or consent with respect to, such Awarded Shares until such time as the Awarded Shares are transferred in accordance with this Agreement; provided , however , that this Section 9 shall not create any voting right where the holders of such Awarded Shares otherwise have no such right.
9.     Adjustment to Number of Awarded Shares . The number of Awarded Shares shall be subject to adjustment in accordance with Articles 11-13 of the Plan; provided , however , that any fractional shares resulting from such adjustment shall be eliminated. Any adjustments determined by the Board shall be final, binding and conclusive.
10.     No Fractional Shares . No fractional shares of capital stock shall be issued pursuant to this Agreement. The Board may determine whether cash, other awards, or other property shall be issued or paid in lieu of any fractional share(s) resulting from any adjustment(s) or whether such fractional shares and/or any rights thereto shall be forfeited or otherwise eliminated.
11.     Notices . Any communication(s) to be given hereunder by either party to the other shall be deemed to have been duly given if given in writing and personally delivered or sent by mail, registered or certified, postage prepaid with return receipt requested, or via fax as follows:
Company:
EXCO Resources, Inc.
Attn: Executive Vice President and Chief Financial Officer
12377 Merit Drive, Suite 1700    
Dallas, TX 75251
Fax: (214) 368-2087
With a copy to:
EXCO Resources, Inc.
Attn: General Counsel
12377 Merit Drive, Suite 1700    
Dallas, TX 75251
Fax: (214) 368-2087
Notice to the Participant shall be addressed and delivered as set forth on the signature page.
Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three (3) days after mailing. A fax shall be deemed communicated on the date it is actually received.
12.     Entire Agreement; Modification . This Agreement together with the Plan terminates, supersedes, and replaces all prior written and oral agreements between the parties hereto with respect to the subject matter of this Agreement and constitutes a complete and exclusive statement of the terms of the agreement by and among the parties hereto with respect to the subject matter of this Agreement. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect. This Agreement may not be amended, restated, supplemented, or otherwise modified except by a written agreement executed by any and all parties to be charged with or otherwise affected by any such amendment. Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.
13.     Assignments, Successors, and No Third-Party Rights . Neither this Agreement nor any portion hereof may be assigned by the Participant without the prior express written consent of the Company. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, and permitted assigns. No person shall be permitted to acquire any Awarded Shares without first executing and delivering an agreement in the form satisfactory to the Company making such person or entity subject to the restrictions on transfer contained herein. Nothing expressed or referred to in this Agreement shall be construed to give any party other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and the successors, heirs, personal representatives, and permitted assigns of the parties hereto.
14.     No Right to Continue Service or Employment . Neither this Agreement nor any action taken hereunder shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Consultant or as an Outside Director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Consultant, or Outside Director at any time.
15.     Specific Performance . The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.
16.     Jurisdiction; Service of Process; Governing Law . Any action or other proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Texas and each of the parties consents to the jurisdiction of such court(s) (and of the appropriate appellate courts) in any such action or other proceeding and waives any objection to venue laid therein. The validity, construction, interpretation, and effect of this Agreement shall be exclusively governed by and determined in accordance with the laws of the State of Texas without regard to conflict of laws principles.
17.     Participant’s Representations . Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Awarded Shares, and that the Company will not be obligated to issue any Awarded Shares to the Participant hereunder, if the issuance of such Awarded Shares may constitute a violation by the Company or the Participant of any provision of any applicable law or regulation of any governmental authority. Any determination in this connection by the Company shall be final, binding, and conclusive. The rights and obligations of the Company and the rights and obligations of the Participant are subject to all applicable laws, rules, and regulations.
18.     Participant’s Acknowledgments . The Participant acknowledges that a copy of the Plan has been made available for his review by the Company, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Restricted Stock Award subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.
19.     Severability; Reformation . In the event that any sentence, paragraph, provision, section, or article of this Agreement is declared to be void by a court of competent jurisdiction, such sentence, paragraph, provision, section, or article shall be deemed severed from the remainder of this Agreement and the balance of this Agreement shall remain in effect. In the event any court of competent jurisdiction holds any provision of this Agreement to be invalid, unenforceable, and/or unreasonable as written, the court may reform the Agreement to make it valid, enforceable, and reasonable and the Agreement shall remain in full force and effect as reformed by the court.
20.     Covenants and Agreements as Independent Agreements . Each of the covenants and agreements that are set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.
21.     Fees and Expenses . If any civil action, whether at law or in equity, is necessary to enforce or interpret any of the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, court costs, and other reasonable expenses of litigation, in addition to any other relief to which such party may be entitled.
22.     Time of the Essence . With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
23.     Waiver . Neither the failure to exercise, nor any delay by any party in exercising, any right, power, or privilege under this Agreement shall operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement may be discharged by one (1) party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by each other party hereto, (b) no waiver that may be given by any party hereto shall be applicable except in the specific instance when and for which such waiver is given, and (c) no notice to or demand on one (1) party shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.
24.     Section Headings; Construction . The headings of Sections in this Agreement are provided for convenience only and shall not affect the construction or interpretation of this Agreement. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.
25.     Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one (1) and the same agreement.
26.     Tax Requirements . The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement , the method and timing for filing an election to include this Agreement in income under Section 83(b) of the Code, and the tax consequences of such election. By execution of this Agreement, the Participant agrees that if the Participant makes such an election, the Participant shall provide the Company with written notice of such election in accordance with the regulations promulgated under Section 83(b) of the Code. The Company or, if applicable, any Subsidiary (for purposes of this Section 26 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, provincial, local, or other taxes required by law to be withheld in connection with this Award. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award. Such payments shall be required to be made when requested by Company and may be required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the Participant to the Company of shares of Common Stock, other than shares that the Participant has acquired from the Company within six (6) months prior thereto, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the vesting of this Award, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.
27.     Dispute Resolution; Arbitration; Emergency Relief . All claims, disputes, and controversies of any kind, character, and nature between any parties to this Agreement relating to or arising out of or in connection with this Agreement or any transaction(s) contemplated by this Agreement as to the construction, validity, interpretation, meaning, performance, non-performance, enforcement, operation, or breach shall be submitted to arbitration pursuant to the following procedures:
(a)    After a claim, dispute, or controversy arises, any such party may, in a written notice delivered to the other party to this Agreement, demand such arbitration and name the arbitrator (who shall be an impartial person) appointed by the demanding party in such notice together with a statement of the matter(s) claimed or in dispute or controversy.
(b)    Within thirty (30) calendar days after receipt of such demand, the other party to this Agreement shall, in a written notice delivered to the demanding party, name the arbitrator (who shall be an impartial person) appointed by the receiving party. If any party to this Agreement fails to name and appoint an arbitrator, then the arbitrator of such party shall be named and appointed by the American Arbitration Association (the “ AAA ”). The two arbitrators so appointed shall name and appoint a third arbitrator (who shall be an impartial person) within thirty (30) calendar days or, if the two arbitrators so appointed shall fail to name a third arbitrator within such thirty (30) day period, the third arbitrator shall be named and appointed by the AAA. If any arbitrator appointed hereunder shall die, resign, refuse, or become unable to act before an arbitration decision is rendered, then the vacancy shall be filled by the method set forth in this Section 27(b) for the original appointment of such arbitrator.
(c)    Each party shall bear its own arbitration costs and expenses. The arbitration hearing shall be held in Dallas, Texas at a location designated by a majority of the arbitrators. The Commercial Arbitration Rules of the American Arbitration Association shall be incorporated by reference at such hearing and the substantive laws of the State of Texas (without regard to conflict of laws principles) shall apply.
(d)    The arbitration hearing shall be concluded within ten (10) calendar days unless otherwise ordered by the arbitrators and a written award thereon shall be made within fifteen (15) calendar days after the close of submission of evidence. An award rendered by a majority of the arbitrators appointed pursuant to this Agreement shall be final and binding on all parties to the proceeding, shall resolve the question of costs of the arbitrators and all related matters, and judgment on such award may be entered and enforced by either party in any court of competent jurisdiction.
(e)    Except as set forth in Section 27(g) , the parties to this Agreement agree, intend, and expressly stipulate that the provisions of this Section 27 shall be a complete defense to any suit, action, or proceeding instituted in any federal, state, or local court or before any administrative tribunal with respect to any claim, controversy, or dispute relating to or arising out of or in connection with this Agreement or any transaction(s) contemplated by this Agreement. The arbitration provisions of this Agreement shall, with respect to any such claim, controversy, or dispute, survive the termination or expiration of this Agreement.
(f)    No party to an arbitration may disclose the existence or results of any arbitration hereunder without the prior express written consent of the other party to this Agreement nor shall any party to an arbitration disclose to any third party any confidential information disclosed by any other party to such arbitration in the course of an arbitration hereunder without the prior express written consent of such other party.
(g)    Notwithstanding anything in this Section 27 to the contrary, any party may seek from a court any provisional remedy that may be necessary to protect any rights or property of such party pending the establishment of the arbitral tribunal or its determination of the merits of the claim, controversy, or dispute or to enforce the rights of such party under this Section 27 .

* * * * * * * * * *
[ Remainder of Page Intentionally Left Blank.
Signature Page Follows ]

IN WITNESS WHEREOF, the undersigned parties have executed this Restricted Stock Award Agreement effective as of the day and year first above written.

COMPANY:

EXCO RESOURCES, INC.


By:     
Name:    Mark F. Mulhern
Title:
Executive Vice President and Chief Financial Officer


PARTICIPANT:


                            
Signature

Name:                             
Address:         
             
Fax:                             



Exhibit 10.47
EXECUTION VERSION

EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (hereinafter referred to as the “ Amendment ”) is dated as of July 2, 2013, by and among EXCO RESOURCES, INC. (“ Borrower ”), CERTAIN SUBSIDIARIES OF BORROWER, as Guarantors (the “ Guarantors ”), the LENDERS party hereto (the “ Lenders ”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent (“ Administrative Agent ”). Unless the context otherwise requires or unless otherwise expressly defined herein, capitalized terms used but not defined in this Amendment have the meanings assigned to such terms in the Credit Agreement as amended herein (as defined below).
WITNESSETH:
WHEREAS , Borrower, the Guarantors, Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of April 30, 2010 (as the same has been and may hereafter be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”); and
WHEREAS , Administrative Agent, the Lenders, Borrower and the Guarantors desire to amend the Credit Agreement as provided herein upon the terms and conditions set forth herein.
NOW, THEREFORE , for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, the Guarantors, Administrative Agent and the Lenders hereby agree as follows:
SECTION 1. Amendments to Credit Agreement . Subject to the satisfaction or waiver in writing of each condition precedent set forth in Section 2 hereof, and in reliance on the representations, warranties, covenants and agreements contained in this Amendment, the Credit Agreement shall be amended in the manner provided in this Section 1 .
1.1      Additional Definitions. The following definitions shall be and they hereby are added to Section 1.01 of the Credit Agreement in appropriate alphabetical order:

Proposed Oil and Gas Acquisition ” has the meaning assigned to such term in Section 7.05.
Projected Oil and Gas Volumes ” means, with respect to any Proposed Oil and Gas Acquisition, the forecasted production from proved producing reserves from the Oil and Gas Interests subject to such Proposed Oil and Gas Acquisition as reflected in a separate report delivered to the Administrative Agent meeting the requirements of a Reserve Report and otherwise in form and substance satisfactory to the Administrative Agent.
1.2      Swap Agreements. The first two paragraphs after subsection (b) of Section 7.05 of the Credit Agreement shall be and they hereby are amended and restated to read in their entirety as follows:

Eighth Amendment to Credit Agreement – Page 1


As used in this Section, “forecasted production from total proved reserves” means the forecasted production of Crude Oil and Natural Gas as reflected in the most recent Reserve Report delivered to the Administrative Agent pursuant to Section 6.01, after giving effect to any pro forma adjustments for the consummation of any Acquisitions or dispositions since the effective date of such Reserve Report; provided that upon the execution and delivery of a purchase agreement, merger agreement or other similar agreement by the Borrower or any Restricted Subsidiary in respect of an Acquisition consisting directly or indirectly of Oil and Gas Interests (each, a “ Proposed Oil and Gas Acquisition ”) and so long as the Aggregate Commitment exceeds the Aggregate Credit Exposure by at least fifteen percent (15%) of the Aggregate Commitment at the time of and immediately after giving effect thereto, Borrower or any Restricted Subsidiary may enter into Swap Agreements with a term of three (3) years or less which when aggregated with all other Swap Agreements then in effect for the Projected Oil and Gas Volumes included in such Proposed Oil and Gas Acquisition, would not cause the aggregate notional volume per month for each of Crude Oil and Natural Gas, calculated separately, under all such Swap Agreements then in effect with respect to such Proposed Oil and Gas Acquisition (other than Excluded Hedges) to exceed , as of the date such Swap Agreement is executed, eighty percent (80%) of the Projected Oil and Gas Volumes for any month prior to the third anniversary of the date such agreement was executed and delivered by the parties thereto until such Proposed Oil and Gas Acquisition is consummated in accordance with the terms of the underlying purchase agreement, merger agreement or other similar agreement. In the event such Proposed Oil and Gas Acquisition is terminated by written agreement among the parties or otherwise not consummated within 30 days after execution and delivery of such agreement (or such longer period of time as acceptable to the Administrative Agent in its sole discretion), then within five (5) Business Days after such termination or the end of such 30 day (or longer) period, as applicable, the Borrower shall and shall cause the Restricted Subsidiaries to novate, unwind or otherwise dispose of all Swap Agreements to the extent necessary to be in compliance with the limitations set forth in clause (a) of this Section 7.05 .
Except as otherwise required pursuant to the immediately preceding paragraph, in the event any Credit Party enters into a Swap Agreement (including the Existing Swap Agreements), the terms and conditions of such Swap Agreement may not be amended or modified, nor may any Credit Party sell, assign, monetize, transfer, cancel or otherwise dispose of any of its rights and interests in any such Swap Agreement without the prior written consent of the Majority Lenders (it being understood that any Lender Counterparty may sell, assign, transfer, novate, or otherwise dispose of its rights and interests in any Swap Agreement to any Approved Counterparty at any time); provided that, notwithstanding the foregoing, any Credit Party may enter into a Swap Modification so long as (i) within three (3) Business Days thereafter, the Borrower provides written notice to the Administrative Agent of the terms of such Swap Modification, setting forth in reasonable detail, (x) the effect of such Swap Modification on the aggregate notional volume of Crude Oil and

Eighth Amendment to Credit Agreement – Page 2


Natural Gas subject to the Credit Parties’ Swap Agreements and (y) the amount of Net Cash Proceeds received by such Credit Party as a result of such Swap Modification, (ii) the aggregate notional volume of Crude Oil and Natural Gas affected by such Swap Modification, together with all other Swap Modifications consummated since the most recent Redetermination Date, does not exceed ten percent (10%) of the aggregate notional volume of Crude Oil and Natural Gas subject to the Credit Parties’ Swap Agreements in effect as of the most recent Redetermination Date, and (iii) the Borrower applies the Net Cash Proceeds received by any Credit Party as a result of such Swap Modification to prepay the Loans.
SECTION 2.      Conditions . The amendments to the Credit Agreement contained in Section 1 of this Amendment, shall be effective upon the satisfaction of each of the conditions set forth in this Section 2 .
2.1      Execution and Delivery. Each Credit Party, the Lenders (or at least the required percentage thereof) and Administrative Agent shall have executed and delivered this Amendment.
2.2      No Default. No Default or Event of Default shall have occurred and be continuing or shall result after giving effect to this Amendment.
2.3      Other Documents. Administrative Agent shall have received such other instruments and documents incidental and appropriate to the transactions provided for herein as Administrative Agent or its special counsel may reasonably request, and all such documents shall be in form and substance satisfactory to Administrative Agent.
SECTION 3.      Representations and Warranties of Borrower . To induce the Lenders to enter into this Amendment, each Credit Party hereby represents and warrants to the Lenders as follows:
3.1      Reaffirmation of Representations and Warranties/Further Assurances. After giving effect to the amendments herein, each representation and warranty of such Credit Party contained in the Credit Agreement or in any other Loan Document is true and correct in all material respects on the date hereof (except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such date and any representation or warranty which is qualified by reference to “materiality” or “Material Adverse Effect” is true and correct in all respects).
3.2      Corporate Authority; No Conflicts. The execution, delivery and performance by such Credit Party of this Amendment and all documents, instruments and agreements contemplated herein are within such Credit Party’s corporate or other organizational powers, have been duly authorized by all necessary action, require no action by or in respect of, or filing with, any court or agency of government and do not violate or constitute a default under any provision of any applicable law or other agreements binding upon such Credit Party or result in the creation or imposition of any Lien upon any of the assets of such Credit Party except for Liens permitted under Section 7.02 of the Credit Agreement.

Eighth Amendment to Credit Agreement – Page 3


3.3      Enforceability. This Amendment has been duly executed and delivered by each Credit Party and constitutes the valid and binding obligation of such Credit Party enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor’s rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general application.
3.4      No Default. As of the date of this Amendment, both before and immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
SECTION 4.           Miscellaneous .
4.1      Reaffirmation of Loan Documents and Liens. Except as amended and modified hereby, any and all of the terms and provisions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby in all respects ratified and confirmed by each Credit Party. Each Credit Party hereby agrees that the amendments and modifications herein contained shall in no manner affect or impair the liabilities, duties and obligations of any Credit Party under the Credit Agreement and the other Loan Documents or the Liens securing the payment and performance thereof.
4.2      Parties in Interest. All of the terms and provisions of this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.
4.3      Legal Expenses. Each Credit Party hereby agrees to pay all reasonable fees and expenses of special counsel to Administrative Agent incurred by Administrative Agent in connection with the preparation, negotiation and execution of this Amendment and all related documents.
4.4      Counterparts. This Amendment may be executed in one or more counterparts and by different parties hereto in separate counterparts each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. Delivery of photocopies of the signature pages to this Amendment by facsimile or electronic mail shall be effective as delivery of manually executed counterparts of this Amendment.
4.5      Complete Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
4.6      Headings. The headings, captions and arrangements used in this Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Amendment, nor affect the meaning thereof.
4.7      Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such

Eighth Amendment to Credit Agreement – Page 4


invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
4.8      Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York.
4.9      Reference to and Effect on the Loan Documents.
(a)    This Amendment shall be deemed to constitute a Loan Document for all purposes and in all respects. Each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference in the Credit Agreement or in any other Loan Document, or other agreements, documents or other instruments executed and delivered pursuant to the Credit Agreement to the “Credit Agreement”, shall mean and be a reference to the Credit Agreement as amended by this Amendment.
(b)    The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date first above written.
BORROWER :
EXCO RESOURCES, INC.
By: /s/ William L. Boeing     
Name:    William L. Boeing
Title: Vice President, General Counsel and Secretary
GUARANTORS :

EXCO HOLDING (PA), INC.
EXCO PRODUCTION COMPANY (PA), LLC
EXCO PRODUCTION COMPANY (WV), LLC
EXCO RESOURCES (XA), LLC
EXCO SERVICES, INC.
EXCO MIDCONTINENT MLP, LLC
EXCO PARTNERS GP, LLC
EXCO PARTNERS OLP GP, LLC



By: /s/ William L. Boeing                
Name: William L. Boeing
Title: Vice President, General Counsel and Secretary
EXCO OPERATING COMPANY, LP
By:
EXCO Partners OLP GP, LLC,
its general partner
By:/s/ William L. Boeing
Name:    William L., Boeing

Title: Vice President, General Counsel and Secretary






EXCO GP PARTNERS OLD, LP

By:    EXCO Partners GP, LLC,
its general partner

By: /s/ William L. Boeing            
Name: William L. Boeing
Title: Vice President, General Counsel and Secretary


EXCO EQUIPMENT LEASING, LLC


By: /s/ William L. Boeing                
Name: William L. Boeing
Title: Vice President, General Counsel and Secretary


JPMORGAN CHASE BANK, N.A. ,
as a Lender and as Administrative Agent and Issuing Bank
By: /s/ Michael A. Kamauf     
Name: Michael A. Kamauf            
Title: Authorized Officer
BANK OF AMERICA, N.A. , as a Lender

By:
/s/ Jason Zilewicz     
Name: Jason Zilewicz

Title:AVP

ROYAL BANK OF CANADA , as a Lender and as Co-Lead Arranger and Co-Documentation Agent

By:
/s/ Jay Sartain     
Name: Jay Sartain
Title: Authorized Signatory

WELLS FARGO BANK, NATIONAL ASSOCIATION , as a Lender and as Co-Documentation Agent

By:
/s/ Jason M. Hicks     
Name: Jason M. Hicks
Title: Managing Director

CITIBANK, N.A. , as a Lender and as Co-Documentation Agent

By:
/s/ Eamon Baqui     
Name: Eamon Baqui
Title: Vice President
KEYBANK N.A. , as a Lender

By:
/s/ Joseph Scott     
Name: Joseph Scott
Title: Senior Vice President
UNION BANK, N.A., as a Lender

By:
/s/ Lauren Trussell     
Name: Lauren Trussell
Title: Vice President
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK , as a Lender

By:
/s/ Mark Roche     
Name: Mark Roche
Title: Managing Director

By: /s/ Michael D. Willis     
Name: Michael D. Willis
Title: Managing Director
U.S. BANK NATIONAL ASSOCIATION , as a Lender

By:
/s/ Daniel K. Hansen     
Name: Daniel K. Hansen
Title: Vice President
COMERICA BANK , as a Lender

By:
/s/ John S. Lesikar     
Name: John S. Lesikar
Title: Vice President
BARCLAYS BANK PLC , as a Lender

By:
/s/ Vanessa A. Kurbatskiy     
Name: Vanessa A. Kurbatskiy
Title: Vice President

THE BANK OF NOVA SCOTIA , as a Lender

By:
/s/ Terry Donovan     
Name: Terry Donovan
Title: Managing Director

CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY ,
as a Lender

By:
/s/ Trudy Nelson     
Name: Trudy Nelson
Title: Managing Director

By: /s/ Daria Mahoney     
Name: Daria Mahoney
Title: Executive Director



UBS LOAN FINANCE LLC ,
as a Lender

By:
/s/ Joselin Fernandes     
Name: Joselin Fernandes
Title: Associate4 Director

By: /s/Kenneth Chin     
Name: Kenneth Chin
Title: Director


Eighth Amendment to Credit Agreement – Page 5
Exhibit 10.48
EXECUTION VERSION


NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT (hereinafter referred to as the “ Amendment ”) is dated as of July 12, 2013, by and among EXCO RESOURCES, INC. (“ Borrower ”), CERTAIN SUBSIDIARIES OF BORROWER, as Guarantors (the “ Guarantors ”), the LENDERS party hereto (the “ Lenders ”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent (“ Administrative Agent ”). Unless the context otherwise requires or unless otherwise expressly defined herein, capitalized terms used but not defined in this Amendment have the meanings assigned to such terms in the Credit Agreement as amended herein (as defined below).
WITNESSETH:
WHEREAS , Borrower, the Guarantors, Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of April 30, 2010 (as the same has been and may hereafter be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”); and
WHEREAS , Administrative Agent, the Lenders, Borrower and the Guarantors desire to amend the Credit Agreement as provided herein upon the terms and conditions set forth herein.
NOW, THEREFORE , for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, the Guarantors, Administrative Agent and the Lenders hereby agree as follows:
SECTION 1. Amendments to Credit Agreement . Subject to the satisfaction or waiver in writing of each condition precedent set forth in Section 2 hereof, and in reliance on the representations, warranties, covenants and agreements contained in this Amendment, the Credit Agreement shall be amended in the manner provided in this Section 1 .
1.1      Swap Agreements. The first paragraph after subsection (b) of Section 7.05 of the Credit Agreement shall be and it hereby is amended and restated to read in its entirety as follows:
 
As used in this Section, “forecasted production from total proved reserves” means the forecasted production of Crude Oil and Natural Gas as reflected in the most recent Reserve Report delivered to the Administrative Agent pursuant to Section 6.01, after giving effect to any pro forma adjustments for the consummation of any Acquisitions or dispositions since the effective date of such Reserve Report; provided that upon the execution and delivery of a purchase agreement, merger agreement or other similar agreement by the Borrower or any Restricted Subsidiary in respect of an Acquisition consisting directly or indirectly of Oil and Gas Interests (each, a “ Proposed Oil and Gas Acquisition ”), Borrower or any Restricted Subsidiary may enter into Swap Agreements with a term of three (3) years or less which when

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aggregated with all other Swap Agreements then in effect for the Projected Oil and Gas Volumes included in such Proposed Oil and Gas Acquisition, would not cause the aggregate notional volume per month for each of Crude Oil and Natural Gas, calculated separately, under all such Swap Agreements then in effect with respect to such Proposed Oil and Gas Acquisition (other than Excluded Hedges) to exceed , as of the date such Swap Agreement is executed, eighty percent (80%) of the Projected Oil and Gas Volumes for any month prior to the third anniversary of the date such agreement was executed and delivered by the parties thereto until such Proposed Oil and Gas Acquisition is consummated in accordance with the terms of the underlying purchase agreement, merger agreement or other similar agreement. In the event such Proposed Oil and Gas Acquisition is terminated by written agreement among the parties or otherwise not consummated within 30 days after execution and delivery of such agreement (or such longer period of time as acceptable to the Administrative Agent in its sole discretion), then within five (5) Business Days after such termination or the end of such 30 day (or longer) period, as applicable, the Borrower shall and shall cause the Restricted Subsidiaries to novate, unwind or otherwise dispose of all Swap Agreements to the extent necessary to be in compliance with the limitations set forth in clause (a) of this Section 7.05 .
SECTION 2.      Conditions . The amendments to the Credit Agreement contained in Section 1 of this Amendment, shall be effective upon the satisfaction of each of the conditions set forth in this Section 2 .
2.1      Execution and Delivery. Each Credit Party, the Lenders (or at least the required percentage thereof) and Administrative Agent shall have executed and delivered this Amendment.
2.2      No Default. No Default or Event of Default shall have occurred and be continuing or shall result after giving effect to this Amendment.
2.3      Other Documents. Administrative Agent shall have received such other instruments and documents incidental and appropriate to the transactions provided for herein as Administrative Agent or its special counsel may reasonably request, and all such documents shall be in form and substance satisfactory to Administrative Agent.
SECTION 3.      Representations and Warranties of Borrower . To induce the Lenders to enter into this Amendment, each Credit Party hereby represents and warrants to the Lenders as follows:
3.1      Reaffirmation of Representations and Warranties/Further Assurances. After giving effect to the amendments herein, each representation and warranty of such Credit Party contained in the Credit Agreement or in any other Loan Document is true and correct in all material respects on the date hereof (except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such date and any representation or warranty which is qualified by reference to “materiality” or “Material Adverse Effect” is true and correct in all respects).

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3.2      Corporate Authority; No Conflicts. The execution, delivery and performance by such Credit Party of this Amendment and all documents, instruments and agreements contemplated herein are within such Credit Party’s corporate or other organizational powers, have been duly authorized by all necessary action, require no action by or in respect of, or filing with, any court or agency of government and do not violate or constitute a default under any provision of any applicable law or other agreements binding upon such Credit Party or result in the creation or imposition of any Lien upon any of the assets of such Credit Party except for Liens permitted under Section 7.02 of the Credit Agreement.
3.3      Enforceability. This Amendment has been duly executed and delivered by each Credit Party and constitutes the valid and binding obligation of such Credit Party enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor’s rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general application.
3.4      No Default. As of the date of this Amendment, both before and immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
SECTION 4.           Miscellaneous .
4.1      Reaffirmation of Loan Documents and Liens. Except as amended and modified hereby, any and all of the terms and provisions of the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby in all respects ratified and confirmed by each Credit Party. Each Credit Party hereby agrees that the amendments and modifications herein contained shall in no manner affect or impair the liabilities, duties and obligations of any Credit Party under the Credit Agreement and the other Loan Documents or the Liens securing the payment and performance thereof.
4.2      Parties in Interest. All of the terms and provisions of this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.
4.3      Legal Expenses. Each Credit Party hereby agrees to pay all reasonable fees and expenses of special counsel to Administrative Agent incurred by Administrative Agent in connection with the preparation, negotiation and execution of this Amendment and all related documents.
4.4      Counterparts. This Amendment may be executed in one or more counterparts and by different parties hereto in separate counterparts each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. Delivery of photocopies of the signature pages to this Amendment by facsimile or electronic mail shall be effective as delivery of manually executed counterparts of this Amendment.
4.5      Complete Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,

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CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
4.6      Headings. The headings, captions and arrangements used in this Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Amendment, nor affect the meaning thereof.
4.7      Severability. Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
4.8      Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York.
4.9      Reference to and Effect on the Loan Documents.
(a)    This Amendment shall be deemed to constitute a Loan Document for all purposes and in all respects. Each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference in the Credit Agreement or in any other Loan Document, or other agreements, documents or other instruments executed and delivered pursuant to the Credit Agreement to the “Credit Agreement”, shall mean and be a reference to the Credit Agreement as amended by this Amendment.
(b)    The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date first above written.
BORROWER :
EXCO RESOURCES, INC.
By: /s/ Mark F. Mulhern    
Name:    Mark F. Mulhern
Title: Executive Vice President and Chief
Financial Officer
GUARANTORS :

EXCO HOLDING (PA), INC.
EXCO PRODUCTION COMPANY (PA), LLC
EXCO PRODUCTION COMPANY (WV), LLC
EXCO RESOURCES (XA), LLC
EXCO SERVICES, INC.
EXCO MIDCONTINENT MLP, LLC
EXCO PARTNERS GP, LLC
EXCO PARTNERS OLP GP, LLC



By:     /s/ Mark F. Mulhern                
Name: Mark F. Mulhern
Title: Executive Vice President and Chief
Financial Officer
EXCO OPERATING COMPANY, LP
By:
EXCO Partners OLP GP, LLC,
its general partner
By: /s/ Mark F. Mulhern
Name:    Mark F. Mulhern
Title: Executive Vice President and Chief
Financial Officer




EXCO GP PARTNERS OLD, LP

By:    EXCO Partners GP, LLC,
its general partner

By:     /s/ Mark F. Mulhern            
Name: Mark F. Mulhern
Title: Executive Vice President and Chief
Financial Officer


EXCO EQUIPMENT LEASING, LLC


By:     /s/ Mark F. Mulhern                
Name: Mark F. Mulhern
Title: Executive Vice President and Chief
Financial Officer


JPMORGAN CHASE BANK, N.A. ,
as a Lender and as Administrative Agent and Issuing Bank
By: /s/ Scott Pittman    
Name: Scott Pittman        
Title: Authorized Officer
BANK OF AMERICA, N.A. , as a Lender

By:
/s/ Michael Clayborne_
Name: Michael Clayborne
Title: Vice President

WELLS FARGO BANK, NATIONAL ASSOCIATION , as a Lender and as Co-Documentation Agent

By:
/s/ T. Bancroft Mattei     
Name: T. Bancroft Mattei
Title: Director

BANK OF MONTREAL , as a Lender and as Co-Syndication Agent

By:
/s/ Joseph A. Bliss     
Name: Joseph A. Bliss
Title: Managing Director
KEYBANK N.A. , as a Lender

By:
/s/Joseph Scott     
Name: Joseph Scott
Title: Senior Vice President
DEUTSCHE BANK TRUST COMPANY AMERICAS , as a Lender

By:
/s/ Marcus M. Tarkington     
Name: Marcus M. Tarkington
Title: Director

By: /s/ Michael Getz     
Name: Michael Gets
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION , as a Lender

By:
/s/ John C. Springer     
Name: John C. Springer
Title: Vice President
BARCLAYS BANK PLC , as a Lender

By:
/s/ Vanessa A, Kurbatskiy     
Name: Vanessa A. Kurbatskiy
Title: Vice President

THE BANK OF NOVA SCOTIA , as a Lender

By:
/s/ Terry Donovan     
Name: Terry Donovan
Title: Managing Director

CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY ,
as a Lender

By:
/s/ Daria Mahoney     
Name: Daria Mahoney
Title: Authorized Signatory

By: /s/ Richard Antl     
Name: Richard Antl
Title: Authorized Signatory



UBS LOAN FINANCE LLC ,
as a Lender

By:
/s/ Lana Gifas     
Name: Lana Gifas
Title: Director

By: /s/ Joselin Fernandes     
Name: Joselin Fernandes
Title: Associate Director


Ninth Amendment to Credit Agreement – Page 4
66183843


PARTICIPATION AGREEMENT
BY AND BETWEEN
ADMIRAL A HOLDING L.P.,

ADMIRAL B HOLDING L.P.


AND

EXCO OPERATING COMPANY, LP
DATED JULY 31, 2013


Table of Contents
ARTICLE 1 DEFINITIONS    2
ARTICLE 2 PURCHASE AND SALE    21
2.1    Purchase and Sale of Initial KKR Assets    21
2.2    Consideration    22
2.3    Closing Payment    22
2.4    Closing Statement    22
2.5    Closing    22
2.6    Post-Closing Adjustment    22
2.7    Consents    24
2.8    CHK PSA    26
ARTICLE 3 DEVELOPMENT PLAN; DISPUTE RESOLUTION    27
3.1    Development Plan and Budget    27
3.2    Review and Approval    28
ARTICLE 4 APPROVED WELLS; RIGHT TO PARTICIPATE    29
4.1    Well Proposals    29
4.2    Assignment of Approved Wells    31
4.3    Central Production Facilities    31
4.4    Well Facilities and Midstream Facilities    32
4.5    Drainage    32
4.6    Outside Leases    33
4.7    Assignments    33
ARTICLE 5 OPERATIONS; MARKETING    34
5.1    Operating Agreements    34
5.2    Operator    34
5.3    HSE Standards    35
5.4    Operations Standard    35
5.5    Liability of Operator    36
5.6    Rentals, Shut-in Well Payments and Royalties    36
5.7    Insurance    37
5.8    Access to Information    37
5.9    Daily Production Reports    37
5.10    Information Provided by EXCO    37
5.11    Information Maintained by EXCO    38
5.12    Access Rights    39
5.13    Third Party Rights    39
5.14    Marketing    40
5.15    Taxes    41
ARTICLE 6 OFFERS    42
6.1    Well Classification    42
6.2    EXCO Offers    42
6.3    The KKR Parties’ Response to EXCO Offers    43
6.4    The KKR Parties’ Right to Decline    44
6.5    Retained Well Offers    44
6.6    The KKR Parties’ Right to Retain    45
6.7    Transfer of Offer Wells    45
6.8    Allocation of Fair Market Value    46
6.9    Proposed Fair Market Value    46
ARTICLE 7 ACQUIRED INTERESTS    47
7.1    Area of Mutual Interest    47
7.2    Notice of Acquisitions    47
7.3    Election Right    48
7.4    Farmouts    48
7.5    Non-Cash Acquisitions/Package Acquisitions    48
7.6    Exclusions/Operatorship    49
7.7    Independent Expert    50
ARTICLE 8 REPRESENTATIONS, WARRANTIES AND AGREEMENTS    50
8.1    Representations and Warranties    50
8.2    Representations and Warranties of the Initial KKR Investors    51
8.3    Representations and Warranties of EXCO with Respect to EXCO    53
8.4    Representations and Warranties of EXCO with Respect to Admiral
    Acquisition Sub    55
8.5    Compliance Matters    56
ARTICLE 9 CONDITIONS TO CLOSING    57
9.1    Conditions to Obligations of the KKR Parties to Closing    57
9.2    Conditions to Obligations of EXCO to Closing    57
9.3    Termination    58
ARTICLE 10 INDEMNIFICATION    58
10.1    Indemnification of KKR Parties by EXCO    58
10.2    Indemnification of EXCO by KKR Parties    59
10.3    Indemnification Procedures    59
ARTICLE 11 TRANSFER    61
11.1    Transfer    61
11.2    Tag Along Right    61
11.3    Right of First Offer    62
ARTICLE 12 NOTICES    63
12.1    Notices    63
12.2    Daily Notices    64
ARTICLE 13 TERMINATION AND REMEDIES    65
13.1    Term    65
13.2    Notice of Default; Remedies    65
13.3    Effect of Termination    65
ARTICLE 14 MISCELLANEOUS    65
14.1    Entire Agreement    65
14.2    Amendments    66
14.3    Waiver    66
14.4    KKR Representative    66
14.5    Applicable Law; Venue    66
14.6    Jury Waiver    67
14.7    Reciprocal Liens.    68
14.8    Expenses    68
14.9    Payments    68
14.10    Limitation on Damages    68
14.11    Relationship of Parties    68
14.12    Severability    68
14.13    Covenants Running with Lands    69
14.14    Timing    69
14.15    Successors and Assigns    69
14.16    Announcements    69
14.17    Confidentiality    69
14.18    No Recourse    69
14.19    Further Assurances    70
14.20    Counterpart Execution    70
14.21    Memorandum of Agreement    70
14.22    References and Construction    70

Exhibits and Schedules
Exhibit A        Area of Mutual Interest Area
Exhibit B        List of Area 1 Leases
Exhibit C        EXCO Assignment
Exhibit D-1        List of Outside Non-Core Leases, Non-Core Units and Retained Tracts
Exhibit D-2        List of Farmout Leases
Exhibit E        KKR Assignment
Exhibit F        Farmout Agreement
Exhibit G        Existing Wells
Exhibit H        PV-10 Value
Exhibit I        Initial Development Plan
Exhibit J-1        Representative Artificial Lift AFE
Exhibit J-2        Representative D&C AFE
Exhibit K        Form of EXCO Area 1 Assignment
Exhibit L-1        Form of EXCO Farmout Assignment
Exhibit L-2        Form of EXCO Non-Core Well Assignment
Exhibit M        Assets Operating Agreement
Exhibit N        Insurance
Exhibit O        Form of Third Party Rights Waiver
Exhibit P        Form of KKR Parties Approved Wells Assignment
Exhibit Q        Form of Share Assignment
Exhibit R        Tax Partnership Agreement
Exhibit S        Memorandum of Agreement
Schedule 1.1        KKR Parties; Proportionate Share
Schedule 1.2        KKR Knowledge Persons
Schedule 5.10        EXCO Provided Information
Schedule 14.9        Bank Account Information

PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT is made and entered into this 31st day of July, 2013 (the “ Execution Date ”) by and between Admiral A Holding L.P., a Delaware limited partnership (“ Admiral A ”), Admiral B Holding L.P., a Delaware limited partnership (“ Admiral B ”), and EXCO Operating Company, LP, a Delaware limited partnership (“ EXCO ”). Capitalized terms used herein that are not defined in the other provisions of this Agreement have the respective meanings set forth in Article 1 . Each of Admiral A and Admiral B are sometimes referred to herein individually as an “ Initial KKR Investor ” and collectively as the “ Initial KKR Investors ”.
RECITALS
A.    EXCO and Chesapeake Exploration L.L.C., an Oklahoma limited liability company (“ CHK ”), are parties to that certain Purchase and Sale Agreement dated as of July 2, 2013 (as amended, the “ CHK PSA ”), pursuant to which EXCO will purchase from CHK all of CHK’s right, title and interest in and to the Oil and Gas properties covering the lands covered by the Area 1 Leases and the Outside Non-Core Leases, subject to any exclusions set forth in the CHK PSA (such lands, subject to such exclusions, the “ CHK Area ”).
B.    Prior to the closing of the transactions contemplated by the CHK PSA (the “ CHK Closing ”), EXCO and CHK will identify the Existing Wells included within, or spud on, the CHK Area or lands pooled therewith.
C.    At the CHK Closing, subject to the terms of the CHK PSA, CHK shall assign to EXCO by Assignments and Bills of Sale substantially in the form attached as Exhibit C : (i) 100% of the CHK Interest in and to (A) the Existing Wells and (B) the Oil and Gas leases described in Exhibit D-1 , to the extent such Oil and Gas leases are located within the units and/or retained tract areas described in Exhibit D-1 (the CHK Interest in and to such leases to the extent within such units, other than the Existing Wells, the “ Outside Non-Core Leases ”); and (ii) 50% of the CHK Interest in and to all Area 1 Leases (collectively, the “ EXCO Assignment ”).
D.    Subject to the terms of this Agreement, at the CHK Closing, CHK shall assign to Admiral Acquisition Sub by Assignments and Bills of Sale substantially in the form attached as Exhibit E 50% of the CHK Interest in and to all Area 1 Leases (collectively, the “ KKR Assignment ”).
E.    Contemporaneously with the CHK Closing, CHK and EXCO will enter into a Farmout Agreement substantially in the form attached as Exhibit F (the “ Farmout Agreement ”), pursuant to which EXCO and, subject to and upon the terms and conditions of this Agreement, the KKR Parties will have certain rights to farm in to the Oil and Gas leases described on Exhibit D-2 , but excluding the Existing Wells (subject to such exclusion and to the extent subject to the Farmout Agreement, the CHK Interest in and to such leases the “ Farmout Leases ” and together with the Outside Non-Core Leases, the “ Outside Leases ”).
F.    Contemporaneously with the CHK Closing, the Initial KKR Investors shall acquire all of the equity interests of Admiral Acquisition Sub.
G.    The Initial KKR Investors and EXCO desire to enter into this Agreement to govern their rights and obligations with respect to the acquisition and development of the (i) Area 1 Leases and (ii) the Outside Leases.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Initial KKR Investors and EXCO hereby agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
When not otherwise defined in the body of this Agreement, the following terms will have the below defined meaning:
AAA ” means the American Arbitration Association.
Access Damages ” has the meaning set forth in Section 5.14 .
Access Gathering Agreement ” means the gas gathering agreement between Chesapeake Energy Marketing, Inc., Chesapeake Operating, Inc., Chesapeake Exploration, L.L.C. and Mockingbird Midstream Gas Services, L.L.C., dated effective as of July 1, 2012.
Acquired Interest ” has the meaning set forth in Section 7.1 .
Acquiring Party ” has the meaning set forth in Section 7.1 .
Adjustment Amount ” means an amount equal to: (i) 50% of the Area 1 Defect Recovery Amount (except to the extent relating to a Subject Required Consent Lease where the KKR Share is not conveyed to Admiral Acquisition Sub or any Other Admiral Sub (the “ Excluded Lease Defect Amount ”)); plus (ii) 50% of the Allocated Value of the PUD locations associated with any Existing Wells spud on such PUD locations in Area 1 during the period from April 1, 2013 through the CHK Closing (except to the extent relating to a Subject Required Consent Lease unobtained before the CHK Closing), plus (iii) the Consent Lease Deduction if the consent to the Initial KKR Transfer of the Subject Required Consent Lease has not been obtained prior to the CHK Closing.
Admiral A ” has the meaning set forth in the Preamble.
Admiral B ” has the meaning set forth in the Preamble.
Admiral Acquisition Sub ” means Admiral Acquisition Sub LLC, a series Delaware limited liability company and wholly-owned subsidiary of EXCO, which entity shall be permitted to designate more than one series of limited liability company interests under Section 18-215 of the Delaware Limited Liability Company Act formed for the purpose of acquiring the Initial KKR Assets under the CHK PSA at the CHK Closing.
Admiral Acquisition Sub 1 ” means Admiral Acquisition Sub 1 LLC, a series Delaware limited liability company and wholly-owned subsidiary of EXCO, which entity shall be formed for the purpose of acquiring the assets affected by a Required Consent that is obtained following the CHK Closing.
Admiral Acquisition Sub 2 ” means Admiral Acquisition Sub 2 LLC, a series Delaware limited liability company and wholly-owned subsidiary of EXCO, which entity shall be formed for the purpose of acquiring the assets affected by a Required Consent that is obtained following the CHK Closing.
Admiral Acquisition Sub 3 ” means Admiral Acquisition Sub 3 LLC, a series Delaware limited liability company and wholly-owned subsidiary of EXCO, which entity shall be formed for the purpose of acquiring the assets affected by a Required Consent that is obtained following the CHK Closing.
AFE ” means any authorization for expenditure under an Operating Agreement.
Affiliate ” means, with respect to any Person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with such specified Person through one or more intermediaries or otherwise.
Agreement ” means this Agreement, inclusive of all exhibits and attachments, as the same may be modified or amended from time to time.
Allocated Value ” has the meaning set forth in the CHK PSA.
AMI Offer Notice ” has the meaning set forth in Section 7.2 .
AMI Offered Interest ” has the meaning set forth in Section 7.2 .
Approved Area 1 Well ” has the meaning set forth in Section 4.2(a) .
Approved Farmout Well ” has the meaning set forth in Section 4.2(b) .
Approved Non-Core Well ” has the meaning set forth in Section 4.2(c) .
Approved Outside Well ” has the meaning set forth in Section 4.2(c) .
Approved Wells ” mean the Approved Area 1 Wells, the Approved Outside Wells and any Third Party Wells in which both Drilling Parties participate in accordance with Section 4.1(f) .
Area 1 ” means the lands covered by the Area 1 Leases or lands pooled therewith.
Area 1 Assets ” means the Area 1 Leases and Area 1 Wells.
Area 1 Assignment ” has the meaning set forth in Section 4.2(a) .
Area 1 Defect Recovery Amount ” means an amount equal to (a) the amount finally determined to be the value of all Environmental Defects and Title Defects that is paid to EXCO from the escrow account or by CHK (in each case) in accordance with the CHK PSA, multiplied by (b) a fraction, the numerator of which is the value attributable to all Environmental Defects and Title Defects (offset by any Title Benefits in accordance with the CHK PSA but without the application of the CHK Deductible to such Environmental Defects and Title Defects) to the extent attributable to the Area 1 Assets and which value is finally determined under the CHK PSA and the denominator of which is the value attributable to all Environmental Defects and Title Defects (offset by any Title Benefits in accordance with the CHK PSA but without the application of the CHK Deductible to such Environmental Defects and Title Defects) and which value is finally determined under the CHK PSA.
Area 1 Development Period ” means the period from the Closing Date until the first to occur of (i) the fifth anniversary of the Closing Date and (ii) such time as EXCO has Drilled, Completed and Equipped (or participated with a Third Party, so long as EXCO is the Operator, to Drill, Complete and Equip) 240 Wells on the Area 1 Leases.
Area 1 Leases ” means the CHK Interest in and to Oil and Gas leases described on Exhibit B , and any lands pooled or unitized therewith, but excluding (i) the Existing Wells and (ii) any Lease that is excluded from the transaction contemplated hereby pursuant to Section 2.7(e) or Section 2.7(f) .
Area 1 Well ” means any Well located on an Area 1 Lease, other than an Existing Well.
Artificial Lift AFE ” means, with respect to any well, one or more authorizations for expenditure for the installation of artificial lift and either the allocated portion of Field Electrification Facilities or well electrification for such well substantially in the form attached as Exhibit J-1 .
Artificial Lift Value ” has the meaning set forth in Exhibit H .
Asset Taxes ” has the meaning set forth in Section 5.15(c) .
Assets ” means the Leases and Approved Wells, excluding, for the avoidance of doubt, the Existing Wells and Wells not constituting Approved Wells.
Assets Operating Agreement ” has the meaning set forth in Section 5.1 .
Barrel ” means a volume measure of 42 U.S. gallons.
Base Purchase Price ” has the meaning set forth in Section 2.2 .
BOPD ” means Barrels of oil per day.
Business Day ” means any calendar day except Saturdays, Sundays and U.S. federal holidays.
Capital Operations ” means any material capital operation, including Drilling, Completing (including temporary abandonment or plugging and abandonment of a well), Equipping, installation of artificial lift, seismic, leasing, gathering and midstream projects, but excluding Special Projects.
Cash Value ” has the meaning set forth in Section 7.3(a) .
Central Production Facilities ” means field production facilities that are utilized for more than one well, other than Field Electrification Facilities.
Change in Control ” means (a) any direct or indirect change in Control of a Party (whether through merger, sale of shares or other equity interests, or otherwise), through a single transaction or series of related transactions, from one or more transferors to one or more transferees and (b) with respect to any KKR Investor, any event that causes such KKR Investor to no longer be a KKR Managed Entity; provided that for purposes hereof none of the following shall constitute a Change in Control: any change in Control of a Party (i) resulting from a management-led buyout of the public share ownership of such Party or its ultimate parent and the conversion of such Party or its ultimate parent (as applicable) to a privately-held company, (ii) resulting in ongoing control by an Affiliate that is wholly-owned by the ultimate parent company of such Party, (iii) resulting from the Transfer of equity in any KKR Managed Entity to any other KKR Managed Entity, or (iv) created by a Change in Control of the ultimate parent entity of EXCO (except that a Change in Control of the ultimate parent entity of EXCO (other than as described in clauses (i) or (ii) above) will be deemed a “Change in Control” of EXCO solely for the purposes of Section 4.1(b) ).
CHK ” has the meaning set forth in the Recitals.
CHK Area ” has the meaning set forth in the Recitals.
CHK Closing ” has the meaning set forth in the Recitals.
CHK Deductible ” means the Aggregate Defect Threshold (as defined in the CHK PSA).
CHK Interest ” means (i) with respect to any Area 1 Lease, all of CHK’s right, title and interest in and to such Area 1 Lease as of the CHK Closing (prior to giving effect to the EXCO Assignment and the KKR Assignment), (ii) with respect to any Outside Non-Core Lease or Non-Core Well, all of CHK’s right, title and interest in and to such Outside Non-Core Lease and/or Non-Core Well as of the CHK Closing (prior to giving effect to the EXCO Assignment), and (iii) with respect to any Farmout Lease or Farmout Well, all of CHK’s right, title and interest in and to such Farmout Lease and/or Farmout Well to which EXCO and, to the extent of any assignment to the KKR Parties of an interest in the Farmout Agreement attributable to such Farmout Lease or Farmout Well, the KKR Parties are entitled under the Farmout Agreement (subject to the CHK Override and CHK Participation Right).
CHK Override ” means the 2.0% overriding royalty interest reserved, or to be reserved, by CHK in the Farmout Wells and in Farmout Leases (and lands pooled therewith) within the associated units for such Wells, in each case, pursuant to the terms of the Farmout Agreement.
CHK Participation Right ” has the meaning set forth in Section 4.6(c) .
CHK PSA ” has the meaning set forth in the Recitals.
Claim Notice ” has the meaning set forth in Section 10.3(b) .
Closing ” has the meaning set forth in Section 2.5 .
Closing Date ” has the meaning set forth in Section 2.5 .
Closing Statement ” has the meaning set forth in Section 2.4 .
Code ” means the Internal Revenue Code of 1986, as amended.
Commercial Salt Water Disposal System ” means a salt water disposal system that has (or is required to have) a permit for a commercial salt water disposal system from the Texas Railroad Commission and infrastructure necessary to tie-in any such salt water disposal system to the Approved Wells.
Committed Wells ” means an Offer Well that, as of the date of determination, (i) has been Online Producing for at least 75% of the prior 365 days, other than an Uncertainty Well that is an Uncertainty Well because of one or more of the criteria set forth in the clause (ii) through (v) of the definition of Uncertainty Well is applicable or (ii) the Drilling Parties have agreed to plug and abandon.
Completed Lateral ” means the portion of the wellbore with respect to which fracture stimulation has been completed from the first perforation depth to the last perforation depth.
Completing ” (and any derivative of such term) means any activity related to (i) completing a well, including installation of production casing, conducting fracture stimulation and drilling out of fracture plugs, (ii) temporary plugging and abandonment of a well, or (iii) to the extent required, permanent plugging and abandonment of a well, including restoring and reseeding of the well location and any associated roads as required by regulation.
Consent Lease Deduction ” means an amount equal to $35,564,280 (which represents (i) 50% of the amount withheld from the CHK Closing attributable to the Subject Required Consent Lease, less (ii) the sum of the Allocated Values of any Existing Wells associated with such Subject Required Consent Lease).
Consent Period ” has the meaning set forth in Section 2.7(c) .
Consultant ” has the meaning set forth in Section 2.6(b) .
Control ” and “ Controlled by ” mean the ability (directly or indirectly through one or more intermediaries) to direct or cause the direction of the management or affairs of a Person, whether through the ownership of voting interests, by contract or otherwise.
Controlling Affiliate ” means, with respect to any Person, any other Person that directly or indirectly Controls such specified Person through one or more intermediaries or otherwise.
D&C AFE ” means one or more authorization for expenditure for the Drilling, Completing and Equipping of a Well, substantially in the form attached as Exhibit J-2 .
Delegated Matters ” has the meaning set forth in Section 14.4 .
Development Plan ” has the meaning set forth in Section 3.1 .
Development Plan Update ” means the applicable Next Quarter Detail Plan and the Quarter 2-4 Scoping Plan.
Diligence Review ” has the meaning set forth in Section 2.8(b) .
Disputed Matter ” has the meaning set forth in Section 6.9(a) .
Drill, Complete and Equip ” or “ Drilled, Completed and Equipped ” means, with respect to any well, completion of such Drilling, Completing and Equipping activities as are required for such well to produce oil or gas in paying quantities through the outlet of the Well Facilities.
Drilling ” (and any derivative of such term) means any activity related to moving in, rigging up, drilling, logging and testing a well, including: constructing and upgrading access roads, obtaining and preparing the drillsite, obtaining permits and division order or drill site title opinions, obtaining drilling contractor services and consultants necessary for the drilling of a well, obtaining mud, chemicals, pipe and supplies, and any other activities related to the foregoing.
Drilling Capital Return Amount ” means, as determined on any day for an EXCO Offer or a First Year Retained Well Offer, an amount equal to the positive difference of: (i) 1.20, multiplied by the Total Invested Capital for all Committed Wells or Retained Wells included in such EXCO Offer or First Year Retained Well Offer, as applicable; less (ii) the KKR Net Proceeds attributable to all such Committed Wells or Retained Wells included in such EXCO Offer or First Year Retained Well Offer, as applicable (excluding, for the avoidance of doubt, any value, amount or expense attributable to any interest retained by the KKR Parties pursuant to the KKR Right to Retain).
Drilling Parties ” means, on the one hand, EXCO and on the other hand, the KKR Parties.
Eagle Ford Formation ” means the interval below the base of the Austin Chalk (5,512 feet) and above the top of the Buda Lime (5,744 feet) as seen in the Traylor North #1 H, API #42507327460000 in Zavala County, Texas.
Eagle Ford Oil Price ” means the 12-month forward looking daily settlement prices for “NYMEX Light Sweet Crude Oil (WTI) Futures Contract”, adjusted for EXCO’s average realized differential for production from the Eagle Ford Formation for the preceding three-month period or, if oil production from a proposed well is subject to a marketing contract for such 12-month period, the differential provided under such marketing contract.
EIGF Credit Agreement ” means a credit agreement or other similar financing agreement among KKR Associates EIGF GP, L.P. or an affiliate fund as borrower and other parties party thereto, JPMorgan Chase Bank N.A., in its capacity as administrative agent, collateral agent and letter of credit issuing bank and certain other banks, financial institutions and other lending institutions from time to time party thereto, such agreement as amended, modified, amended and restated or otherwise supplemented or replaced from time to time.
Elect ” or “ Election ” means a written response by a KKR Party to an AFE under this Agreement, or the act by a KKR Party of responding to an AFE under this Agreement.
Environmental Defects ” has the meaning set forth in the CHK PSA; provided that the term “Environmental Defects” as used in this Agreement shall not include any Environmental Defect under the CHK PSA that does not exceed the Individual Defect Threshold applicable thereto.
Equipping ” (and any derivative of such term) means, with respect to any well, any activity related to equipping such well, including installing tubing and any other equipment or taking any other activities required to bring such well to first sale, including installing Well Facilities, and (solely to the extent that the costs of such allocable portion of the installation is set forth on the applicable D&C AFE) Central Production Facilities, but excluding installing any Midstream Facilities. For the avoidance of doubt, other than costs of the allocable portion of such Central Production Facilities as set forth on the applicable D&C AFE, the installation of Central Production Facilities is not included in Equipping and the KKR Parties shall not be responsible for paying any costs with respect to the installation of such Central Production Facilities.
Equity Ownership Share ” has the meaning set forth in the definition of Share Assignment.
Estimated Adjustment Amount ” has the meaning set forth in Section 2.4 .
Excluded Lease Defect Amount ” has the meaning set forth in the definition of Adjustment Amount.
EXCO ” has the meaning set forth in the Preamble.
EXCO Assignment ” has the meaning set forth in the Recitals.
EXCO Consent Lease ” means any Area 1 Lease subject to a Required Consent for which such Required Consent has been obtained solely as to the Initial KKR Transfer of such Area 1 Lease.
EXCO Credit Agreement ” means that certain Amended and Restated Credit Agreement, dated as of July 31, 2013, among EXCO Resources, Inc., certain of its subsidiaries, the lender parties thereto and JPMorgan Chase Bank, N.A., as administrative agent, such agreement, as amended, modified, amended and restated or otherwise supplemented or replaced from time to time.
EXCO Indemnified Parties ” has the meaning set forth in Section 10.2 .
EXCO Net Mineral Acres ” means (i) the number of gross acres in the land covered by the Area 1 Leases, multiplied by (ii) the undivided mineral interest in such lands covered by the Area 1 Leases, multiplied by (iii) EXCO’s Working Interest in the Area 1 Leases (excluding (a) the effect of any assignment of an Incremental Share in any Well to the KKR Parties and (b) any assignment of EXCO’s interest in any Existing Well or any Well that is not an Approved Well, in the case of clause (a) and (b), in calculating such Working Interest).
EXCO Offer ” has the meaning set forth in Section 6.2 .
Execution Date ” has the meaning set forth in the Preamble.
Existing Equipment ” means CHK’s right, title and interest (prior to giving effect to the EXCO Assignment) in and to the infrastructure, equipment and other personal property located on or near the wellpad of the Existing Wells, including the wellpads of such Existing Wells.
Existing Marketing Agreements ” means (i) the Crude Oil Purchase Contract between EXCO and Chesapeake Energy Marketing, Inc., dated as of the CHK Closing and (ii) the Base Contract for Sale and Purchase of Natural Gas between EXCO and Chesapeake Energy Marketing, Inc. dated as of September 1, 2009 and the Transaction Confirmation #7 thereunder dated as of the CHK Closing.
Existing Wells ” means CHK’s right, title and interest (prior to giving effect to the EXCO Assignment) in (i) the Wells described in Exhibit G and (ii) any Well otherwise spud on the CHK Area or lands pooled therewith prior to the CHK Closing and purchased by EXCO under the CHK PSA and (in each case) the Existing Equipment related to such Wells.
Fair Market Value ” means, as determined on any day for an EXCO Offer, First Year Retained Well Offer or Retained Well Offer, an amount equal to the average of the (i) PV-10 Value of the Proved Developed Producing Reserves and the (ii) PV-10 Value of the Probable Developed Producing Reserves, which will include Artificial Lift Value, if applicable, attributable to the KKR Parties’ right, title and interest in and to all of the Offer Wells included in such EXCO Offer, First Year Retained Well Offer or Retained Well Offer, as applicable, as of the end of the Quarter immediately prior to the EXCO Offer, First Year Retained Well Offer or Retained Well Offer, as applicable, for such Wells pursuant to Section 6.2 (excluding, for the avoidance of doubt, any value, amount or expense attributable to any interest retained by the KKR Parties pursuant to the KKR Right to Retain).
Farmout Agreement ” has the meaning set forth in the Recitals.
Farmout Assignment ” has the meaning set forth in Section 4.2(b) .
Farmout Leases ” has the meaning set forth in the Recitals.
Farmout Well ” means any Well located on a Farmout Lease or lands pooled or unitized therewith, other than an Existing Well, to be Drilled pursuant to the Farmout Agreement.
Field Electrification Facilities ” means electrification facilities used for more than one well.
Final Settlement Date ” has the meaning set forth in Section 2.6(a) .
Final Statement ” has the meaning set forth in Section 2.6(a) .
First Offer Year ” means the period of time covered by the first four Quarters during the Offer Period.
First Production Year ” has the meaning set forth in Section 3.1(a) .
First Year Amount ” means an amount equal to: (i) 1.20, multiplied by the Total Invested Capital for all Offer Wells located in Area 1 included in the first four EXCO Offers; less (ii) the KKR Net Proceeds attributable to such Offer Wells (excluding, for the avoidance of doubt, any value, amount or expense attributable to any interest retained by the KKR Parties pursuant to the KKR Right to Retain).
First Year Retained Well Offer ” has the meaning set forth in Section 6.5 .
Good Cause ” has the meaning set forth in Section 5.2(b) .
GOR ” means Gas/Oil Ratio, expressed in SCF/Barrel.
Governmental Authority ” means any nation or state and any political subdivision thereof and any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; and any court or governmental tribunal.
Governmental Official ” means (i) any officer or employee of a Governmental Authority or any public international organization; (ii) any physical person acting in an official capacity for or on behalf of a Governmental Authority or any public international organization; (iii) any candidate for a political office; or (iv) any political party or official thereof.
Hedges ” has the meaning set forth in Section 6.7(a) .
HSE ” has the meaning set forth in Section 5.3 .
HSE Program ” has the meaning set forth in Section 5.3 .
Incremental Share ” means 25% of the CHK Interest in and to an Approved Area 1 Well.
Indemnified Party ” has the meaning set forth in Section 10.3(a) .
Indemnifying Party ” has the meaning set forth in Section 10.3(a) .
Individual Benefit Threshold ” has the meaning set forth in the CHK PSA.
Individual Defect Threshold ” has the meaning set forth in the CHK PSA.
Initial KKR Assets ” has the meaning set forth in Section 2.1 .
Initial KKR Investors ” has the meaning set forth in the Preamble.
Initial KKR Transfer ” has the meaning set forth in the definition of KKR Transfer.
Interference ” means, for any Offer Well, a 25% increase in the water production of such Offer Well following fracture stimulation operations on any well within 2,000 feet on a 45 degree East of North Azimuth of such Offer Well.
KFH Real Asset Holdings Credit Agreement ” means that certain Credit Agreement dated as of February 27, 2013, among KFH Real Asset Holdings LP, a Delaware limited partnership as borrower, JPMorgan Chase Bank, N.A., in its capacity as administrative agent, collateral agent and letter of credit issuing bank and certain other banks, financial institutions and other lending institutions from time to time party thereto, such agreement, as amended, modified, amended and restated or otherwise supplemented or replaced from time to time.
KKR ” means Kohlberg Kravis Roberts & Co. L.P., a limited partnership formed and existing under the Laws of Delaware.
KKR Assignment ” has the meaning set forth in the Recitals.
KKR Credit Agreements ” means the KKR Real Asset Holdings Credit Agreement, the KFH Real Asset Holdings Credit Agreement and the EIGF Credit Agreement.
KKR Indemnified Parties ” has the meaning set forth in Section 10.1 .
KKR Investors ” means (i) the Initial KKR Investors; (ii) from and after the Closing, Admiral Acquisition Sub; (iii) from and after a transfer of the Other Admiral Sub Equity Interest in the applicable Other Admiral Sub, such Other Admiral Sub and (iv) any permitted successor and/or assign of a KKR Investor that is a KKR Managed Entity.
KKR Managed Entity ” means any investment fund or its subsidiary that is Controlled by KKR.
KKR Net Proceeds ” means (i) for purposes of calculating the First Year Amount with respect to (a) all of the Offer Wells included in an EXCO Offer or (b) all of the Retained Wells included in a First Year Retained Well Offer, and (ii) for purposes of calculating the Drilling Capital Return Amount with respect to (a) all of the Committed Wells included in an EXCO Offer or (b) all of the Retained Wells included in a First Year Retained Well Offer, (1) the aggregate proceeds paid to the KKR Parties on account of production (assuming, for the purposes hereof, that such production is not subject to any Hedges) from such applicable Offer Wells included in the applicable offer or otherwise attributable to the KKR Parties’ interest in such applicable Offer Wells included in the applicable offer (including the KKR Parties’ Proportionate Share of the insurance proceeds and proceeds from the sale of any equipment, in each case, attributable to such applicable Offer Wells included in the applicable offer and paid to the KKR Parties) less (2) all amounts paid by the KKR Parties for all lease operating expenses, insurance carried by EXCO pursuant to Section 5.7 or which the KKR Parties elect to provide for themselves (up to the amount of the premiums for such insurance offered by EXCO pursuant to Section 5.7 ), marketing fees, transportation charges, workover costs and charges, production, severance, ad valorem, property and similar taxes and all other expenses paid by the KKR Parties under this Agreement or the applicable Operating Agreement, (in each case with respect to this clause (2)) that (A) relate to the Operation of such applicable Offer Wells included in the applicable offer, (B) are attributable to the KKR Parties’ interest in such applicable Offer Wells included in the applicable offer, and (C) do not constitute any amounts paid by the KKR Parties in respect of any D&C AFE or Artificial Lift AFE. “KKR Net Proceeds” shall not include any costs or proceeds attributable to (aa) the acquisition of the KKR Parties’ interest in the Leases, (bb) the costs to acquire any Midstream Facilities, (cc) Hedges on the KKR Parties’ interest in the Offer Wells, (dd) any costs to acquire any Acquired Interests, (ee) any lease maintenance costs or extension payment or (ff) any costs associated with future seismic licenses.
KKR Parties ” means, from and after the Closing, the KKR Investors that, from time to time, hold a direct Working Interest in the Assets, and “ KKR Party ” means any of them.
KKR Real Asset Holdings Credit Agreement ” means that certain Credit Agreement dated as of February 27, 2013, among KKR Real Asset Holdings LP, a Delaware limited partnership as borrower, JPMorgan Chase Bank, N.A., in its capacity as administrative agent, collateral agent and letter of credit issuing bank and certain other banks, financial institutions and other lending institutions from time to time party thereto, such agreement, as amended, modified, amended and restated or otherwise supplemented or replaced from time to time.
KKR Representative ” has the meaning set forth in Section 14.4 .
KKR Retained Interest ” has the meaning set forth in Section 6.6 .
KKR Right to Decline ” has the meaning set forth in Section 6.4 .
KKR Right to Retain ” has the meaning set forth in Section 6.6 .
KKR Share ” means (i) for all Area 1 Leases, 50% of the CHK Interest in and to the Area 1 Leases, (ii) for an Approved Area 1 Well, 75% of the CHK Interest in and to such Approved Area 1 Well, (iii) for an Approved Farmout Well, 75% of the CHK Interest in and to such Approved Farmout Well and the unit formed (or contemplated by the Farmout Agreement) for such Approved Farmout Well and (iv) for an Approved Non-Core Well, 75% of the CHK Interest in and to such Approved Non-Core Well; provided that if EXCO acquires all of the KKR Parties’ interest in an Approved Well in accordance with Article 6 , then the KKR Share shall be reduced to 0% or, if the KKR Parties exercise the KKR Right to Retain in connection with such acquisition by EXCO, then the KKR Share shall be the percentage interest (up to 15%) of the KKR Parties’ collective interest in and to such group of Offer Wells in an EXCO Offer that the KKR Parties have elected to retain in connection with their exercise of the KKR Right to Retain; provided further that if the KKR Parties Elect to participate in an Approved Well on an EXCO Consent Lease, the KKR Share in such Approved Well shall equal 50% of the CHK Interest in and to such EXCO Consent Lease.
KKR Transfer ” means any Transfer (i) by CHK to Admiral Acquisition Sub or any Other Admiral Sub of the KKR Share in and to any Area 1 Lease (the “ Initial KKR Transfer ”), (ii) by EXCO to the KKR Parties of the Incremental Share in and to any Area 1 Well, (iii) by EXCO to the KKR Parties of 75% of the CHK Interest in and to an Outside Well and (iv) by any KKR Party to another KKR Party or to a KKR Managed Entity or (v) by the KKR Parties to EXCO (in each case) of any interest in any of the Assets.
Knowledge ” means (i) with respect to EXCO, the actual knowledge of the officers and employees of EXCO or its Affiliates listed in Schedule 1.2B of the CHK PSA (after reasonable due inquiry) and (ii) with respect to the KKR Investors, the actual knowledge of the officers and employees of such KKR Investor or its Affiliates or RPM Energy Management, LLC listed in Schedule 1.2 (after reasonable due inquiry).
Laws ” means all applicable statutes, writs, laws, rules, regulations, ordinances, orders, judgments, injunctions, awards, determinations or decrees of a Governmental Authority.
Leases ” means the Area 1 Leases, the Outside Leases and any Acquired Interests.
Liabilities ” has the meaning set forth in Section 10.3(g) .
Material Third Party Rights ” means any preferential purchase right, right of first refusal, Required Consent or maintenance of uniform interest requirement pertaining to a Transfer of an interest in a Lease or a Well.
Midstream Facilities ” means (i) any Commercial Salt Water Disposal System and (ii) any gas gathering facilities, oil gathering facilities or other similar facilities that are downstream of the Well Facilities to the point of sale or custody transfer to a Third Party gathering system, including any Existing Equipment.
Monthly Invoice ” has the meaning set forth in Section 4.1(e) .
Next Quarter ” has the meaning set forth in Section 3.1(c) .
Next Quarter Detail Plan ” has the meaning set forth in Section 3.1(c) .
Non-Acquiring Party ” has the meaning set forth in Section 7.2 .
Non-Transferring Party ” has the meaning set forth in Section 11.2(a) .
Non-Core Assets ” means the Outside Non-Core Leases and the Non-Core Wells.
Non-Core Well ” means any Well located on an Outside Non-Core Lease or lands pooled or unitized therewith, other than an Existing Well.
Non-Core Well Assignment ” has the meaning set forth in Section 4.2(c) .
OFAC ” means the U.S. Office of Foreign Assets Control.
Offer Period ” means the period beginning with the Quarter immediately following the First Production Year until such time as EXCO has offered to purchase the KKR Parties’ interest in each of the Offer Wells that are Drilled, Completed and Equipped during the Area 1 Development Period.
Offer Well ” means, as of the date of determination, any Approved Well that (i) has commenced production of Oil and Gas at least 365 days prior to such date or (ii) the Drilling Parties have agreed to plug and abandon.
Offered Interest ” has the meaning set forth in Section 11.2(b) .
Offeror ” has the meaning set forth in Section 11.2(b) .
Oil and Gas ” means oil, gas, casinghead gas, gas condensate, and all other liquid or gaseous hydrocarbons and other marketable substances produced therewith.
Online Producing ” means a Well that produces at least 5 BOPD.
Operating Agreement ” means, with respect to any Asset, the Assets Operating Agreement, the Outside Operating Agreement or any Third Party Agreement, as applicable, governing operations of such Asset.
Operations ” means all operations relating to the exploration and development of the Leases.
Other Admiral Sub ” means Admiral Acquisition Sub 1, Admiral Acquisition Sub 2, or Admiral Acquisition Sub 3, as applicable.
Other Admiral Sub Equity Interest ” means all of the limited liability company interests in the applicable Other Admiral Sub.
Outside Area ” means the lands covered by the Outside Leases or lands pooled therewith.
Outside Leases ” has the meaning set forth in the Recitals.
Outside Non-Core Leases ” has the meaning set forth in the Recitals.
Outside Operating Agreement ” has the meaning set forth in Section 4.6(c) .
Outside Well ” means a Non-Core Well or a Farmout Well, as the context requires.
Partnership ” means EXCO/HGI Production Partners, L.P., a Delaware limited partnership.
Partnership Opportunities Provisions ” has the meaning set forth in Section 7.1 .
Party ” means EXCO, on the one hand, or the KKR Investors, on the other hand, and “ Parties ” means all of them.
Party Affiliate ” has the meaning set forth in Section 14.18 .
Performance Default ” has the meaning set forth in Section 5.4(c) .
Permits ” means all authorizations, licenses, permits or certificates issued by a Governmental Authority.
Permitted Encumbrances ” means with respect to any Asset:
(i)      (a) if such Asset is a Farmout Lease or Farmout Well, the CHK Override, the CHK Participation Right and the Farmout Agreement, and (b) if such Asset is an Area 1 Lease, Area 1 Well, Outside Non-Core Lease or Non-Core Well, the CHK PSA;
(ii)      liens for Taxes for which payment is not due or which are being contested in good faith by appropriate proceedings;
(iii)      liens of mechanics, materialmen, warehousement, landlords, vendors and carriers and any similar liens arising by operation of Law which, in each instance, arise in the ordinary course of business for sums not yet due or that are being contested in good faith by appropriate proceedings;
(iv)      easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations that do not individually or in the aggregate, adversely interfere with the operation, value or use of such Asset;
(v)      all rights reserved to or vested in any Governmental Authority to control or regulate such Asset in any manner, and all Laws, rules and orders of a Governmental Authority;
(vi)      all rights to consent by, required notices to, filings with or other actions by Governmental Authorities in connection with the sale, disposition, transfer or conveyance of federal, state, tribal or other governmental Oil and Gas leases or interests therein or related thereto, or the Transfer of operations of such Assets, where the same are customarily obtained subsequent to the Transfer of such Oil and Gas leases or interests therein, or such operations;
(vii)      non-governmental Third Party consents and preferential rights to purchase;
(viii)      the applicable Operating Agreement;
(ix)      the Existing Marketing Agreements, the Access Gathering Agreement and any marketing agreement entered into by EXCO in accordance with Section 5.14 ;
(x)      this Agreement;
(xi)      the Surface Use Agreement, dated as of July 31, 2013, by and between EXCO and KM Ranch Properties, Ltd.;
(xii)      liens which shall be released in accordance with Section 5.13(b) ;
(xiii)      any unit or pooling designation and/or agreement relating to any unit or pooled area formed for any Approved Well; and
(xiv)      any other encumbrances to which the applicable assignee has agreed to in writing.
Permitted Pledge ” means the pledge, hypothecation or other voluntary encumbrance of a Party’s direct interest in the Assets; provided that (i) each pledge, hypothecation or encumbrance of a Party’s direct interest in the Assets complies with the applicable Operating Agreement and Section 14.7 , and (ii) with respect to each pledge, hypothecation or other voluntary encumbrance, any Transfer in connection with a secured party’s exercise of remedies under such pledge, hypothecation or encumbrance is subject to the other Party’s rights under this Agreement.
Person ” means any person, entity, partnership, joint venture, limited liability company, corporation or other form of enterprise.
Probable Developed Producing Reserves ” means, with respect to any Well, those Oil and Gas reserves, estimated to be more likely than not (being at least a 50% probability that the reserves actually recovered will equal or exceed the estimate) to be recovered from the then currently producing zones through the wellbore of such Well under operating methods and economic conditions as described in Exhibit H .
Proved Developed Producing Reserves ” means, with respect to any Well, those Oil and Gas reserves, estimated with reasonable certainty (being at least a 90% probability that the reserves actually recovered will equal or exceed the estimate) to be recovered from the then currently producing zones through the wellbore of such Well under operating methods and economic conditions as described in Exhibit H .
Producing Oil Trend ” means the difference between the flowing 14-day average oil producing rate before and after a Well Event.
Production Burdens ” has the meaning set forth in Section 5.6 .
Prohibited Person ” means (i) any Person that has been determined by competent authority to be the subject of a prohibition in any Law administered by OFAC, (ii) the government, including any political subdivision, agency or instrumentality thereof, of any country against which the United States maintains comprehensive economic sanctions or embargoes, (iii) any Person that acts on behalf of or is owned or controlled by the government of a country against which the United States maintains comprehensive economic sanctions or embargoes, (iv) any Person that has been identified on the Annex to Executive Order 13224 or the OFAC Specially Designated Nationals and Blocked Persons List (Appendix A to 31 C.F.R. Ch. V), as amended from time to time, or (v) any Person that has been designated on any similar list or order published by the United States government.
Proportionate Share ” means, with respect to each KKR Party for a particular Asset, the portion of the KKR Share (expressed as a percentage) owned by such KKR Party in such Asset. As of the Closing, Admiral Acquisition Sub will be the only KKR Party and will have a 100% Proportionate Share. The KKR Parties shall update Schedule 1.1 from time to time by written notice to EXCO to reflect any change in the Proportionate Share of a KKR Party with respect to any Asset(s).
Proposed Tag-Along Sale ” has the meaning set forth in Section 11.2(a) .
PUD ” means the development locations described in the CHK PSA.
Purchase Price ” has the meaning set forth in Section 2.2 .
PV-10 Value ” means the present value of estimated future Oil and Gas revenues, net of estimated direct expenses, discounted at an annual discount rate of 10%, in each case determined according to the methodology described on Exhibit H .
Qualifying KKR Approved Wells ” means, with respect to the applicable Next Quarter, (i) the total number of wells that meet the Qualifying Well Criteria specified to be drilled for the Next Quarter in the then current Quarter 2-4 Scoping Plan less (ii) the total number of wells (if any) that meet the Qualifying Well Criteria included in the portion of the applicable Next Quarter Detail Plan that has been approved by KKR.
Qualifying Well ” is any Well that:
i. (a) has been approved by the KKR Parties in the Next Quarter Detail Plan (or portion thereof), other than any Well approved by the KKR Parties in the Next Quarter Detail Plan that does not meet the Qualifying Well Criteria if the reason such Well fails to meet the Qualifying Criteria changes after the date of approval by KKR Parties, and (b) if the entire applicable Next Quarter Detail Plan has not been approved by the KKR Parties, is a well meeting the Qualifying Well Criteria to be drilled in such Next Quarter that will not cause the number of Qualifying KKR Approved Wells to be exceeded; or
ii. has been proposed by the KKR Parties pursuant to Section 4.1(c) in which EXCO Elects to participate as provided in such Section.
Qualifying Well Criteria ” means the following criteria:
i. such Well does not have a planned lateral within 500 feet of the Completed Lateral of a Well; provided that the foregoing restriction shall not apply to reasonable deviations of not more than 25 feet and corresponding corrections of the Completed Lateral of the wellbore of any Well;
ii. such Well has a planned orientation inside of a ten degree tolerance range of N 45W (45 degrees West of due North);
iii. such Well has a planned lateral length of at least 5,000 feet from the first perforation depth to the last perforation depth;
iv. such Well is proposed to produce from the Eagle Ford Formation;
v. such Well is located in Area 1;
vi. such Well has not been proposed by a Third Party;
vii. such Well is not subject to Third Party Rights that are Required Consents and which Third Party Rights are not waived by the holder of such rights or the KKR Parties; and
viii. such Well is a Well in which the Drilling Parties together will have a 73.8% (assuming the Drilling Parties have a collective 100% Working Interest) net revenue interest in and to such Well (the “ Target NRI ”); provided that if the Drilling Parties collectively have less than 100% Working Interest or such Well covers less than 100% of the mineral interest then such Target NRI will be proportionately reduced.
Quarter ” means a consecutive period of three calendar months ending March 31st, June 30th, September 30th or December 31st.
Quarter 2-4 Scoping Plan ” has the meaning set forth in Section 3.1(d) .
Quarterly Meeting ” has the meaning set forth in Section 3.2(a) .
Quarterly Operations ” means Capital Operations and Special Projects.
Records ” has the meaning set forth in Section 5.11(a) .
Recourse Parties ” has the meaning set forth in Section 14.18 .
Required Consent ” means a consent or other similar right (including waiver of a maintenance of uniform interest right) that, if not obtained prior to the Transfer of an Area 1 Lease or Area 1 Well, either (i) voids, nullifies or grants a Third Party the right to void an assignment of such Area 1 Lease or Area 1 Well or (ii) terminates the assignor’s interest in such Area 1 Lease or Area 1 Well subject to such consent; provided that, “Required Consent” does not include any consent which by its terms cannot be unreasonably withheld (unless the agreement containing such requirement provides that any assignment without consent will be ineffective or void or will give the other party thereto the right to terminate such agreement).
Required Consent Lease ” means any of the following Oil and Gas leases, each as more particularly described in Exhibit B : TX1250333 and TX42000497-000.
Reserve Engineer ” has the meaning set forth in Section 6.9(a) .
Retained Well Offer ” means any independent offer by EXCO to purchase a Retained Well after the First Offer Year.
Retained Wells ” means any Committed Well included in an EXCO Offer with respect to which the KKR Parties exercise their KKR Right to Decline.
ROFO Offer ” has the meaning set forth in Section 11.3(b) .
ROFO Offered Interests ” has the meaning set forth in Section 11.3(b) .
Sale Notice ” has the meaning set forth in Section 11.3(a) .
SCF ” means standard cubic foot.
Share Assignment ” means the assignment to Admiral A and Admiral B of 75% and 25%, respectively (the “ Equity Ownership Share ”), of the Subject Equity Interest, in substantially the form attached hereto as Exhibit Q .
Special Projects ” means special projects, including spacing tests, microseismic studies or testing of formations other than the Eagle Ford Formation.
Subject Assets ” means (i) any property jointly held by the Drilling Parties and (ii) the Midstream Facilities.
Subject Equity Interest ” has the meaning set forth in Section 2.1 .
Subject Required Consent Lease ” means the following Oil and Gas lease, as more particularly described in Exhibit B : TX4870001-000.
Tag-Along Interest ” has the meaning set forth in Section 11.2(c) .
Tag-Along Notice ” has the meaning set forth in Section 11.2(b) .
Tag-Along Offer ” has the meaning set forth in Section 11.2(b) .
Tag-Along Party ” has the meaning set forth in Section 11.2(b) .
Tag-Along Rights ” has the meaning set forth in Section 11.2(a) .
Target Net Mineral Acres ” means (i) the number of gross acres in the land covered by the Area 1 Leases, multiplied by (ii) the undivided mineral interest in such lands covered by the Area 1 Leases, multiplied by (iii) CHK’s Working Interest in the Area 1 Leases (prior to giving effect to the EXCO Assignment and the KKR Assignment), multiplied by (iv) 50%.
Target NRI ” has the meaning set forth in the definition of Qualifying Well Criteria.
Tax Partnership ” has the meaning set forth in Section 5.15(a) .
Tax Partnership Agreement ” means the tax partnership agreement entered into by the Initial KKR Investors and EXCO as of the Closing Date in the form attached hereto as Exhibit R .
Tax Purposes ” has the meaning set forth in Section 5.15(a) .
Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
Taxes ” means all income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, real property transfer or gain, gross receipts, goods and services, registration, capital, unclaimed property, escheatment, transfer or withholding taxes or other governmental fees or charges imposed by any Governmental Authority, including any interest, penalties or additional amounts that may be imposed with respect thereto, and including any liability for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability for payment of such amounts was determined or taken into account with reference to the liability of any other Person, or as a transferee or successor or otherwise.
Term ” has the meaning set forth in Section 13.1(a) .
Third Party ” means any Person other than a Party or an Affiliate of a Party.
Third Party Agreement ” has the meaning set forth in Section 5.1 .
Third Party Claim ” has the meaning set forth in Section 10.3(b) .
Third Party Right ” has the meaning set forth in Section 5.13(a) .
Third Party Well ” has the meaning set forth in Section 4.1(f) .
Title Benefits ” has the meaning set forth in the CHK PSA; provided that the term “Title Benefits” as used in this Agreement shall not include any Title Benefit under the CHK PSA that does not exceed the Individual Benefit Threshold.
Title Defects ” has the meaning set forth in the CHK PSA; provided that the term “Title Defects” as used in this Agreement shall not include any Title Defect under the CHK PSA that does not exceed the Individual Defect Threshold applicable thereto.
Total Invested Capital ” means, as determined on any day for an EXCO Offer or a First Year Retained Well Offer, the sum of the amounts paid by the KKR Parties in respect of all D&C AFEs and all Artificial Lift AFEs for all of the Wells included in such EXCO Offer or First Year Retained Well Offer, as applicable, in each case, regardless of whether such amounts are actually applied to pay the KKR Parties’ interest in such Wells.
Transaction Documents ” has the meaning set forth in Section 5.15(a) .
Transfer ” means any sale, assignment, conveyance, transfer or other disposition, voluntary or involuntary, by operation of Law or otherwise, including any Change in Control; provided that a Party’s entry into a Permitted Pledge shall not constitute a Transfer.
Transfer Effective Date ” has the meaning set forth in Section 6.7(a) .
Transferring Party ” means any party that intends to Transfer an interest in the Assets to a Third Party.
Uncertainty Well ” means an Offer Well that, as of the date of determination, meets any of the following criteria: (i) has been Online Producing for less than 75% of the prior 365 days; (ii) if such Offer Well has been placed on artificial lift, has less than 90 cumulative days of production on artificial lift; (iii) is temporarily abandoned; (iv) any Offer Well that EXCO, at its sole discretion, designates as an “Uncertainty Well” within the last 90-day period before the date of determination because such well has an offset fracture stimulation planned within 2,000 feet on a 45 degree East of North Azimuth in the Next Quarter ( provided that EXCO may make such an election only once for a Well); or (v) exhibits a 20% change in the Producing Oil Trend within the last 90-day period before the date of determination and has not returned to previous trend prior to the date of determination in conjunction with any of the following events or circumstances: (A) Interference from another well, (B) a multi-day shut-in, whether attributable to manual intervention or unscheduled downtime, (C) a 20% change in the GOR trend or (D) evidence of a down hole well issue in such Offer Well (each such event or circumstance in (A)-(D), a “ Well Event ”); provided that any Offer Well that remains an Uncertainty Well for two consecutive Quarters shall be deemed a Committed Well to be included in the EXCO Offer for Committed Wells for the Quarter immediately following such period.
Well ” means any Oil and Gas well located on one or more Leases or land pooled or unitized therewith that EXCO elects to Drill or participate in the drilling thereof.
Well Event ” has the meaning set forth in the definition of Uncertainty Well.
Well Facilities ” means all flowlines, pipelines, meters, separators, heater-treaters, vapor recovery units, tanks, and any other similar equipment between the wellhead of a well and (i) the outlet valve of the multi-well aggregating gas meter for the facilities (if gas from such well is gathered with gas from other wells, otherwise the individual gas meter) applicable to such well for gas, or (ii) the outlet valves of the oil tank battery and water tank battery of the facilities applicable to such well for oil and water, respectively.
Working Interest ” means with respect to any Lease or Well, the percentage or fractional interest in and to such Lease or Well that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Lease or Well, but without regard to the effect of any royalties, overriding royalties, production payments, net profit interests and other similar burdens upon, measured by, or payable out of production therefrom.
ARTICLE 2     
PURCHASE AND SALE
2.1      Purchase and Sale of Initial KKR Assets . Subject to the terms and conditions of the CHK PSA, at the CHK Closing, CHK shall sell, assign, transfer and convey to Admiral Acquisition Sub 50% of the CHK Interest in and to all Area 1 Leases (the “ Initial KKR Assets ”). Upon the terms and subject to the conditions set forth in this Agreement, EXCO shall sell, assign, transfer and convey to each Initial KKR Investor, and each Initial KKR Investor shall purchase and acquire from EXCO, at the Closing, such Initial KKR Investor’s Equity Ownership Share of all of the limited liability company interests in Admiral Acquisition Sub (the “ Subject Equity Interest ”). The Initial KKR Assets, subject to Section 2.7 , shall be transferred to Admiral Acquisition Sub by CHK by delivery of the KKR Assignment at the CHK Closing. Each Initial KKR Investor’s Equity Ownership Share of the Subject Equity Interest shall be transferred to such Initial KKR Investor by delivery of the Share Assignment at the Closing.
2.2      Consideration . In consideration of the purchase of the Subject Equity Interest (and, indirectly, the Initial KKR Assets), Admiral A and Admiral B shall pay to EXCO 75% and 25%, respectively, of $133,000,000 (the “ Base Purchase Price ”), as adjusted by the Adjustment Amount (the Base Purchase Price, as adjusted, the “ Purchase Price ”).
2.3      Closing Payment . At Closing, each Initial KKR Investor shall pay to EXCO in cash by wire transfer of immediately available funds an amount equal to its Equity Ownership Share of the Base Purchase Price, as adjusted by the Estimated Adjustment Amount (as provided in Section 2.4 ).
2.4      Closing Statement . Prior to the Closing Date, EXCO shall prepare and deliver to the Initial KKR Investors a statement (the “ Closing Statement ”), showing the estimated Adjustment Amount (using actual numbers and amounts where available, and using EXCO’s good faith estimate of other amounts, where actual amounts are not available) (the “ Estimated Adjustment Amount ”). If the Initial KKR Investors dispute any items in the Closing Statement, the Initial KKR Investors shall so notify EXCO within one Business Day prior to the Closing Date and the Parties shall use their commercially reasonable efforts to agree upon the Closing Statement; provided that in the event the Parties cannot reach agreement prior to Closing with respect to any item, the Closing Statement as submitted by EXCO shall control with respect to such item.
2.5      Closing . The closing of the sale and transfer of the Subject Equity Interest (and, indirectly, the Initial KKR Assets) as contemplated by this Agreement (the “ Closing ”), shall take place on the same day and at the same location as the CHK Closing or such other location as the Parties may agree, unless the conditions to the obligations of the Parties set forth in Sections 9.1 and 9.2 have not been satisfied or waived by such date, in which case the Closing shall occur on the third Business Day following satisfaction or waiver of the conditions set forth in Sections 9.1 and 9.2 at the offices of Latham & Watkins LLP in Houston, Texas (the date on which the Closing occurs is referred to herein as the “ Closing Date ”).
2.6      Post-Closing Adjustment .
(a)      On or before the later of (i) 120 days after the Closing Date and (ii) the date on which all Title Defects, Title Benefits and Environmental Defects are finally determined under the CHK PSA, EXCO shall prepare, in accordance with the provisions of this Agreement, and deliver to the Initial KKR Investors, a revised Closing Statement setting forth the final Adjustment Amount as of the Closing Date, which takes into account the value of all finally determined Title Defects, Title Benefits and Environmental Defects and the allocation thereof between the Existing Wells and Area 1 Leases applicable to such Adjustment Amount (the “ Final Statement ”). The Final Statement shall become final and binding upon the Parties on the date (the “ Final Settlement Date ”) that is 30 days following the Initial KKR Investor’s receipt of such Final Statement unless the Initial KKR Investors deliver a written exception report containing any changes the Initial KKR Investors propose to be made to the Final Statement prior to such date. If the Initial KKR Investors deliver an exception report, as soon as reasonably practicable, but in no event later than 15 days after EXCO receives the Initial KKR Investor’s exception report, the Parties will meet and undertake to agree on the final Adjustment Amount.
(b)      If the Parties fail to agree on the final Adjustment Amount within 30 days after EXCO’s receipt of the Initial KKR Investor’s exception report, then the matters that remain in dispute (and only such matters) may be submitted to a title lawyer (with at least 10 years’ experience in Oil and Gas titles involving properties in Texas) practicing in Texas, in the case of any Title Defect or Title Benefit affecting the Area 1 Leases, or to an environmental expert (with at least 10 years’ experience in environmental matters involving properties located in Texas) selected by the Parties, in the case of an Environmental Defect affecting the Area 1 Leases (each such title attorney or environmental expert, hereinafter, a “ Consultant ”). In the event the Parties are unable to agree on any Consultant, EXCO, on the one hand, and the Initial KKR Investors, on the other hand, shall each appoint one Consultant and the two Consultants so appointed shall appoint a third Consultant and the three Consultants so appointed will resolve such matter; provided that in no event shall any Consultant have worked as an employee or outside counsel for any Party or its Affiliates during the five year period preceding the dispute or have any financial interest in the dispute. The cost of the Consultant shall be paid 50% by EXCO and 50% by the Initial KKR Investors. The Consultant(s), once appointed, shall have no ex parte communications with the Parties concerning the expert determination or the underlying dispute. All communications between any Party and the Consultant(s) shall be conducted in writing, with copies sent simultaneously to the other Party in the same manner, or at a meeting to which all Parties have been invited and of which such Parties have been provided at least five Business Days’ notice.
(c)      The Parties shall each present to the Consultant(s), with a simultaneous copy to the other Party, a single written statement of its position on the allocation of the Title Defects, Title Benefits and Environmental Defects finally determined under the CHK PSA between the Area 1 Leases and Existing Wells, together with a copy of this Agreement, the CHK PSA, the “Final Statement” under the CHK PSA, the written report of any “Consultants” prepared under the CHK PSA and any supporting material that such Party desires to furnish, not later than 10 Business Days after appointment of the Consultant(s). In making their determination, the Consultant(s) shall be bound by the terms of this Agreement and, without any supplemental submittals by either Party, may consider available legal and industry matters as in their opinion are necessary or appropriate to make a proper determination. Additionally, any Consultant may consult with and engage disinterested Third Parties to advise him, including petroleum engineers or environmental engineers. Within 60 days following the submission of such written statements to the Consultant(s), applying the principles set forth in this Section 2.6 , the Consultant(s) shall make a determination of the matter submitted based solely on the single written statement of each Party. The decision of the Consultant(s) shall be in writing and conclusive and binding on the Parties and shall be enforceable against the Parties in any court of competent jurisdiction. The Consultant(s) shall act as experts for the limited purpose of determining the allocation of any Title Defect, Title Benefit or Environmental Defect finally determined under the CHK PSA between the Area 1 Leases and Existing Wells, shall not act as arbitrators, shall not consider, hear or decide any matters except the specific title and environmental allocations presented to them, and shall not award damages, interest or penalties to any Party.
(d)      Upon agreement of the Parties to the adjustment to the Final Statement, or upon resolution of such adjustment based on the written report of the Consultant(s), as the case may be, the Final Statement (as adjusted pursuant to such agreement or resolution by the Consultant(s)) shall be deemed final and binding on all Parties and the aggregate amount due to either the Initial KKR Investors or EXCO shall be paid by wire transfer of immediately available funds to the account of the respective receiving Party or Parties within 5 Business Days after the final determination is made that such payments are due and payable.
2.7      Consents .
(a)      To the extent not previously sent by EXCO or CHK prior to the CHK Closing, EXCO shall, within five Business Days after the CHK Closing, send to the holders of each Third Party Right pertaining to the KKR Transfer of an Area 1 Lease a notice, in material compliance with the contractual provisions applicable to such right, seeking such holder’s consent to such KKR Transfer of such Area 1 Lease. Following the CHK Closing, EXCO shall use its commercially reasonable efforts to obtain the consent of the holders of Third Party Rights affecting the Area 1 Leases to the KKR Transfer of the Area 1 Leases.
(b)      If, as of the Closing, a holder of a Required Consent pertaining to the Initial KKR Transfer of a Required Consent Lease or a Subject Required Consent Lease (i) has denied in writing or has not yet delivered such Required Consent or (ii) has placed additional conditions on the proposed assignee that involve the payment of money, posting of collateral security or the performance of other material obligations by the assignee that would not be required in the absence of such Transfer of such Required Consent Lease or Subject Required Consent Lease, then such Required Consent Lease or Subject Required Consent Lease will not be conveyed to Admiral Acquisition Sub at the Closing, and the Base Purchase Price will be reduced by the Consent Lease Deduction applicable to such Subject Required Consent Lease but the Base Purchase Price will not be reduced or affected by the non-conveyance of any Required Consent Lease.
(c)      If a Subject Required Consent Lease has been excluded from the Area 1 Leases Transferred to Admiral Acquisition Sub at Closing due to a failure to obtain a Required Consent in accordance with Section 2.7(b) , and such Required Consent is received with respect to the Initial KKR Transfer of such Subject Required Consent Lease pursuant to the terms of the underlying agreement on or before 180 days after the CHK Closing Date (or such longer period as to which the KKR Parties may agree, such period, the “ Consent Period ”), EXCO shall so notify the KKR Parties and within 10 Business Days after the KKR Parties’ receipt of such notice, (i) EXCO shall cause CHK to assign and convey to an Other Admiral Sub, and such Other Admiral Sub shall accept from CHK, 50% of the CHK Interest in and to such Subject Required Consent Lease pursuant to the terms of this Agreement and (ii) the Initial KKR Investors shall pay to EXCO its Equity Ownership Share of the Consent Lease Deduction attributable to such Subject Required Consent Lease, less the Excluded Lease Defect Amount. Contemporaneously with such payment by the Initial KKR Investors (x) EXCO shall transfer to the Initial KKR Investors (or such other KKR Investors as may be designated by the Initial KKR Investors) the Other Admiral Sub Equity Interest in such Other Admiral Sub pursuant to a form substantially similar to the Share Assignment, (y) EXCO shall be deemed to have made the representations in Section 8.3 as of the date of such transfer and (z) EXCO shall have been deemed to have made the representations in Section 8.4 as to such Other Admiral Sub and such Other Admiral Sub Equity Interests as of the date of such transfer.
(d)      If a Required Consent Lease has been excluded from the Area 1 Leases Transferred to Admiral Acquisition Sub at Closing due to a failure to obtain a Required Consent to the Initial KKR Transfer in accordance with Section 2.7(b) and such Required Consent has been received or deemed received with respect to the Initial KKR Transfer of such Required Consent Lease pursuant to the terms of the underlying agreement prior to the expiration of the Consent Period, EXCO shall so notify the KKR Parties and within 10 Business Days after the KKR Parties’ receipt of such notice, EXCO shall cause CHK to assign and convey to an Other Admiral Sub, and such Other Admiral Sub shall accept from CHK, 50% of the CHK Interest in and to such Required Consent Lease pursuant to the terms of this Agreement. Immediately following such assignment, (x) EXCO shall transfer to the Initial KKR Investors (or such other KKR Investors as may be designated by the Initial KKR Investors) the Other Admiral Sub Equity Interest in such Other Admiral Sub pursuant to a form substantially similar to the Share Assignment, (y) EXCO shall be deemed to have made the representations in Section 8.3 as of the date of such transfer and (z) EXCO shall have been deemed to have the representations in Section 8.4 as to such Other Admiral Sub and such Other Admiral Sub Equity Interests as of the date of such transfer.
(e)      If a Required Consent pertaining to a Subject Required Consent Lease has not been received on or before the expiration of the Consent Period, then (i) such Subject Required Consent Lease will be deemed excluded from the Area 1 Leases, Leases and Assets, and (ii) EXCO shall pay to Admiral Acquisition Sub within five Business Days of the end of the Consent Period, an amount equal to the Consent Lease Deduction.
(f)      If a Required Consent to the Initial KKR Transfer pertaining to a Required Consent Lease has not been received on or before the expiration of the Consent Period, then (i) such Required Consent Lease will be deemed excluded from the Area 1 Leases, Leases and Assets, and (ii) EXCO shall pay to Admiral Acquisition Sub within five Business Days of the end of the Consent Period, the amount set forth below for such Required Consent Lease (which represents 50% of the Allocated Value of the PUD locations attributable to such Required Consent Lease); provided, however, that if the Required Consents for the Initial KKR Transfer of both of the Required Consents Leases have been not been received on or before the expiration of the Consent Period, then the amount to be paid by EXCO to Admiral Acquisition Sub pursuant to this clause (ii) shall be $7,915,482 (and not the sum of the amounts set forth below).
TX1250333         $7,915,482
TX42000497-000     $2,063,118
(g)      For the avoidance of doubt, with respect to any payments that EXCO is required to make to a KKR Party under this Section 2.7 as a result of a Required Consent not being received on or before the expiration of the Consent Period, the Parties agree to treat such payments as adjustments to the Purchase Price for Tax Purposes to the extent permitted under applicable Tax Law.
2.8      CHK PSA .
(a)      Upon the KKR Parties’ request, EXCO shall exercise all rights and remedies available to it under the CHK PSA that benefit the KKR Share of the Area 1 Assets and the KKR Share of the Non-Core Assets; provided that the KKR Parties will be obligated to pay all reasonable out-of-pocket Third Party costs incurred by EXCO in enforcing such rights and remedies with respect to the KKR Share of the Area 1 Assets and the KKR Share of such Non-Core Assets. Upon the KKR Parties’ request, EXCO will enforce all warranties and other similar rights relating to the KKR Share of the Area 1 Assets and the KKR Share of the Non-Core Assets on the KKR Parties’ behalf; provided that the KKR Parties will be obligated to pay all reasonable out-of-pocket Third Party costs incurred by EXCO in enforcing such warranties and rights with respect to the KKR Share of the Area 1 Assets and the KKR Share of such Non-Core Assets. Prior to the Execution Date, EXCO will use its commercially reasonable efforts to provide the Initial KKR Investors with all material (in the reasonable opinion of EXCO) written communications between EXCO and CHK concerning the CHK PSA or any of its exhibits and schedules since the execution of the CHK PSA that would have a material effect (in the reasonable opinion of EXCO) on the KKR Share of the Area 1 Assets and/or the KKR Share of the Non-Core Assets following Closing. EXCO agrees to deliver a copy of all material written communications between EXCO and CHK on or after the Execution Date relating to the CHK PSA (to the extent relating to the KKR Share of the Area 1 Assets or the KKR Share of such Non-Core Assets) or otherwise relating to the KKR Share of the Area 1 Assets or the KKR Share of such Non-Core Assets promptly upon receipt or delivery, as applicable, by EXCO, and EXCO shall communicate regularly with the KKR Representative regarding all material matters of which EXCO has Knowledge arising under or relating to the CHK PSA (to the extent relating to the KKR Share of the Area 1 Assets or the KKR Share of such Non-Core Assets).
(b)      The Parties shall cooperate in good faith regarding title and environmental diligence conducted on the Assets (the “ Diligence Review ”). Each Party agrees to provide the other Party with access to such Party’s staff and information related to the Diligence Review, as reasonably requested during normal business hours. The Parties shall consult regarding the results of the Diligence Review and the preparation of the “Defect Notice” (as such term is defined in the CHK PSA) prior to the “Defect Notice Date” (as such term is defined in the CHK PSA).
(c)      EXCO shall not (i) amend the CHK PSA as to the Area 1 Assets or the KKR Share of such Non-Core Assets, or (ii) waive (A) any rights and remedies available to it that then relate to the Area 1 Assets or the KKR Share of such Non-Core Assets under the CHK PSA, including the right to consent to certain business operations by CHK (or its Affiliates) under Section 5.2 of the CHK PSA, or (B) any conditions to EXCO’s obligation to consummate the transactions contemplated by the CHK PSA with respect to the Area 1 Assets or the KKR Share of such Non-Core Assets (in each case) without the prior written consent of the KKR Parties.
ARTICLE 3     
DEVELOPMENT PLAN; DISPUTE RESOLUTION
3.1      Development Plan and Budget . The Drilling Parties shall adopt, and modify each Quarter, a rolling 12-month work program for Operations conducted by EXCO (such work program, as amended by a Development Plan Update (or portion thereof) approved by the KKR Parties, the “ Development Plan ”) as follows:
(a)      Each Drilling Party is hereby deemed to have approved the Development Plan attached hereto as Exhibit I for Operations to be performed by EXCO from the Closing Date through the end of the period covered by the next four Quarters following the Quarter in which the Closing Date occurs (the “ First Production Year ”).
(b)      No later than 50 days before the end of each Quarter during the Area 1 Development Period (commencing for the Quarter starting January 2014), EXCO shall prepare and submit to the KKR Parties a proposed Development Plan Update for the next 12 months that is comprised of (i) a Next Quarter Detail Plan and (ii) a Quarter 2-4 Scoping Plan.
(c)      The “ Next Quarter Detail Plan ” submitted by EXCO shall contain at least the following information with respect to operations anticipated to be undertaken during the immediately following Quarter (the “ Next Quarter ”):
(i)      a list of all Quarterly Operations that are expected to be conducted by EXCO in Area 1 and the Outside Area and the estimated costs and expenses for such Quarterly Operations associated therewith;
(ii)      with regard to the Wells to be Drilled: (A) the specific names of such Wells and (B) whether or not such Wells meet the Qualifying Well Criteria (and in the event a Well does not meet the Qualifying Well Criteria which of such criteria is not met by such Well), within each of Area 1 and the Outside Area during the Next Quarter;
(iii)      a proposed Drilling calendar setting forth (A) estimated spud dates, (B) estimated fracing and stimulation days, (C) estimated initial production dates and (D) planned downtime (if any), for each Well to be Drilled;
(iv)      a list of all Approved Wells to be put on artificial lift during such Quarter; and
(v)      estimates of the costs and expenditures required to process and gather production within Area 1 and the Outside Area.
(d)      The “ Quarter 2-4 Scoping Plan ” submitted by EXCO shall contain at least the following with respect to operations anticipated to be undertaken in the three consecutive Quarters following the Next Quarter:
(i)      the specific number of Wells to be Drilled within Area 1 that are anticipated to meet the Qualifying Well Criteria for each Quarter;
(ii)      the specific number of Wells to be Drilled within Area 1 that are anticipated not to meet the Qualifying Well Criteria for each Quarter;
(iii)      the specific number of Wells to be Drilled within the Outside Area for each Quarter; and
(iv)      any Special Projects to be undertaken (if known).
Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), EXCO shall also provide to the KKR Parties, in EXCO’s offices, access to any technical and interpretive data to support its proposed Next Quarter Detail Plan and/or its proposed Quarter 2-4 Scoping Plan that the KKR Representative may reasonably request in accordance with the license agreement applicable to such technical and interpretive data.
3.2      Review and Approval .
(a)      Following distribution of the proposed Development Plan Update from EXCO, the KKR Parties shall have 10 Business Days to request additional data and/or furnish to EXCO any proposed revisions they desire to make relating to (i) the number or location of Quarterly Operations proposed in the Next Quarter Detail Plan and (ii) the number of wells to be Drilled within Area 1 that are anticipated to meet the Qualifying Well Criteria proposed in the Quarter 2-4 Scoping Plan. Promptly following such review process (and in any event on or before five Business Days following the expiration of such review process), EXCO shall host a quarterly meeting with the KKR Parties to review historical Drilling, Completing and performance results, as well as the proposed Development Plan Update and any recommendations made with respect thereto by any KKR Party (a “ Quarterly Meeting ”). The KKR Parties may request, upon five days prior written notice, additional specific agenda topics to be covered during a Quarterly Meeting, including any technical or planning issues related to the Assets.
(b)      If the Drilling Parties are unable to agree on (i) the number or location of Quarterly Operations proposed in the Next Quarter Detail Plan or (ii) the number of wells to be Drilled within Area 1 that are anticipated to meet the Qualifying Well Criteria proposed in the Quarter 2-4 Scoping Plan within five Business Days after the date of the Quarterly Meeting, then the Operations for such Quarter under the Development Plan shall be deemed to include only the Operations that are approved by the Drilling Parties (which for the avoidance of doubt shall include at least the number of wells that were anticipated to be Drilled within Area 1 that meet the Qualifying Well Criteria during such Quarter under the Quarter 2-4 Scoping Plan included in the then current Development Plan).
(c)      For the avoidance of doubt, all of the Wells included in the Initial Development Plan for the Quarter starting as of September 2013 shall be deemed included in the Next Quarter Detail Plan covering the Quarter starting September 2013 and approved by the Drilling Parties for all purposes hereunder.
ARTICLE 4     
APPROVED WELLS; RIGHT TO PARTICIPATE
4.1      Well Proposals .
(d)      From and after the Closing Date, the KKR Parties may Elect to participate in any Area 1 Well or Outside Well. Before spudding any Well or conducting any Quarterly Operations, EXCO shall propose a location and design within a D&C AFE or other AFE, as applicable, delivered to the KKR Parties that, with respect to a D&C AFE, includes a plat showing well location, the well and completion design and a drill site title opinion. EXCO may not propose to spud any Well with a Completed Lateral on, or within a unit including any portion of, an Area 1 Lease until the drillsite title opinion (and any curative matters with respect thereto) obtained by EXCO under the Operating Agreement are approved by the KKR Parties. EXCO may not propose to spud any Well with a Completed Lateral on an EXCO Consent Lease or any Area 1 Lease excluded from the Initial KKR Assets under Section 2.7(b) until the holders of a Required Consent with respect to any such lease consents to the KKR Transfer; provided that if the Consent Period expires without obtaining such Required Consent to the KKR Transfer, the foregoing provision shall no longer apply to such lease. If EXCO proposes to spud a Well with a Completed Lateral located on an EXCO Consent Lease following the expiration of the period described above, then (i) the KKR Share of such Well shall equal 50% of the CHK Interest in and to such EXCO Consent Lease; (ii) EXCO shall have no obligation to Transfer the Incremental Share in and to such Well to the KKR Parties; and (iii) such Well shall not be considered an Offer Well or otherwise subject to Article 6 of this Agreement.
(e)      Within 30 days of receipt of an initial D&C AFE for any Well or an AFE for any other Quarterly Operation, the KKR Parties shall Elect by written notice to EXCO whether to participate in the Drilling, Completing, and Equipping of such Well or participate in such Quarterly Operations covered by such AFE and fund the KKR Share of the costs and expenses described in such AFE; provided that, without further action by the KKR Parties, the KKR Parties shall be deemed to have Elected to participate in (and fund the KKR Share of the costs and expenses thereof) (i) such D&C AFE (and the other D&C AFEs for such Well) or the other AFE, as applicable, for those Quarterly Operations approved by the KKR Parties for such Quarter in the Next Quarter Detail Plan and/or (ii) if all or part of such Quarterly Operations in any proposed Next Quarter Detail Plan were not so approved, those Quarterly Operations that were so approved and the number of Wells meeting the Qualifying Well Criteria set forth in the then current Development Plan for such Quarter up to the total Qualifying KKR Approved Wells for such Quarter for which EXCO is the proposed operator under the applicable Operating Agreement. The KKR Parties’ failure to make an Election (unless the KKR Parties are deemed to have made the applicable Election pursuant to the foregoing sentence) within the 30-day period described above shall constitute an Election not to participate in the proposed Quarterly Operation. Notwithstanding the foregoing, the KKR Parties shall not be deemed to have Elected to participate in any (i) Quarterly Operation or any other Wells listed in the Quarter 2-4 Scoping Plan that satisfy the Qualifying Well Criteria under this Section 4.1(b) following a Change in Control of EXCO or (ii) Well that the KKR Parties approve in the Next Quarter Detail Plan that does not meet the Qualifying Well Criteria if the reason that such Well fails to meet the Qualifying Well Criteria changes after the date of approval of such Next Quarter Detail Plan.
(f)      The KKR Parties shall have the right to propose any Well that would meet the Qualifying Well Criteria, and the KKR Parties shall be deemed by such proposal to have Elected to participate in such Well (and fund the KKR Share of the costs and expenses of such Well). If EXCO does not elect to participate in any such Well under the applicable Operating Agreement, then such Well will not be considered an Offer Well or otherwise subject to Article 6 of this Agreement. If EXCO elects to participate in such Well, then (i) such Well shall be deemed a Qualifying Well and (ii) EXCO shall assign to each KKR Party its respective Proportionate Share of the Incremental Share in and to such Well in accordance with Section 4.2 .
(g)      Unless the Drilling Parties mutually agree otherwise, EXCO shall Drill, Complete and Equip (or, to the extent required, plug and abandon in accordance with applicable Law) each Well in which the KKR Parties Elect to participate.
(h)      At any time not more than 30 days prior to the beginning of any month, EXCO shall have the right to demand and receive from the KKR Parties payment in advance of each such KKR Party’s Proportionate Share of the estimated amount of the expense to be paid during such month for Operations in which the KKR Parties have Elected to participate, which right may be exercised only by submission to the KKR Parties of a detailed invoice for its Proportionate Share thereof (a “ Monthly Invoice ”). The KKR Parties shall pay the amount set forth in the Monthly Invoice to EXCO within 15 Business Days of receipt of such Monthly Invoice. EXCO shall hold funds advanced or paid by the KKR Parties hereunder under an Operating Agreement in a segregated account until such funds are used in accordance with the terms of the Operating Agreement, and shall not commingle any such funds with any other funds of EXCO or funds received by EXCO from any other Person. For so long as the KKR Parties are KKR Managed Entities, the KKR Parties shall not be subject to, and EXCO agrees not to exercise any rights with respect to, the cash call provisions of any Operating Agreement that provide EXCO or any of its Affiliates the right as operator under such Operating Agreement to require a party make advance payments for operations thereunder.
(i)      If EXCO receives a Third Party proposal to spud an Area 1 Well (a “ Third Party Well ”), and both Drilling Parties elect to participate in such Third Party Well, then EXCO shall assign to each KKR Party its respective Proportionate Share of the Incremental Share in and to such Third Party Well in accordance with Section 4.2(a) .
(j)      If the KKR Parties do not Elect (or are not deemed to have Elected) to participate in any Quarterly Operations proposed by EXCO hereunder, EXCO shall have the right to conduct such Quarterly Operations in accordance with and subject to the terms of the applicable Operating Agreement governing the operations relating to such Quarterly Operations. Any Well included in the Quarterly Operations and drilled by EXCO pursuant to this Section 4.1(g) shall not be considered an Approved Well hereunder.
4.2      Assignment of Approved Wells .
(a)      Contemporaneously with the payment of the first Monthly Invoice in accordance with Section 4.1(e) with respect to an Area 1 Well the KKR Parties have Elected (or have been deemed to have Elected) to participate in (an “ Approved Area 1 Well ”), EXCO shall execute, acknowledge and deliver to each KKR Party a wellbore assignment substantially in the form attached as Exhibit K (the “ Area 1 Assignment ”), which entitles each KKR Party to its Proportionate Share of the Incremental Share in and to the wellbore of such Approved Area 1 Well.
(b)      Contemporaneously with the payment of the first Monthly Invoice in accordance with Section 4.1(e) with respect to a Farmout Well in which the KKR Parties have Elected to participate (an “ Approved Farmout Well ”), EXCO shall execute, acknowledge and deliver to each KKR Party an assignment substantially in the form attached as Exhibit L-1 (the “ Farmout Assignment ”), which entitles each KKR Party to its Proportionate Share of the KKR Share of the Farmout Agreement to the extent relating to such Approved Farmout Well and the “unit” formed (or contemplated by the Farmout Agreement) for such Farmout Well. EXCO shall have no obligation to make a Farmout Assignment for Approved Farmout Wells with Completed Laterals located on units included in previous Farmout Assignments.
(c)      Contemporaneously with the payment of the first Monthly Invoice in accordance with Section 4.1(e) with respect to a Non-Core Well in which the KKR Parties have Elected to participate (an “ Approved Non-Core Well ” and each of an Approved Farmout Well and an Approved Non-Core Well, an “ Approved Outside Well ”), EXCO shall execute, acknowledge and deliver to each KKR Party an assignment substantially in the form attached as Exhibit L-2 (the “ Non-Core Well Assignment ”), which entitles each KKR Party to its Proportionate Share of the KKR Share in and to the wellbore of such Approved Non-Core Well.
(d)      Subject to Section 4.1(e) , each Drilling Party shall pay its respective Working Interest share of the costs and expenses of any Approved Well in accordance with the Operating Agreement.
4.3      Central Production Facilities and Field Electrification Facilities . With respect to any Central Production Facility and/or Field Electrification Facility used in connection with the development, operation or production of an Approved Well, the Drilling Parties shall mutually agree upon a fee for the use and benefit of the applicable Central Production Facilities or Field Electrification Facilities, which fee shall be (i) based on the expected final costs for the installation of such Central Production Facility or Field Electrification Facility, as applicable, and (ii) allocated to such Approved Well based on the number of wells anticipated to use such Central Production Facility or Field Electrification Facility, as applicable.
4.4      Well Facilities and Midstream Facilities .
(e)      Access. Subject to any consents or approvals required from Third Parties (which EXCO shall use its commercially reasonable efforts to obtain), EXCO commits to provide each KKR Party in connection with the development, operation and production of any Approved Well with access to (i) the Well Facilities and (ii) the Midstream Facilities, in each case, owned or operated by EXCO or its Affiliates that have been completed (or have an approved authorization for expenditure) as of the CHK Closing Date for all of the KKR Parties’ production from the Approved Wells served by such Well Facilities and Midstream Facilities. No KKR Party shall be obligated to pay any amount in respect of the foregoing access rights that exceeds such KKR Party’s allocated share of the actual Third Party, out-of-pocket costs incurred by EXCO in connection with the operation and maintenance of such Well Facilities and Midstream Facilities, and neither EXCO nor any of its Affiliates shall be entitled to charge any KKR Party any additional fees with respect to such Well Facilities and Midstream Facilities. The operating and maintenance costs of such Well Facilities and such Midstream Facilities shall be allocated among all producing Wells served by such facilities pro rata based on producing well count.
(f)      Right to Acquire. The KKR Parties shall have the right to acquire up to a 75% interest in any Midstream Facilities serving all or a portion of any Approved Well that are proposed, on or after the Closing, by (i) a Third Party that EXCO or any of its Affiliates have the right to participate in (on the same terms and conditions as EXCO or any of its Affiliates), or (ii) EXCO or any of its Affiliates (at EXCO’s or any of its Affiliate’s Third Party out-of-pocket costs). Should the KKR Parties decide not to participate in such Midstream Facility proposal, then the KKR Parties shall pay a mutually agreeable Midstream Facilities charge in order to utilize such Midstream Facilities for their share of production. EXCO shall provide each KKR Party access to any salt water disposal system owned by EXCO that is not a Commercial Salt Water Disposal System and that is utilized by EXCO in connection with Operations relating to Approved Wells, and the KKR Parties shall pay EXCO a mutually agreeable charge for access to such salt water disposal system attributable to their interests in the Approved Wells served by such salt water disposal system.
4.5      Drainage . Without the prior written consent of the KKR Parties (or deemed approval under Section 4.1(b) or pursuant to an approved AFE), the planned lateral portion and the actual Completed Lateral of the wellbore of any Well shall not be within 500 feet of the lateral portion of the wellbore of any Approved Well; provided that the foregoing restriction shall not apply to reasonable deviations and corresponding corrections of the Completed Lateral of the wellbore of any Well.
4.6      Outside Leases .
(d)      Unless the KKR Parties have the right to do so on their own behalf under the Farmout Agreement, upon the KKR Parties’ request EXCO shall exercise all rights and remedies available to it under the Farmout Agreement that benefit the KKR Share of the Approved Farmout Wells; provided that the KKR Parties will be obligated to pay all reasonable out-of-pocket Third Party costs incurred by EXCO in enforcing such rights and remedies with respect to the KKR Share of the Approved Farmout Wells. Upon the KKR Parties’ request, EXCO will enforce all warranties and other similar rights relating to the KKR Share of the Approved Farmout Wells on the KKR Parties’ behalf; provided that the KKR Parties will be obligated to pay all costs incurred by EXCO in enforcing such warranties and rights with respect to the KKR Share of the Approved Farmout Wells. EXCO agrees to deliver a copy of all material written communications between EXCO and CHK on and after the Execution Date relating to the Farmout Agreement, the Farmout Leases or the Approved Farmout Wells upon receipt or delivery, as applicable, by EXCO, and EXCO shall communicate regularly with the KKR Representative regarding all material matters of which EXCO has Knowledge arising under or relating to the Farmout Agreement.
(e)      EXCO shall not knowingly waive any material remedies available to it with respect to the KKR Share of any Approved Farmout Well on account of the breach by CHK under the Farmout Agreement, without the prior written consent of the KKR Parties.
(f)      The Parties acknowledge that CHK has a right to convert the CHK Override in each Farmout Well to a 25% Working Interest in such Farmout Well and the “unit” therefor following “payout” of such Farmout Well under the Farmout Agreement and in addition CHK has the right to participate for an undivided 25% Working Interest in the first subsequent Well drilled in any “unit” after the initial Farmout Well in such “unit” is Drilled (such rights of CHK, the “ CHK Participation Right ”). In the event CHK elects to exercise the CHK Participation Right with respect to an Approved Farmout Well or the “unit” therefor, the Drilling Parties shall enter into an Operating Agreement with CHK in the form attached to the Farmout Agreement (the “ Outside Operating Agreement ”) and such Outside Operating Agreement shall supersede and replace any existing operating agreement with respect to such Farmout Well and associated unit that is solely between EXCO and such KKR Parties.
4.7      Assignments . Each assignment made by a Party hereunder to another Party shall contain a special warranty of title by, through and under the assigning Party and its Affiliates (subject to the Permitted Encumbrances). As of the date of any such assignment, the assigning Party shall be deemed to have represented to the other Party that to the assigning Party’s Knowledge, there are no calls on production or contracts for sale of production encumbering the interest in the Assets being assigned that provide for the delivery of Oil and Gas at a price below the price that the EXCO and its Affiliates are receiving for EXCO’s share of such production.
ARTICLE 5     
OPERATIONS; MARKETING
5.1      Operating Agreements . Subject to Section 4.6(c) , Area 1 and the Outside Area shall be deemed to be subject to and governed by an operating agreement substantially in the form attached as Exhibit M (the “ Assets Operating Agreement ”); provided that in the event any portion of the Area 1 Assets or Outside Area is governed by a Third Party operating agreement (a “ Third Party Agreement ”), then such portion of the Area 1 Assets or Outside Area shall be governed by such Third Party Agreement in lieu of the Assets Operating Agreement. In the event of any conflict or inconsistency between the terms of this Agreement and any Operating Agreement, this Agreement shall prevail to the extent of such conflict; provided that the inclusion in any Operating Agreement of terms and provisions not addressed in this Agreement shall not be deemed a conflict, and all such additional provisions shall be given full force and effect, subject to the provisions of this Section 5.1 .
5.2      Operator .
(a)      The KKR Parties agree to vote for and otherwise take all actions reasonably available to it (without material cost or expense) under any Operating Agreement to designate EXCO as the “Operator” thereunder unless EXCO is in breach of any material obligation under this Agreement and any such breach has not been cured within 30 days (or such longer period as expressly provided elsewhere in this Agreement) of receiving written notice of such breach from the KKR Parties.
(b)      EXCO may be removed as “Operator” under an Operating Agreement only for Good Cause. As used herein, “ Good Cause ” shall be deemed to exist (i) upon the breach of any material obligation under an Operating Agreement or this Agreement where EXCO has not cured any such breach within 30 days (or such longer period as expressly provided elsewhere in this Agreement) of receiving written notice of such breach, (ii) EXCO has engaged in fraud, willful misconduct or gross negligence in the performance of its duties with respect to this Agreement or such Operating Agreement, or (iii) if the EXCO Net Mineral Acres in Area 1 is reduced below 50% of the Target Net Mineral Acres in Area 1. If the KKR Parties elect to remove EXCO for Good Cause under Section 5.2(b) , then EXCO (and any successor transferee of EXCO) must resign as Operator under the applicable Operating Agreement(s) and shall take all actions available to it under such Operating Agreement(s) to designate the KKR Parties’ designee as the “Operator” thereunder.
(c)      From the date hereof until the earlier of (i) the expiration of the Area 1 Development Period and (ii) three years following the Execution Date, without the KKR Parties’ consent, EXCO shall not resign or engage in any transaction that would (if consummated) result in EXCO’s deemed removal as “Operator” under any Operating Agreement governing any Area 1 Lease or any Well (in each case) in which the KKR Parties own any interest without the prior written consent of the KKR Parties; provided that the foregoing provision shall not be construed to restrict EXCO from (i) making a “non-consent” election under any Operating Agreement or (ii) conveying all or any portion of its interest in any Existing Wells or any Well that is not an Approved Well.
5.3      HSE Standards . EXCO shall maintain written health, safety and environmental (“ HSE ”) policies, programs and systems covering Operations conducted by EXCO under the Operating Agreements (as amended and modified from time to time, an “ HSE Program ”). Subject to Section 5.5 , EXCO shall (i) monitor on a regular basis its HSE performance and record performance data on a basis that conforms in all material respects with applicable industry standards and (ii) conduct an annual review of its HSE Program. The results of the annual review of the HSE Program will be presented at the next Quarterly Meeting.
5.4      Operations Standard .
(h)      Subject to Section 5.5 , EXCO shall conduct all of its Operations as a reasonably prudent operator, in a good and workmanlike manner, with due diligence and dispatch, and in accordance with good oilfield practice, the terms and conditions of this Agreement, the Operating Agreements and Law. Prior to spudding an Approved Well, EXCO shall have obtained (i) the mortgage and lien releases that must be obtained in accordance with Section 5.13(b) relating to such Approved Well, (ii) the waiver of all Material Third Party Rights that must be obtained from Third Parties in accordance with Section 5.13(a) and (iii) all consents, approvals, certificates, licenses, permits and other authorizations of the necessary Governmental Authorities required for EXCO to Drill, Complete and (if customarily obtained prior to spudding such Well) Equip such Approved Well, to the extent that EXCO is the operator of such Approved Well.
(i)      Unless otherwise agreed by the KKR Parties in the Development Plan or in a separate writing, EXCO shall satisfy the following minimum performance standards at all times during the Area 1 Development Period:
(i)      EXCO shall propose D&C AFEs for at least 40 Qualifying Wells during each period of four consecutive Quarters; provided that, if the Eagle Ford Oil Price falls below $70 per Barrel for more than 45 days during such period, then EXCO will be excused from such obligation; provided further that, if thereafter the Eagle Ford Oil Price rises above $70 for a period of two consecutive Quarters, then commencing as of the Quarter following such two consecutive Quarters, such obligation shall again apply for the next four consecutive quarters; and
(ii)      EXCO shall (A) commence Drilling on at least 50% of the Quarterly Operations agreed in the then current Development Plan for such Quarter and (B) Drill, Complete and Equip at least 30 Qualifying Wells during each period of four consecutive Quarters (unless in the case of clause (B), (1) the then current Development Plan provides that a lower number of (or no) Qualifying Wells will be Drilled, Completed and Equipped during such period, or (2) EXCO has been excused of its obligations under Section 5.4(b)(i) , then, in either case, such lower number will apply).
(j)      If EXCO fails to satisfy any of the performance standards set forth in Section 5.4(b) (a “ Performance Default ”), the KKR Parties may deliver notice to EXCO describing in reasonable detail the nature of such Performance Default. Within 90 days of receipt of such notice, EXCO may cure such Performance Default by proposing additional D&C AFEs or Drilling, Completing and Equipping additional Qualifying Wells (in each case) so as to meet the minimum standard set forth in Section 5.4(b)(i) or Section 5.4(b)(ii) , as applicable; provided that EXCO shall have no right to cure a Performance Default arising under Section 5.4(b)(ii)(A) . In the event EXCO fails to cure a Performance Default within such 90 day period, the KKR Parties shall have no further obligation to accept any EXCO Offer or First Year Retained Well Offer from EXCO under Article 6 .
5.5      Liability of Operator . Subject to the rights of the KKR Parties to remove EXCO as “Operator” under the Operating Agreements in accordance with Section 5.2(b) , and notwithstanding anything herein to the contrary, in no event shall EXCO have any liability hereunder or under any Operating Agreement for any claim, damage, loss or liability sustained or incurred in connection with its performance of any Operation or its capacity as “Operator”, EVEN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE IN WHOLE OR IN PART FROM THE ACTIVE, PASSIVE, SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF EXCO, ANY OF ITS AFFILIATES, OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR OR EMPLOYEE OF EXCO OR ANY OF ITS AFFILIATES, OTHER THAN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF EXCO, ANY OF ITS AFFILIATES OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR OR EMPLOYEE OF EXCO OR ANY OF ITS AFFILIATES; provided that EXCO shall not be released or exonerated from liability for a material breach of any financial, administrative or procedural (such as providing notices and voting) obligation (provided that, for the avoidance of doubt, the foregoing exclusion does not apply to any mis-payment of monies to Third Parties by EXCO hereunder or as “Operator” under any Operating Agreement, including any mis-payment of royalties; it being understood by the Parties that EXCO shall have no liability hereunder or under any Operating Agreement for any such mis-payment unless such mis-payment is a result of the gross negligence or willful misconduct of EXCO, any of its Affiliates or any officer, partner, member, director or employee of EXCO or any of its Affiliates); and provided further that each Party acknowledges and agrees that any such claim, damage, loss or liability (other than that caused by gross negligence or willful misconduct of EXCO, its Affiliates or any officer, partner, member, director, agent or employee of EXCO or any of its Affiliates or the material breach of any such financial, administrative or procedural (such as providing notices and voting) obligation of EXCO), shall be borne severally by the Drilling Parties in proportion to their Working Interest in the Operation giving rise to such claim, damage, loss or liability.
5.6      Rentals, Shut-in Well Payments and Royalties .
(a)      Subject to Section 5.5 , as “Operator” under any Operating Agreement, EXCO shall be responsible for paying, on behalf of the KKR Parties and at the cost of the KKR Parties, the KKR Parties’ share of (i) all rentals, shut-in well payments and minimum royalties required to be paid to lessors under the Leases, and (ii) all valid and subsisting royalties, overriding royalties and other similar burdens (“ Production Burdens ”) required to be paid to lessors and holders of overriding royalties and other Production Burdens on the Leases.
(b)      EXCO shall notify the KKR Parties at each Quarterly Meeting of any Lease in Area 1 with a primary term expiring within six months of the date of such Quarterly Meeting. If either Drilling Party (after consulting with the other Drilling Party) determines not to renew, maintain or extend its interest in any of the expiring Leases, the Drilling Party determining not to renew, maintain or extend any such Lease will provide the other Drilling Party with no less than 30 days’ (to the extent reasonably possible) notice of such determination in writing prior to the expiration of such portion of such Lease, and such other Drilling Party will have the right to enter into new arrangements with the applicable lessor to become solely responsible in respect of such Lease. Thereafter, notwithstanding anything contained in this Agreement to the contrary, such Lease shall be deemed to be excluded from the terms and conditions of this Agreement and not part of the Area 1 Assets, Area 1 Leases or the Assets hereunder.
5.7      Insurance . Subject to the last sentence of this Section 5.7 , EXCO shall at all times maintain in effect insurance for the benefit and the cost of the joint account of the Drilling Parties as outlined in Exhibit N for Area 1 and the Outside Area. EXCO shall provide copies of such policies to the KKR Parties, and shall notify the KKR Parties if it has been unable to obtain or maintain any of such policies. Except for worker’s compensation policies, EXCO shall arrange for the KKR Parties to be named as additional insureds on the relevant policies, with waivers of subrogation in favor of the KKR Parties with respect to its interests under this Agreement or the Operating Agreement, as applicable. EXCO shall use commercially reasonable efforts to duly file any relevant claims and to collect for the account of the KKR Parties any proceeds to which the KKR Parties are entitled as additional insureds under such policies. Notwithstanding the foregoing, the KKR Parties may elect to obtain one or more insurance policies covering the KKR Share in and to the Assets. Upon receipt of copies of any such policies obtained by the KKR Parties, EXCO shall remove the KKR Parties as additional insureds under such overlapping policies, and EXCO shall no longer burden the KKR Parties with the cost of such insurance.
5.8      Access to Information . Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), EXCO agrees to provide each KKR Party with access to information related to the Operations conducted by EXCO (excluding Operations relating to any Well that is not an Approved Well). The initial contact on any Operations issue shall be Mike Chambers.
5.9      Daily Production Reports . Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), in regard to unallocated production data, no later than the 3rd Business Day of each calendar month, or as to allocated production data, no later than 30 days from the last day of the previous month, with respect to each Well operated by EXCO, EXCO shall deliver to the KKR Parties a production report for each Well operated by EXCO that sets forth the daily production results for each such Well during the immediately preceding production month.
5.10      Information Provided by EXCO . Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), to the extent not delivered to the KKR Parties directly by the applicable Third Party operators, EXCO shall deliver a copy to the KKR Parties of the information set forth on Schedule 5.10 relating to the Approved Wells when and as set forth on Schedule 5.10 .
5.11      Information Maintained by EXCO .
(a)      EXCO shall maintain in EXCO’s offices the following records, data and reports relating to the Approved Wells (the “ Records ”), as they are produced or compiled in relation to the Operations conducted by EXCO or received by EXCO from any Third Party operator of any Well:
(i)      copies of all logs and surveys;
(ii)      daily Drilling, workover or similar operations reports;
(iii)      copies of all drill-stem tests and core analysis reports;
(iv)      copies of all plugging reports;
(v)      well tests, Completing and similar operations reports;
(vi)      engineering studies, development schedules and annual progress reports on development projects;
(vii)      field and well performance reports, including reservoir studies and reserve estimates;
(viii)      core samples;
(ix)      list of all Persons purchasing Oil and Gas produced from the Wells;
(x)      unaudited reports that set forth a statement of any lease operating expenses and Tax liabilities related to the Operations incurred during the preceding month;
(xi)      all title documentation, title opinions, Leases, contracts, permits and authorizations;
(xii)      evidence of payment of any Persons performing Operations;
(xiii)      all environmental information applicable to the Leases;
(xiv)      if requested by the KKR Parties, information required to generate semi-annual reserve reports; and
(xv)      to the extent generated by EXCO in its normal course of business, such additional information related to the Operations conducted by EXCO that any KKR Party may reasonably request.
(b)      Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), (i) the KKR Parties may review the Records in EXCO’s offices as reasonably requested during EXCO’s normal business hours and (ii) to the extent not provided under Section 5.10 , EXCO will provide each KKR Party with copies, at such KKR Party’s expense, of the Records that are specifically and reasonably requested by such KKR Party; provided that EXCO shall not be obligated to provide copies to the KKR Parties of the information described in clauses (ii), (v), (ix), (x), (xi) and (xii) to the extent relating to a Well in which the KKR Parties do not own a Working Interest. Subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), EXCO will provide the KKR Parties or their designees with (x) access to the Records as contemplated by the preceding sentence and (y) access in EXCO’s offices during normal business hours to individuals essential to the KKR Parties’ obligations under this Agreement and the Operating Agreements, in each case as reasonably requested by a KKR Party; provided that the KKR Parties will be subject to the confidentiality provisions of Section 14.17 .
5.12      Access Rights .
(a)      EXCO shall notify the KKR Parties in writing at least 48 hours prior to EXCO or its Affiliates conducting any coring or logging operations relating to any Approved Well. Without limiting the KKR Parties’ rights under any Operating Agreement, upon notice to EXCO and subject to any applicable confidentiality restrictions (which EXCO shall use its commercially reasonable efforts to have the holders thereof waive), each KKR Party shall be permitted reasonable access to the floor of the drilling rig of any Approved Well that is operated by EXCO or its Affiliates.
(b)      To the extent allowable under currently existing seismic licenses and subject to the terms thereof, the KKR Parties shall be permitted access in EXCO’s offices to any seismic data relating to the Leases following reasonable notice to EXCO during normal business hours. The Drilling Parties will each hold 50% of any future seismic licenses that the Drilling Parties agree to acquire and the data associated therewith, and each Drilling Party will be responsible for 50% of all costs related to such future seismic licenses.
5.13      Third Party Rights .
(a)      Prior to delivery of any well proposal in accordance with Section 4.1(a) , EXCO shall send to the holder of any preferential purchase right, right of first refusal, right to consent to transfer or other similar right pertaining to a Lease or a Well, including any maintenance of uniform interest requirement (a “ Third Party Right ”), a notice in substantially the form attached as Exhibit O (with such changes as may be necessary to comply with the agreement creating such Third Party Right). Prior to assignment by EXCO to the KKR Parties of any interest in any Approved Well, unless otherwise waived by the KKR Parties in writing, EXCO shall obtain the express written waiver or consent (as applicable) of all Material Third Party Rights with respect to the KKR Transfer of any Well.
(b)      Not later than the date of delivery of any assignment to the KKR Parties by EXCO pursuant to this Agreement, EXCO shall obtain recordable mortgage and lien releases, in a form reasonably acceptable to the KKR Representative, with respect to any indebtedness of EXCO or any of its Affiliates that encumbers the Incremental Share of any Area 1 Well or the KKR Share of any Outside Well described in such assignment to the extent attributable to such Outside Well. Not later than the date of delivery of any assignment by any KKR Party to EXCO pursuant to this Agreement, such KKR Party shall obtain recordable mortgage and lien releases, in a form reasonably acceptable to EXCO, with respect to any indebtedness of such KKR Party or any of its Affiliates that encumbers the interest to be assigned by such KKR Party to EXCO.
(c)      No Party shall enter into any financing arrangement or other transaction that would result in any lien or other encumbrance on the interest to be assigned to the other Party hereunder following any such assignment.
(d)      During the Area 1 Development Period, any mortgage or security interest created by any Party in the Assets (including any Permitted Pledge for borrowed monies) shall provide that the lienholder’s rights thereunder are expressly subject to this Agreement. Promptly following receipt, a Party shall provide the other Party with a copy of any notification of default under any agreement governing any material facility for borrowed monies of such defaulting Party or any of its Affiliates, the result of which default is to cause, or permit the holder or holders thereof to cause, the repayment of such monies to be accelerated.
5.14      Marketing . Subject to EXCO’s obligations under the Existing Marketing Agreements with respect to its and each KKR Party’s share of Oil and Gas that is produced from the Leases, EXCO shall market (or shall cause to be marketed) all of each KKR Party’s share of such Oil and Gas in good faith for a recurring term of mutually agreed duration that is at least 13 months. Without limitation of the foregoing, the weighted average price paid to any KKR Party for its share of Oil and Gas produced from the Leases that is so marketed by EXCO hereunder shall not be less than the weighted average price paid to EXCO for EXCO’s share of Oil and Gas produced from the Leases; provided that EXCO shall use commercially reasonable efforts to obtain the best available market price in the area for EXCO’s and the KKR Parties’ share of Oil and Gas produced from the Leases. Subject to EXCO’s obligations under the Existing Marketing Agreements with respect to its and each KKR Party’s share of Oil and Gas that is produced from the Leases and the 13-month term described above, each KKR Party shall have the ability to terminate any future marketing arrangement by EXCO with respect to such KKR Party’s share of Oil and Gas that is produced from the Leases upon not less than 30 days’ written notice. Each KKR Party acknowledges that its share of the Oil and Gas that is produced from the Leases (a) will be sold by EXCO pursuant to the terms of the Existing Marketing Agreements while in effect and (b) is dedicated under the Access Gathering Agreement but is subject to the terms of the Existing Marketing Agreements; provided that EXCO shall indemnify and hold the KKR Parties harmless from an amount equal to the KKR Share of any claims, losses, costs, fees, expenses (including reasonable attorney’s fees) or other damages that relate to the Access Gathering Agreement (the “ Access Damages ”) to the extent and only to the extent (i) EXCO is entitled to recover Access Damages from CHK under the CHK PSA or the applicable Existing Marketing Agreements and (ii) EXCO does recover Access Damages from CHK.
5.15      Taxes .
(a)      Tax Partnership . The Parties intend and expect that the transactions contemplated by this Agreement, the Operating Agreement, the Tax Partnership Agreement and any associated agreements (collectively, the “ Transaction Documents ”), in conjunction with the resulting co-ownership of interests in the Subject Assets, pursuant to the terms of such Transaction Documents, will be treated as a partnership (the “ Tax Partnership ”) solely for purposes of (i) federal income taxation and (ii) the income taxation of those States that require the Tax Partnership to be treated as a partnership for income tax purposes (“ Tax Purposes ”). Accordingly, solely for Tax Purposes: (A) the Tax Partnership will be treated as holding 100% of the Subject Assets jointly held by all Parties and engaging in all activities of the Parties with respect thereto; (B) EXCO will be treated as contributing to the Tax Partnership the Subject Assets held by EXCO at the Closing (and, in the case of any property subject to the Farmout Agreement which becomes a Subject Asset subsequent to the Closing, as contributing EXCO’s share of such property to the Tax Partnership at the time at which such property becomes a Subject Asset) and providing its undertaking to fund, when due, the costs and expenses allocable to it under the Transaction Documents in exchange for an interest in the Tax Partnership; (C) each KKR Investor will be treated as contributing to the Tax Partnership an amount of cash equal to its Proportionate Share of the Purchase Price (and, in the case of any property subject to the Farmout Agreement which becomes a Subject Asset subsequent to the Closing, as contributing its share of the property to the Tax Partnership at the time such property becomes a Subject Asset) and providing its undertaking to fund, when due, the costs and expenses allocable to it under the Transaction Documents in exchange for an interest in the Tax Partnership; (D) any expenditures made by the Parties shall be treated as made on behalf of the Tax Partnership; (E) EXCO’s receipt of each KKR Investor’s Proportionate Share of the Purchase Price (which, for the avoidance of doubt, will be treated as distributed to EXCO by the Tax Partnership) will be treated as a disguised sale of the Subject Assets to which the Purchase Price is attributable; and (F) from and after its commencement, the Tax Partnership will be treated as realizing all items of income or gain and incurring all items of cost or expense attributable to the ownership, operation or disposition of interests in the Subject Assets or cash contributed to the Tax Partnership by the Parties, notwithstanding that such items are realized, received, held, paid or incurred by the Parties individually. The governing terms and conditions of the Tax Partnership are contained in the Tax Partnership Agreement.
(b)      Notice and Cooperation . The Parties shall promptly notify each other in writing of any Tax proceeding incurred in connection with the Tax treatment of the transactions as set forth herein, and shall cooperate with each other in a reasonable manner in resolving any such Tax proceeding in a manner consistent with such treatment.
(c)      Assignments . At the time any assignment is made by EXCO or the KKR Parties to the other Party pursuant to this Agreement, with respect to the interest being assigned by the assigning Party, the assigning Party hereby represents and warrants that as of the time of such assignment:
(i)      all ad valorem, real or personal property, severance, production, sales, use, excise, transfer, or other Taxes arising out of, based on or measured by the ownership or operation of such interest or the production of Oil and Gas or the receipt of proceeds therefrom (“ Asset Taxes ”), which are due and payable by such Party shall have been paid;
(ii)      no income or franchise Taxes are due by or assessable against such Party which could result in a lien or other claim against such interest;
(iii)      with respect to Asset Taxes relating to such interest, all Tax Returns that are required to have been filed by such Party have been timely and properly filed and such Tax Returns are true, correct and complete in all material respects;
(iv)      there is no action, suit, proceeding, audit, examination, claim, assessment, deficiency, or adjustment pending, asserted, proposed or threatened by or against such Party respect to any Asset Taxes and no claim has ever been made by any authority in any jurisdiction where such Party does not file Tax Returns alleging that such Party or any Affiliate thereof may be subject to Asset Taxes in that jurisdiction;
(v)      there are no liens with respect to Taxes owed by such Party, nor, to the Knowledge of such Party or any of its Affiliates, is any Governmental Authority in the process of imposing any lien for Taxes, upon such interest, other than with respect to Taxes not yet due and payable or being contested in good faith by appropriate proceedings;
(vi)      with respect to Asset Taxes relating to such interest, such Party (A) is not a party to any agreement with any Governmental Authority extending the time within which to file any Tax Return or (B) has not granted, or not been requested to grant, any extension or waiver of the statute of limitations for the assessment or collection of Taxes; and
(vii)      such Party is not a foreign person within the meaning of Section 1445 of the Code.
ARTICLE 6     
OFFERS
6.1      Well Classification . At the end of each Quarter during the Offer Period, the Drilling Parties will mutually agree upon the classification of each Offer Well as either a Committed Well or a Uncertainty Well. Any dispute regarding the classification of an Approved Well will be resolved in accordance with Section 6.9 .
6.2      EXCO Offers . On or before the last Business Day in the calendar month following the end of each Quarter during the Offer Period, EXCO will be required to offer to purchase the KKR Parties’ interest in each of (i) all Offer Wells that became Committed Wells during such Quarter and (ii) all Uncertainty Wells, in each case, subject to Section 6.8 , at the Fair Market Value for such Offer Wells (each such offer for either the group of Committed Wells or the group of Uncertainty Wells, an “ EXCO Offer ”). Each EXCO Offer shall set forth the Committed Wells or the Uncertainty Wells, as applicable, and the applicable Fair Market Value for each such Offer Well, and shall include a copy of all production data relating to such Offer Wells that is available to EXCO or its Affiliates through the period that is five days prior to the date of such EXCO Offer. For the avoidance of doubt, in the event that the KKR Parties exercise the KKR Right to Retain pursuant to Section 6.6 , EXCO shall not be obligated to include in any future EXCO Offer any offer to purchase any KKR Retained Interest. For the avoidance of doubt, although the EXCO Offer will indicate the Fair Market Value for each Committed Well therein, such EXCO Offer will be made and accepted by the KKR Parties (unless the KKR Parties exercise the KKR Right to Retain pursuant to Section 6.6) on the aggregate Fair Market Value for the group of Committed Wells in the applicable EXCO Offer.
6.3      The KKR Parties’ Response to EXCO Offers .
(k)      The KKR Parties, acting unanimously, may dispute the determination of Fair Market Value by EXCO for any Offer Well included in an EXCO Offer within 15 Business Days of the KKR Parties’ receipt of such EXCO Offer, which dispute will be resolved in accordance with Section 6.9 .
(l)      Within 15 Business Days following the Drilling Parties’ mutual agreement on, or resolution of any dispute concerning, the Fair Market Value of the Offer Wells included in an EXCO Offer, the KKR Parties, acting unanimously, will respond to the EXCO Offer as follows:
(i)      Subject to Section 5.4(c) and Section 11.1(b) , the KKR Parties, acting unanimously, must accept the aggregate Fair Market Value (subject to Section 6.8 ) for their interests in the group of Committed Wells included in an EXCO Offer by written notice to EXCO within such 15 Business Day period, subject to reduction upon exercise of the KKR Right to Retain, unless (A) the KKR Parties, acting unanimously, are entitled to exercise the KKR Right to Decline with respect to such group of Committed Wells included in an EXCO Offer in accordance with Section 6.4 in respect of such EXCO Offer or (B) EXCO has failed to pay the KKR Parties the First Year Amount within the time periods set forth in Section 6.7 through acquisition of Offer Wells included in each of the first four EXCO Offers and any First Year Retained Well Offers, in which case the KKR Parties, acting unanimously, may elect to accept or reject EXCO’s offer for any group of Committed Wells included within an EXCO Offer in their sole discretion. The failure of the KKR Parties to give notice or acceptance on an EXCO Offer for the group of Committed Wells included within an EXCO Offer within the 15 Business Day period when the KKR Parties are not entitled to reject the EXCO Offer under clause (A) or (B), shall be deemed an acceptance of the KKR Parties of EXCO’s offer to purchase such Committed Wells for the Fair Market Value.
(ii)      The KKR Parties, acting unanimously, may elect to accept or reject Fair Market Value for their interests in any Uncertainty Well included in an EXCO Offer.
6.4      The KKR Parties’ Right to Decline . Within 15 Business Days following the Drilling Parties’ mutual agreement on, or resolution of any dispute concerning, the Fair Market Value of the group of Committed Wells included in an EXCO Offer or a group of Retained Wells included in a First Year Retained Well Offer, the KKR Parties, acting unanimously, may elect by written notice to EXCO within such time period, to accept or reject the offer by EXCO to buy its interest in such group of Committed Wells or Retained Wells, as applicable, for the Fair Market Value of such group of wells (the “ KKR Right to Decline ”); provided that the aggregate Fair Market Value for such group of Committed Wells or group of Retained Wells, as applicable, does not equal or exceed the aggregate Drilling Capital Return Amount for such group of Committed Wells or group of Retained Wells; provided further that if the KKR Parties, acting unanimously, elect to exercise the KKR Right to Decline, then EXCO may elect to offer to purchase within 10 Business Days of the KKR Parties’ exercise of the KKR Right to Decline (and each KKR Party shall be deemed to have accepted and be required to sell within 10 Business Days of the KKR Parties’ exercise of the KKR Right to Decline) the KKR Parties’ interest in the group of Committed Wells or group of Retained Wells included in the immediately preceding EXCO Offer or First Year Retained Well Offer, as applicable, for the aggregate Drilling Capital Return Amount of such group of Committed Wells or group of Retained Wells. To the extent that EXCO does not have records relating thereto, the KKR Parties shall provide all documentation reasonably necessary for EXCO to verify the Drilling Capital Return Amount. If the KKR Parties are entitled to exercise the KKR Right to Decline in accordance with this Section 6.4 , the failure of the KKR Parties to give a notice of the KKR Right to Decline to EXCO within such time period shall be deemed a rejection by the KKR Parties of EXCO’s offer to buy such group of Wells for the Fair Market Value.

6.5      Retained Well Offers . Contemporaneously with any EXCO Offer during the First Offer Year, EXCO may present to the KKR Parties a Retained Well Offer for the Retained Wells (if any) from any of the first three EXCO Offers (each a “ First Year Retained Well Offer ”) at the aggregate Fair Market Value for such group of Retained Wells, in each case based on new aggregate Fair Market Value determinations based on updated PV-10 Values for such Retained Wells as of the date of the applicable First Year Retained Well Offer. The KKR Parties, acting unanimously, may dispute the determination of Fair Market Value for the Retained Wells included in a First Year Retained Well Offer within 15 Business Days of the KKR Parties’ receipt of such Retained Well Offer, which dispute will be resolved in accordance with Section 6.9 . Within 15 Business Days following the Parties’ mutual agreement on, or resolution of any dispute concerning, the Fair Market Value of the Retained Wells included in a First Year Retained Well Offer, each KKR Party must accept the aggregate Fair Market Value for its interest in the group of Retained Wells included in a First Year Retained Well Offer, subject to reduction upon exercise of the KKR Right to Retain, unless the KKR Parties, acting unanimously, are entitled to exercise the KKR Right to Decline in accordance with Section 6.4 in respect of such First Year Retained Well Offer, in which case, the KKR Parties, acting unanimously, may elect to accept or reject EXCO’s offer in their sole discretion. Following the First Offer Year, EXCO may make Retained Well Offers for Retained Wells in its sole discretion, which the KKR Parties, acting unanimously, will be entitled to accept or reject in their sole discretion. For the avoidance of doubt, although the First Year Retained Well Offer or Retained Well Offer, as applicable, will indicate the Fair Market Value for each Retained Well therein, such First Year Retained Well Offer or Retained Well Offer, as applicable, will be made and (if accepted by the KKR Parties) purchased (unless the KKR Parties exercise the KKR Right to Retain pursuant to Section 6.6) on the aggregate Fair Market Value for the group of Retained Wells in the applicable First Year Retained Well Offer or Retained Well Offer, as applicable.
6.6      The KKR Parties’ Right to Retain . The KKR Parties, acting unanimously, shall have a right to retain up to an undivided 15% of their collective interest in the group of Committed Wells included in an EXCO Offer or group of Retained Wells included in a Retained Well Offer, in each case, that are located in Area 1 (the “ KKR Retained Interest ”), and are purchased by EXCO pursuant to this Article 6 (the “ KKR Right to Retain ”). For the avoidance of doubt, the KKR Parties’ exercise of such KKR Right to Retain as to any group of Committed Wells included in an EXCO Offer or group of Retained Wells included in any Retained Well Offer shall be made on a group basis such that the KKR Parties’ retain up to an undivided 15% of their collective interest in each Well included in the group of Wells included in such offer.
6.7      Transfer of Offer Wells .
(a)      In the event the KKR Parties accept (or are deemed to have accepted) EXCO’s offer with respect to any group of Offer Wells hereunder, then within 10 Business Days following such acceptance, each KKR Party shall Transfer to EXCO, by conveyance with a special warranty by, through and under such KKR Party and its Affiliates in substantially the form attached hereto as Exhibit P , all of such KKR Party’s right, title and interest in and to such Offer Wells (subject to the KKR Right to Retain if exercised), upon EXCO’s payment to such KKR Party of the amount required to be paid under this Agreement. At or prior to the time of any such Transfer to EXCO, the KKR Parties shall eliminate all futures, options, swaps and other derivatives that are then binding on such Offer Wells (the “ Hedges ”), as well as any liens created by the KKR Parties that are then binding on such Offer Wells. The effective date for any such Transfer by the KKR Parties hereunder shall be the end of the Quarter immediately prior to the EXCO Offer or Retained Well Offer for such Offer Wells that was (or was deemed to have been) accepted by the KKR Parties in accordance with this Agreement (the “ Transfer Effective Date ”).
(b)      All revenues attributable to production of Oil and Gas from the Offer Wells Transferred after the Transfer Effective Date and received by the KKR Parties shall be remitted to EXCO within 10 Business Days of receipt. Any costs and expenses with respect to the Operation of such Offer Wells that were incurred after the Transfer Effective Date shall be the sole responsibility of EXCO.
(c)      The KKR Parties shall have, at their election, at any time within one year from the applicable Transfer Effective Date, the right to audit the books and records of EXCO attributable to the Offer Wells Transferred by the KKR Parties as of such Transfer Effective Date in order to verify the accuracy of revenues and expenses which are allocated between the Drilling Parties as of the Transfer Effective Date, in accordance with Section 6.7(b) . During this period, EXCO agrees to furnish copies of appropriate documentation of such revenues and expenses. If any errors in the revenues and expenses allocated between the Drilling Parties are determined such that EXCO or the KKR Parties, as applicable, received an amount to which such Party was not entitled under this Section 6.7 , then such Party shall promptly (and in any event within 10 Business Days following such determination) pay the other Party an amount equal to the amount of such over-payment.
6.8      Allocation of Fair Market Value . Notwithstanding anything in this Agreement to the contrary, in the event that the Fair Market Value for (a) the group of Committed Wells included in any EXCO Offer or (b) the group of Retained Wells included in any First Year Retained Well Offer, as applicable, equals or exceeds the Drilling Capital Return Amount for such group of Wells, EXCO will not pay each KKR Party its Proportionate Share of the Fair Market Value for such group of Wells and in lieu thereof will pay to each KKR Party its Proportionate Share of the sum of an amount equal to the Drilling Capital Return Amount for such group of Wells, plus 66.6667% of the difference (if any) between the Fair Market Value for such group of Wells and the Drilling Capital Return Amount for such group of Wells.
6.9      Proposed Fair Market Value .
(a)      The Fair Market Value of each Offer Well included in an EXCO Offer or Retained Well included in a First Year Retained Well Offer or Retained Well Offer will initially be proposed by EXCO based upon the criteria set out in Exhibit H . Upon receipt of an EXCO Offer, First Year Retained Well Offer or Retained Well Offer, the KKR Parties shall meet to negotiate and agree upon the Fair Market Value applying the methodology for determining the PV-10 Value of an Offer Well described on Exhibit H . If within 15 days of the KKR Parties’ receipt of an EXCO Offer or Retained Well Offer the Drilling Parties are unable to agree upon the Fair Market Value of specific Offer Well(s) or Retained Well(s) or if the Drilling Parties dispute the classification of specific Offer Well(s) or Retained Well(s) pursuant to Section 6.1 (in each case, a “ Disputed Matter ”), then either Drilling Party may submit the Disputed Matter to a petroleum engineer (with at least 10 years’ experience in petroleum reserve matters in Texas) to one of following petroleum engineering firms as agreed by the Drilling Parties: Netherland, Sewell and Associates, Inc. or Ryder Scott Company (the “ Reserve Engineer ”). The Reserve Engineer, once appointed, shall have no ex parte communications with the Parties concerning the Disputed Matter. All communications between any Drilling Party and the Reserve Engineer shall be conducted in writing, with copies sent simultaneously to the other Drilling Party in the same manner, or at a meeting to which all Drilling Parties have been invited and of which such Drilling Parties have been provided at least five Business Days’ notice.
(b)      The cost of the Reserve Engineer shall be paid 50% by EXCO and 50% by the KKR Parties. The Drilling Parties shall each present to the Reserve Engineer, with a simultaneous copy to the other Drilling Party, a single written statement of its position on the Disputed Matter, together with a copy of this Agreement and any supporting material that such Drilling Party desires to furnish, not later than 10 Business Days after appointment of the Reserve Engineer. In making his determination, the Reserve Engineer shall be bound by the terms of this Agreement (including the criteria set forth in Exhibit H ) and, without any supplemental submittals by either such Drilling Party, may consider available industry matters as in his opinion are necessary or appropriate to make a proper determination. Additionally, any Reserve Engineer may consult with and engage disinterested Third Parties to advise him. Within 30 days following the submission of such written statements to the Reserve Engineer, applying the principles set forth in this Section 6.9(b) and this Agreement (including the criteria set forth in Exhibit H ) the Reserve Engineer shall make its own determination of the Disputed Matter. The decision of the Reserve Engineer shall be in writing and conclusive and binding on the Parties and shall be enforceable against the Parties in any court of competent jurisdiction. The Reserve Engineer shall act as an expert for the limited purpose of determining the Fair Market Value of the disputed Offer Well(s) included in the applicable EXCO Offer, First Year Retained Well Offer or Retained Well Offer, as the case may be, or the classification of disputed Approved Well(s) pursuant to Section 6.1 , shall not act as an arbitrator, shall not consider, hear or decide any matters except the specific reserve matters presented to them regarding the Disputed Matter, and shall not award damages, interest or penalties to any Drilling Party .
ARTICLE 7     
ACQUIRED INTERESTS
7.1      Area of Mutual Interest . The Parties agree that any Working Interest in non-producing acreage acquired by any Party (an “ Acquiring Party ”) in any of the lands within the area outlined on the plat attached hereto as Exhibit A (subject to the exclusions set forth in Section 7.6 , each an “ Acquired Interest ”) shall be subject to the terms and conditions of this Article 7 . Notwithstanding anything herein to the contrary, to the extent any Acquired Interest acquired by EXCO is subject to EXCO’s business opportunities obligation under Section 11.1 of that certain Amended and Restated Limited Liability Company Agreement of EXCO/HGI GP, LLC, a Delaware limited liability company, by and between EXCO Holding MLP, Inc., a Texas corporation, and HGI Energy Holdings, LLC, a Delaware limited liability company, dated and effective as of February 14, 2013 (the “ Partnership Opportunities Provisions ”), then EXCO shall be permitted to offer such Acquired Interest that is subject to such obligation first to the Partnership. If the Partnership elects to acquire such Acquired Interest, then such Acquired Interest shall no longer be subject to this Article 7. If the Partnership does not elect to acquire such Acquired Interest pursuant to the Partnership Opportunities Provisions, then such Acquired Interest shall thereafter be subject to the provisions of this Article 7 ; provided , however, that EXCO shall have no obligation to deliver the AMI Offer Notice with respect to such Acquired Interest until the Partnership’s time period for electing to acquire such Acquired Interest has expired.
7.2      Notice of Acquisitions . Upon any acquisition of an Acquired Interest by an Acquiring Party, the Acquiring Party shall provide written notice (an “ AMI Offer Notice ”) to the other Party (the “ Non-Acquiring Party ”). Subject to the rights of any Third Parties under any relevant Operating Agreement, the Non-Acquiring Party shall have the right (but not the obligation) to acquire its (their) proportionate share in the Acquired Interest (the “ AMI Offered Interest ”) upon the same terms and conditions on which the Acquiring Party acquired the Acquired Interest, subject to assuming its share of all duties and obligations with respect to the Acquired Interest and paying the Acquiring Party the Non-Acquiring Party’s proportionate share of any consideration paid by the Acquiring Party (and, in the case of Acquired Interests including Leases, any lease broker costs incurred in acquiring such Leases). For the avoidance of doubt, with respect to an Acquired Interest, EXCO’s proportionate share is an undivided 50% interest and the KKR Parties’ proportionate share is an undivided 50% interest (in each case) of such Acquired Interest. An Acquiring Party shall use commercially reasonable efforts to assign a share of its rights and obligations under the acquisition documents to the Non-Acquiring Party; provided that the Acquiring Party shall not be required pay cash or otherwise surrender value or incur any liability to the selling Person to obtain such a right.
7.3      Election Right .
(g)      The Non-Acquiring Party shall have a period of 15 Business Days after receipt of the AMI Offer Notice to notify the Acquiring Party in writing whether it elects to acquire its AMI Offered Interest. Failure to give timely notice of such election shall be deemed an election not to acquire its AMI Offered Interest. If the Non-Acquiring Party timely elects to acquire its AMI Offered Interest, then the Acquiring Party and such Non-Acquiring Party shall enter into agreements for the Transfer of the Non-Acquiring Party’s proportionate share of such rights and obligations on substantially the same terms as provided in the agreements between the selling Person and the Acquiring Party or its Affiliate (with such changes as may be necessitated by the differences in parties, the transfer of only a proportionate share, the inclusion of lease broker costs to the extent required by Section 7.2 and, if applicable, the apportionment of rights from a package deal or the payment of the equivalent cash value (the “ Cash Value ”) in lieu of other consideration); provided that the Acquiring Party shall in no event have liability to the Non-Acquiring Party for representations, warranties or indemnities with respect to the Acquired Interest in excess of the Non-Acquiring Party’s proportionate share of amounts that the Acquiring Party actually recovers under the Third Party acquisition agreement and related documents for the same matters. The Parties shall execute and deliver the applicable documents and take such other actions as shall be reasonably required to accomplish the transfer promptly after the Non-Acquiring Party’s exercise of its option.
(h)      If the Non-Acquiring Party elects not to acquire or fails to make a timely election to acquire the AMI Offered Interest, such Non-Acquiring Party shall have no further rights whatsoever with regard to the Acquired Interest and such Acquired Interest shall be excluded for all purposes from this Agreement and the provisions hereof.
7.4      Farmouts . If the Acquired Interest arises out of a farmout agreement or similar agreement requiring the drilling of a well or the performance of other similar obligations, the election by the Non-Acquiring Party to acquire its AMI Offered Interest shall also constitute an election by such Non-Acquiring Party to join the Acquiring Party in all operations and obligations required to earn such AMI Offered Interest under such agreement and to bear its proportionate share of the cost thereof (and such Operations shall automatically be added to the then-current Development Plan).
7.5      Non-Cash Acquisitions/Package Acquisitions .
(a)      In the event an Acquired Interest is not acquired pursuant to a Transfer involving only cash consideration or is acquired with other properties included in a wider transaction (package deal), the Acquiring Party shall include in its notification to the Non-Acquiring Party a statement of the Cash Value of the Acquired Interest (excluding the drilling of wells or performance of other obligations included as part of the consideration), and the Non-Acquiring Party shall have a right to acquire its AMI Offered Interest on the same final terms and conditions as were negotiated with the proposed transferor except that it shall pay the Cash Value in immediately available funds to the Acquiring Party at the time of its acquisition of the AMI Offered Interest in lieu of the consideration (excluding the drilling of wells or performance of other obligations included as part of the consideration) payable in the Third Party offer, and the terms and conditions of the applicable instruments shall be modified to reflect the acquisition of the AMI Offered Interest for cash (together with interest thereon as provided in Section 7.3(a) ). In the case of a package sale, the Non-Acquiring Party may not acquire an interest in the Acquired Interest subject to the proposed package sale unless and until the completion of the wider transaction (as modified by the exclusion of properties subject to preemptive rights or excluded for other reasons) with the package sale transferor. If for any reason the package sale terminates without completion, the Non-Acquiring Party’s rights to acquire the Acquired Interest subject to the proposed package sale shall also terminate.
(b)      For purposes of Section 7.5(a) the Cash Value proposed by the Acquiring Party in its notice shall be conclusively deemed correct unless the Non-Acquiring Party gives notice to the Acquiring Party within 10 days of its receipt of the AMI Offer Notice stating that it does not agree with the Acquiring Party’s statement of the Cash Value, stating the Cash Value (excluding the drilling of wells or performance of other obligations included as part of the consideration) it believes is correct, and providing any supporting information that it believes is helpful. In such event, the Drilling Parties shall have 10 days in which to attempt to negotiate an agreement on the applicable Cash Value. If no agreement has been reached by the end of such 10 day period, any affected Drilling Party shall be entitled to refer the matter to an independent expert as provided in Section 7.7 for determination of the Cash Value; provided that the Acquiring Party may elect to terminate the proposed acquisition of the Acquired Interest, and the Non-Acquiring Party may elect to revoke its notice of intention to purchase, in either case by notice to the other Party at any time prior to the time that the independent expert is retained pursuant to such provision. The Cash Value to be submitted to the independent expert by the Acquiring Party shall be the Cash Value provided by such Acquiring Party in the notice provided to the Non-Acquiring Party pursuant to Section 7.5(a) , and the Cash Value to be submitted to the independent expert by the Non-Acquiring Party shall be the Cash Value provided by such Non-Acquiring Party in the notice provided to the Acquiring Party pursuant to this Section 7.5(b) .
7.6      Exclusions/Operatorship . Notwithstanding anything to the contrary herein, this Article 7 shall not be applicable to: (a) Transfers among a Party and its Affiliates, including any Transfer between any KKR Party and any KKR Managed Entity; (b) acquisitions of interests in any entity or entities directly or indirectly owning an Acquired Asset if the direct or indirect interest in the Acquired Assets makes up less than 25% of the total Cash Value of the interest acquired or to be acquired; (c) any interests in Existing Wells or Wells that are not Approved Wells; or (d) any Lease (or the lands covered thereby) that is excluded from this Agreement because of an unobtained Required Consent. The Parties shall use commercially reasonable efforts to cause EXCO, and not a Third Party, to serve as operator of any Acquired Interest. Each Party agrees to cause its Affiliates to comply with this Article 7 .
7.7      Independent Expert . For any decision referred to an expert under this Article 7 , the Parties hereby agree that such decision shall be conducted expeditiously by an expert selected unanimously by the Parties. The expert is not an arbitrator of the dispute and shall not be deemed to be acting in an arbitral capacity. The Party desiring an expert determination shall give the other Party written notice of the request for such determination. If the Parties are unable to agree upon an expert within 10 Business Days after receipt of the notice of request for an expert determination, then, upon the request of any of the Parties, the AAA shall appoint such expert. The expert, once appointed, shall have no ex parte communications with the Parties concerning the expert determination or the underlying dispute. All communications between any Party and the expert shall be conducted in writing, with copies sent simultaneously to the other Party in the same manner, or at a meeting to which all Parties have been invited and of which such Parties have been provided at least five Business Days’ notice. Within 30 days after the expert’s acceptance of its appointment, the Parties shall provide the expert with a report containing their proposal for the resolution of the matter and the reasons therefor, accompanied by all relevant supporting information and data. Within 60 days of receipt of the above-described materials and after receipt of additional information or data as may be required by the expert, the expert shall select the proposal which it finds more consistent with the terms of this Agreement. The expert may not propose alternate positions or award damages, interest or penalties to any Party with respect to any matter. The expert’s decision shall be conclusive, final and binding on the Parties.
ARTICLE 8     
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
8.1      Representations and Warranties . EXCO hereby represents and warrants to each Initial KKR Investor, and each Initial KKR Investor, severally and not jointly, hereby represents and warrants to EXCO, the following:
(m)      Organization . Such Party is duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is qualified to do business and is in good standing in the State of Texas and in every other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to execute, deliver and perform this Agreement and the other agreements contemplated herein.
(n)      Authority; Binding Effect .
(viii)      Such Party has all requisite power and authority to enter into and perform its obligations under this Agreement and to carry out the transactions contemplated hereby.
(ix)      Such Party has taken (or caused to be taken) all acts and other proceedings required to be taken by it to authorize the execution, delivery and performance by such Party of this Agreement and the other agreements contemplated herein. This Agreement has been duly executed and delivered by such Party and constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the rights of creditors generally and by principles of equity, whether considered in a proceeding at law or in equity.
(o)      Noncontravention . Assuming compliance with all Third Party Rights, the execution, delivery and performance of this Agreement by such Party does not and will not (i) conflict with, or result in, any violation of or constitute a breach or default (with notice or lapse of time, or both) under (A) any provision of its organizational documents, or (B) any Law, agreement, instrument or license applicable to such Party, or (ii) require the submission of any notice, report, consent or other filing with or from any Governmental Authority or Third Parties, other than such consents as are customarily obtained after assignment of wells and Oil and Gas leases in the State of Texas.
(p)      Litigation . There are no actions, suits or proceedings pending or, to such Party’s Knowledge, threatened against it that if decided unfavorably to such Party could have a material adverse effect on the ability of such Party to execute, deliver or perform this Agreement.
(q)      Liability for Brokers’ Fees . Such Party has not incurred any obligation or liability, contingent or otherwise, for any fee payable to a broker or finder with respect to the matters provided for in this Agreement which could be attributable or charged to such Party.
(r)      Survival . Except for the representations and warranties in clauses (a) and (b) above, which shall survive indefinitely, the foregoing representations and warranties contained in this Section 8.1 shall terminate one year after the Closing Date and shall thereafter have no further force and effect.
8.2      Representations and Warranties of the Initial KKR Investors . Each Initial KKR Investor, severally and not jointly, hereby represents and warrants to EXCO the following:
(i)      Investment Representation . In acquiring any interest under this Agreement, it is acquiring such interests for its own account for investment purposes only, and not with a view to resale or distribution.
(j)      Financial Ability . Such Initial KKR Investor has the financial resources available to consummate the transactions contemplated by this Agreement, to pay the Purchase Price and to pay any and all fees and expenses incurred by such Initial KKR Investor in connection with the transactions contemplated by this Agreement. Such Initial KKR Investor has such Knowledge and experience in financial and business matters, and in Oil and Gas exploration projects of the type contemplated in and by this Agreement, that it is capable of evaluating the merits and risks of its investment hereunder, and such Initial KKR Investor is not in need of the protection afforded investors by the applicable securities Laws. In addition, such Initial KKR Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated by the Securities Act of 1933, as amended.
(k)      Independent Evaluation . In entering into this Agreement, except for the representations and warranties expressly and specifically provided in this Article 8 and the special warranty contained in the assignments made by EXCO to the Initial KKR Investors pursuant to this Agreement, such Initial KKR Investor acknowledges and affirms that it has relied and will rely solely on the representations and warranties contained in this Agreement and the special warranties of title contained in the assignments delivered to it pursuant hereto and upon its independent analysis, evaluation and investigation of, and judgment with respect to, the business, economic, legal, tax or other consequences of this transaction, including its own estimate and appraisal of the extent and value of the Oil and Gas reserves or other value of the Assets.
(l)      KKR Management . The Initial KKR Investors are KKR Managed Entities.
(m)      Compliance with United States Foreign Corrupt Practices Act and Other Anti-Corruption Laws .
(x)      The Initial KKR Investors and their Controlling Affiliates are in compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78a et seq. (1997 and 2000). In particular, neither the Initial KKR Investors nor any of their Controlling Affiliates have taken corrupt actions in furtherance of an offer, payment, promise to pay or authorization of the payment of anything of value, including but not limited to cash, checks, wire transfers, tangible and intangible gifts, favors, services, and those entertainment and travel expenses that go beyond what is reasonable and customary and of modest value, to a Government Official; while knowing or having a reasonable belief that all or some portion will be used for the purpose of: (i) influencing any act or decision of any such Government Official, including a decision to fail to perform his official functions, (ii) inducing any such official to do or omit to do any act in violation of the lawful duty of such official, or (iii) inducing any such Government Official to use his influence with any government, department, agency or instrumentality in order to assist any party in obtaining or retaining business with, or directing business to any Person or otherwise securing for any Person an improper advantage.
(xi)      The Initial KKR Investors and their Controlling Affiliates are in compliance with all applicable U.S. sanctions laws and regulations, including without limitation the Trading with the Enemy Act of 1917 (50 U.S.C. §§ 1-44), the International Emergency Economic Powers Act (50 U.S.C. §§ 1701–1706), the Foreign Narcotics Kingpin Designation Act (21 U.S.C. 1901-1908, 8 U.S.C. 1182), the regulations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, and Executive Order 13224. In particular, neither the Initial KKR Investors nor any of their Controlling Affiliates have, directly or indirectly, engaged in any transaction or dealing in property or interests in property of, received from or made any contribution of funds, goods, or services to or for the benefit of, provided any payments or material assistance to, or otherwise engaged in or facilitated any transactions with a Prohibited Person.
(xii)      Neither the Initial KKR Investors nor any of their Controlling Affiliates are a Prohibited Person.
(n)      Survival . The foregoing representations and warranties contained in this Section 8.2 shall terminate one year after the Closing Date and shall thereafter have no further force and effect.
8.3      Representations and Warranties of EXCO with Respect to EXCO . EXCO hereby represents and warrants to each KKR Party the following:
(c)      Status . EXCO is not a “foreign person” within the meaning of the Code §1445. EXCO will furnish to the KKR Parties an affidavit that satisfies the requirements of Code §1445(b)(2).
(d)      Calls on Production . With respect to the Working Interest in the Assets assigned to Admiral Acquisition Sub pursuant to the KKR Assignment or by CHK to any Other Admiral Sub as contemplated hereby, to EXCO’s Knowledge (after reasonable inquiry), there are no calls on production or contracts for sale of production encumbering such Assets that provide for the delivery of Oil and Gas at a price below the price that EXCO and its Affiliates are receiving for EXCO’s share of such production.
(e)      Taxes . With respect to the Assets covered by the KKR Assignment or any assignment by CHK to any Other Admiral Sub as contemplated hereby:
(i)      all Asset Taxes that are due and payable by EXCO have been paid;
(ii)      no income or franchise Taxes are due by or assessable against EXCO that could result in a lien or other claim against the KKR Share of such Assets;
(iii)      with respect to Asset Taxes attributable to the KKR Share of such Assets, all Tax Returns that are required to have been filed have been timely and properly filed and such Tax Returns are true, correct and complete in all material respects;
(iv)      there is no action, suit, proceeding, audit, examination, claim, assessment, deficiency, or adjustment pending, asserted, proposed or threatened by or against EXCO with respect to any Asset Taxes and no claim has ever been made by any authority in any jurisdiction where EXCO does not file Tax Returns alleging that EXCO or any Affiliate thereof may be subject to Asset Taxes in that jurisdiction;
(v)      there are no liens with respect to Taxes owed by EXCO, nor, to the Knowledge of EXCO or any of its Affiliates, is any Governmental Authority in the process of imposing any lien for Taxes, upon the KKR Share of such Assets, other than with respect to Taxes not yet due and payable or being contested in good faith by appropriate proceedings;
(vi)      with respect to Asset Taxes attributable to the KKR Share of such Assets, EXCO (A) is not a party to any agreement with any Governmental Authority extending the time within which to file any Tax Return or (B) has not granted, or been requested to grant, any extension or waiver of the statute of limitations for the assessment or collection of Taxes; and
(vii)      EXCO is not a foreign person within the meaning of Section 1445 of the Code.
(f)      Tax Partnership . Except as contemplated by Section 5.15 , as of the Closing Date, (i) none of the Assets being assigned pursuant to the KKR Assignment or to any Other Admiral Sub as contemplated hereby constitutes an equity interest in any corporation, partnership, limited liability company, or any other entity, and (ii) none of the Assets are subject to tax partnership reporting requirements for federal income tax purposes.
(g)      Insurance Coverage . As of the Closing Date, EXCO has procured in effect insurance coverages in scope and amount not less than the coverages that may be required by Laws, any Governmental Authorities and any Operating Agreement by which the Assets are then bound, including the policies set forth on Exhibit N . EXCO has named each of the KKR Parties as an additional insured under the policies set forth on Exhibit N (or replacements thereof) with respect to any Approved Wells (subject to the limitations set forth in the Operating Agreements).
(h)      Survival . The foregoing representations and warranties contained in this Section 8.3 (other than the representations provided for in clauses (a), (c), (d), and (e) which representations shall remain in effect until 30 days after the expiration of the applicable statute of limitations, but not thereafter) shall terminate one year after the Closing Date and shall thereafter have no further force and effect.
(i)      Compliance with United States Foreign Corrupt Practices Act and Other Anti-Corruption Laws .
(i)      EXCO and its Controlling Affiliates are in compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78a et seq. (1997 and 2000). In particular, neither EXCO nor any of its Controlling Affiliates has taken corrupt actions in furtherance of an offer, payment, promise to pay or authorization of the payment of anything of value, including cash, checks, wire transfers, tangible and intangible gifts, favors, services, and those entertainment and travel expenses that go beyond what is reasonable and customary and of modest value, to a Government Official, while knowing or having a reasonable belief that all or some portion will be used for the purpose of: (i) influencing any act or decision of any such Government Official, including a decision to fail to perform his official functions, (ii) inducing any such official to do or omit to do any act in violation of the lawful duty of such official, or (iii) inducing any such Government Official to use his influence with any government, department, agency or instrumentality in order to assist any party in obtaining or retaining business with, or directing business to any Person or otherwise securing for any Person an improper advantage.
(ii)      EXCO and its Controlling Affiliates are in compliance with all applicable U.S. sanctions laws and regulations, including the Trading with the Enemy Act of 1917 (50 U.S.C. §§ 1-44), the International Emergency Economic Powers Act (50 U.S.C. §§ 1701–1706), the Foreign Narcotics Kingpin Designation Act (21 U.S.C. 1901-1908, 8 U.S.C. 1182), the regulations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, and Executive Order 13224. In particular, neither EXCO nor any of its Controlling Affiliates have, directly or indirectly, engaged in any transaction or dealing in property or interests in property of, received from or made any contribution of funds, goods, or services to or for the benefit of, provided any payments or material assistance to, or otherwise engaged in or facilitated any transactions with a Prohibited Person.
(iii)      Neither EXCO nor any of its Controlling Affiliates are a Prohibited Person.
8.4      Representations and Warranties of EXCO with Respect to Admiral Acquisition Sub . EXCO hereby represents and warrants to each Initial KKR Investor the following:
(c)      Organization . Admiral Acquisition Sub is duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business and is in good standing in the State of Texas and in every other jurisdiction where the failure to so qualify would have a material adverse effect on its ability to execute, deliver and perform the other agreements contemplated herein.
(d)      Authority; Binding Effect .
(viii)      Admiral Acquisition Sub has all requisite power and authority to perform its obligations under this Agreement and to carry out the transactions contemplated thereby.
(ix)      Admiral Acquisition Sub has taken (or caused to be taken) all acts and other proceedings required to be taken by it to authorize the performance by Admiral Acquisition Sub under this Agreement and the other agreements contemplated herein.
(e)      Noncontravention . Assuming compliance with all Third Party Rights, the performance of this Agreement by Admiral Acquisition Sub does not and will not (i) conflict with, or result in, any violation of or constitute a breach or default (with notice or lapse of time, or both) under (A) any provision of its organizational documents, or (B) any Law, agreement, instrument or license applicable to Admiral Acquisition Sub, or (ii) require the submission of any notice, report, consent or other filing with or from any Governmental Authority or Third Parties, other than such consents as are customarily obtained after assignment of wells and Oil and Gas leases in the State of Texas.
(f)      Subject Equity Interests .
(iii)      At the Closing, the only issued and outstanding equity interests of Admiral Acquisition Sub will be the Subject Equity Interests.
(iv)      At the Closing, the Subject Equity Interests will be duly authorized and validly issued, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. Except for the Subject Equity Interests, there will be no other outstanding equity interests in Admiral Acquisition Sub, or any contractual arrangements giving any Person a right to receive any benefits or rights similar to the rights enjoyed by or accruing to the holders of the limited liability company interest in Admiral Acquisition Sub. Other than pursuant to this Agreement, at the Closing there will be no outstanding warrants, options, rights, convertible or exchangeable securities or other commitments pursuant to which EXCO or Admiral Acquisition Sub will or may become obligated to issue or sell any equity interests in Admiral Acquisition Sub. Other than this Agreement and the respective governing agreements of Admiral Acquisition Sub, the Subject Equity Interests are not subject to any voting agreement or other contract, agreement, arrangement, commitment or understanding, including any such agreements, arrangement, commitment or understanding restricting or otherwise relating to the voting, dividend rights or disposition of the Subject Equity Interests.
(g)      Absence of Liabilities . Since the date of its formation, Admiral Acquisition Sub has not carried on any business or conducted any operations other than the applicable assignment of Area 1 Leases from CHK.
(h)      Survival . The foregoing representations and warranties contained in this Section 8.4 shall terminate one year after the Closing Date and shall thereafter have no further force and effect.
8.5      Compliance Matters . To the extent that EXCO has Knowledge thereof, EXCO shall provide prompt written notice to each KKR Party of any material adverse environmental matters relating to or affecting the Assets, the development thereof or the Operations conducted thereon, including but not limited to, notices of violation, actions to challenge or revoke necessary permits or authorizations, significant spills or releases or discovery of contamination on, under or from the Leases. In connection with Operations conducted by EXCO, EXCO shall at all times comply in all material respects with all Laws, including without limitation all Laws related to health, safety, the protection of the environment, natural resources or threatened or endangered species, pollution or its impacts on human health, which compliance includes the possession of, and compliance with, all Permits, including any Permit related to air emissions, gas flaring and hydrogen sulfide management.
ARTICLE 9     
CONDITIONS TO CLOSING
9.1      Conditions to Obligations of the KKR Parties to Closing . The obligation of the Initial KKR Investors to consummate the transactions contemplated by this Agreement at the Closing is subject to the satisfaction of the following conditions.
(o)      Representations and Warranties . (i) The representations and warranties of EXCO contained in Sections 8.1 , 8.3 and 8.4 shall be true and correct in all material respects (without regard to any materiality qualifiers contained therein), in each case as of the Execution Date and as of the Closing Date as though such representations and warranties were made at and as of each such date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (without regard to any materiality qualifiers contained therein) as of such earlier date).
(p)      No Injunction . No provision of any Law will be in effect that prohibits or makes illegal the consummation of the Closing.
(q)      CHK Closing . The CHK Closing shall have occurred or the parties thereto shall be ready, willing and able to close the transactions contemplated by the CHK PSA.
(r)      KKR Assignment . CHK shall have delivered (or be ready, willing and able to deliver) its duly executed signature page counterparts to the KKR Assignment covering the Initial KKR Assets to the Admiral Acquisition Sub.
(s)      Share Assignment . EXCO shall have delivered (or be ready, willing and able to deliver) its duly executed signature page counterparts to the Share Assignment to the Initial KKR Investors.
(t)      Operating Agreement . EXCO shall have delivered its duly executed signature page counterpart to the Assets Operating Agreement, to the extent applicable.
(u)      Certification of Non-Foreign Status . EXCO shall have delivered a certification of its non-foreign status in accordance with U.S. Treasury Regulation Section 1.1445-2(b)(2).
9.2      Conditions to Obligations of EXCO to Closing . The obligation of EXCO to consummate the transactions contemplated by this Agreement at the Closing is subject to the satisfaction of the following conditions.
(j)      Representations and Warranties . The representations and warranties of the Initial KKR Investors contained in Sections 8.1 and 8.2 shall be true and correct in all material respects (without regard to any materiality qualifiers contained therein), in each case as of the Execution Date and as of the Closing Date as though such representations and warranties were made at and as of each such date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (without regard to any materiality qualifiers contained therein) as of such earlier date).
(k)      No Injunction . No provision of any Law will be in effect that prohibits or makes illegal the consummation of the Closing.
(l)      Operating Agreement . Each KKR Party shall have delivered its duly executed signature page counterpart to the Assets Operating Agreement.
(m)      CHK Closing . The CHK Closing shall have occurred or the parties thereto shall be ready, willing and able to close the transactions contemplated by the CHK PSA.
(n)      KKR Assignment and EXCO Assignment . CHK shall have delivered (or be ready, willing and able to deliver) its duly executed signature page counterparts to the KKR Assignment covering the Initial KKR Assets to the Admiral Acquisition Sub and the EXCO Assignment to EXCO.
(o)      Closing Payment . Each Initial KKR Investor shall have paid to EXCO each such Initial KKR Investor’s proportionate share of the Closing Payment.
9.3      Termination . At any time prior to the Closing, this Agreement may be terminated and the transactions contemplated hereby abandoned:
(i)      by the mutual written consent of EXCO and the Initial KKR Investors;
(j)      by either EXCO or the Initial KKR Investors if the CHK PSA is terminated in accordance with the terms and conditions set forth therein; or
(k)      by either EXCO or the Initial KKR Investors if the transactions contemplated at the Closing have not been consummated within 60 days of the CHK Closing; provided that a Party may not terminate this Agreement pursuant to this Section 9.3(c) while such Party is in material breach of this Agreement.
ARTICLE 10     
INDEMNIFICATION
10.1      Indemnification of KKR Parties by EXCO . Effective as of the Closing, EXCO shall RELEASE, DEFEND, PROTECT, INDEMNIFY and HOLD HARMLESS each KKR Party, its Affiliates, and all of their respective partners, members, managers, officers, employees, directors, agents and representatives (collectively, the “ KKR Indemnified Parties ”), from and against any losses including any loss or damage on account of illness, injury or death suffered by any Person, or the loss or damage to the property of any Person, arising out of, in connection with, or relating to (i) EXCO’s breach of any representation or warranty contained in this Agreement and (ii) personal injury, casualty loss or any loss caused by a discharge of Oil and Gas, pollutants or other contaminants into or onto any medium such as land, surface water, ground water or air, in each case relating to or arising out of EXCO’s ownership or Operation of the Existing Wells located on the Oil and Gas leases described on Exhibit B or the lands pooled or unitized therewith.
10.2      Indemnification of EXCO by KKR Parties . Effective as of the Closing, each KKR Investor shall RELEASE, DEFEND, PROTECT, INDEMNIFY and HOLD HARMLESS EXCO, its Affiliates, and all of their respective partners, members, managers, officers, employees, directors, agents and representatives (collectively, the “ EXCO Indemnified Parties ”) from and against any loss or damages including any loss or damage on account of illness, injury or death suffered by any Person, or the loss or damage to the property of any Person, arising out of, in connection with, or relating to such KKR Investor’s breach of any representation or warranty under this Agreement.
10.3      Indemnification Procedures . All claims for indemnification under Section 10.1 or Section 10.2 shall be asserted and resolved as follows:
(d)      For purposes of this Section 10.3 , the term “ Indemnifying Party ” when used in connection with particular Liabilities shall mean the Party having any obligation to indemnify another Party or Person with respect to such Liabilities pursuant to Section 10.1 or Section 10.2 , and the term “ Indemnified Party ” when used in connection with particular Liabilities shall mean the Party or Person having the right to be indemnified with respect to such Liabilities pursuant to Section 10.1 or Section 10.2 .
(e)      To make a claim for indemnification under Section 10.1 or Section 10.2 , an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 10.3 , including the specific details of and specific basis under this Agreement for its claim (the “ Claim Notice ”). In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “ Third Party Claim ”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party acquires actual notice of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 10.3 shall not relieve the Indemnifying Party of its obligations under Section 10.1 or Section 10.2 (as applicable), except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the Indemnifying Party’s ability to defend against the Third Party Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation or warranty the Claim Notice shall specify the representation or warranty that was inaccurate or breached.
(f)      In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall notify the Indemnified Party whether it shall assume the defense of such Third Party Claim within 30 days of receipt of such Third Party Claim. In the event that the Indemnifying Party fails to notify the Indemnified Party within such time period on whether it elects to assume such defense, the Indemnifying Party shall be deemed to have elected not to assume such defense. The Indemnified Party is authorized, prior to notice by the Indemnifying Party that it shall assume the defense of such Third Party Claim, at the expense of the Indemnifying Party, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.
(g)      If the Indemnifying Party shall have assumed the defense of the Third Party Claim, the Indemnifying Party shall have full control of such defense and proceedings, including, subject to the last sentence of this Section 10.3(d) , any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party shall cooperate in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, at its own expense, but subject to the Indemnifying Party’s full control of, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 10.3(d) ; provided that the Indemnified Party shall not be required to bring any counterclaim or cross complaint against any Person. An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto that does not include an unconditional release of the Indemnified Party from all Liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).
(h)      If the Indemnifying Party does not assume (or is deemed to have not assumed) the defense of the Third Party Claim or fails to diligently defend such Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party, with counsel selected by the Indemnified Party. Any settlement of the Third Party Claim by the Indemnified Party shall require the consent of the Indemnifying Party (which shall not be unreasonably withheld, conditioned or delayed), unless the settlement is solely for money damages and results in a final resolution.
(i)      In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its liability for such Liabilities or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within such 30-day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a liability of the Indemnifying Party hereunder.
(j)      For purposes of this Section 10.3 , the term “ Liabilities ” means any and all claims, causes of action, payments, charges, judgments, assessments, liabilities, losses, Taxes, damages, penalties, fines or costs and expenses, including any attorney’s fees, legal or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury or death or property damage.
ARTICLE 11     
TRANSFER
11.1      Transfer .
(l)      Subject to Sections 11.2 and 11.3 , either Drilling Party may Transfer all or any part of its right, title or interest in the Assets; provided that any transferee must agree in writing, for the express benefit of the other Drilling Party, to be bound by the terms hereof and to assume the obligations of such transferor Party under this Agreement with respect to the interest being Transferred, including, in the case of EXCO, EXCO’s obligations to purchase the KKR Parties’ right, title and interest (or portion thereof) in the Assets in accordance with Article 6 , in so far as such obligations pertain to the Assets Transferred, which shall continue to be burdened by the rights and obligations of the KKR Parties hereunder; and provided further that, except for Transfers by the KKR Parties to any KKR Managed Entity, neither Party may Transfer all or any part of its right, title or interest in the Assets prior to the resolution of all offers for Offer Wells included in the first four EXCO Offers hereunder. Neither Party may Transfer any of their rights and obligations under this Agreement except in connection with a Transfer of its right, title and interest in the Assets and then only to the extent relating to the Assets so Transferred. No Transfer of a Party’s right, title and interest in the Assets or this Agreement or entry into a Permitted Pledge shall relieve such Party of any of its obligations under this Agreement. Any purported Transfer not made in accordance with the terms and conditions of this Agreement shall be null and void.
(m)      In the event the EXCO Net Mineral Acres are reduced below 50% of the Target Net Mineral Acres for any reason, the KKR Parties shall have no further obligation to accept any EXCO Offer for Committed Wells or First Year Retained Well Offer from EXCO under Article 6 .
11.2      Tag Along Right .
(k)      If a Transferring Party receives a written offer to Transfer all or any part of its interest in the Area 1 Assets to a Third Party that a Transferring Party proposes to accept (a “ Proposed Tag-Along Sale ”), then the other Party owning an interest in the same Leases and Wells (the “ Non-Transferring Party ”) shall be entitled to exercise tag-along rights to participate in such Transfer at the same price and on the same terms and conditions as those offered to such Third Party (the “ Tag-Along Rights ”), all as set forth herein; provided that EXCO shall have no right to exercise Tag-Along Rights following the second anniversary of the Closing Date. For purposes of this Section 11.2 , a Proposed Tag-Along Sale that results from a Change in Control of a Transferring Party shall be deemed a Transfer of 100% of such Transferring Party’s Working Interest in the Area 1 Assets.
(l)      No later than 15 Business Days following a Transferring Party’s receipt of a written offer constituting a Proposed Tag-Along Sale (a “ Tag-Along Offer ”), such Transferring Party shall deliver a written notice (a “ Tag-Along Notice ”) to the Non-Transferring Party (the “ Tag-Along Party ”) stating that such Transferring Party desires to effect a Proposed Tag-Along Sale, which notice shall (i) set forth the identity of the Person (the “ Offeror ”) that desires to acquire such Transferring Party’s interest in the Area 1 Assets, (ii) include a copy of the written offer for the Proposed Tag-Along Sale, and (iii) set forth such Transferring Party’s interest in the Area 1 Assets (the “ Offered Interest ”) that the Offeror proposes to acquire.
(m)      Within 30 days of its receipt of a Tag-Along Notice, the Tag-Along Party shall have the right, but not the obligation, to elect, by written notice to the Transferring Party, to include a portion of its respective interest in the Area 1 Assets constituting the same type of interest in the same Leases and Wells as the Offered Interest in the Proposed Tag-Along Sale, expressed as a percentage of the net acreage and Approved Wells included in the Offered Interest equal to its respective proportionate share of the Offered Interest (the “ Tag-Along Interest ”). The failure of the Tag-Along Party to give unconditional written notice of such election within such period shall be deemed an election by such Tag-Along Party not to exercise its respective Tag-Along Right.
(n)      If the Tag-Along Party exercises its Tag-Along Rights, then the Tag-Along Party and the Transferring Party shall participate in the Proposed Tag-Along Sale and the Offered Interest shall be reduced to the extent of the Tag-Along Interest unless the Offeror elects to acquire all of the interests of the Tag-Along Party and the Transferring Party relating to the Area 1 Assets covered by the Tag-Along Offer.
(o)      If the Tag-Along Party does not elect to exercise the Tag-Along Rights, then the Transferring Party may, for a period of 120 days from the date of the Tag-Along Notice, consummate the Proposed Tag-Along Sale at a price that is no more favorable than that set forth in the Tag-Along Notice. Immediately after the closing of the Proposed Tag-Along Sale, the Transferring Party shall provide to the Tag‑Along Party true and complete copies of all agreements relating to such Transfer.
(p)      In the event that the Offeror fails to purchase the Tag-Along Interest for which Tag-Along Rights have been properly exercised by the Tag-Along Party, then the Transferring Party shall not be permitted to consummate the sale of the Offered Interest to the Offeror without the prior written consent of the Tag-Along Party, which consent may be withheld in such Tag-Along Party’s sole discretion.
11.3      Right of First Offer .
(a)      In addition to, and subject to, the restrictions contained in Sections 11.1 and 11.2 , if a Transferring Party intends to Transfer all or part of its interest in the Area 1 Assets to a Third Party, the Transferring Party shall, prior to effecting such Transfer, deliver written notice (a “ Sale Notice ”) to the Non-Transferring Party.
(b)      Within 15 Business Days following the receipt of the Sale Notice by the Non-Transferring Party, the Non-Transferring Party shall have a right to make a first offer (a “ ROFO Offer ”) to purchase all, but not less than all, of the interest in the Area 1 Assets that the Transferring Party intends to Transfer (the “ ROFO Offered Interests ”). Any such ROFO Offer shall be in writing and shall contain the price and all material terms on which the Non-Transferring Party proposes to purchase the ROFO Offered Interests.
(c)      If the Non-Transferring Party does not offer to purchase 100% of the ROFO Offered Interests from the Transferring Party within the 15 Business Days period provided in Section 11.3(b) , then the Transferring Party shall, subject to the provisions set forth in Sections 11.1 and 11.2 , be free to direct the Transfer of the ROFO Offered Interests to a Third Party at a price and on terms and conditions acceptable to such Transferring Party in its sole discretion during the 180-day period immediately following the expiration of such 15 Business Days period.
(d)      If the Non-Transferring Party offers to purchase 100% of the ROFO Offered Interests within the 15 Business Days period provided in Section 11.3(b) , the Transferring Party shall consider such ROFO Offer and shall have 15 Business Days following its receipt of the ROFO Offer to accept or reject it. Until the ROFO Offer is rejected, the Transferring Party may not solicit offers with respect to the ROFO Offered Interests from any Third Party.
(e)      If the Transferring Party accepts the ROFO Offer or the Drilling Parties otherwise agree upon the material terms and conditions applicable to the sale of the ROFO Offered Interests to the Non-Transferring Party, then the Non-Transferring Party and the Transferring Party will have 60 days from such acceptance within which to close the respective purchases of the ROFO Offered Interests, subject to extension to the extent necessary to satisfy applicable regulatory approvals (if any).
(f)      If the Transferring Party rejects the ROFO Offer, then the Transferring Party may only Transfer all but not less than all of the ROFO Offered Interests to a Third Party at a price that is no less than 105% of the price set forth in the ROFO Offer and then only during the 180-day period following such rejection, subject to extension to the extent necessary to satisfy applicable regulatory approvals (if any). After such 180-day period (as extended, to the extent applicable), any proposed Transfer shall once again be subject to the terms and conditions of this Section 11.3 to the extent provided herein.
ARTICLE 12     
NOTICES
12.1      Notices . Subject to Section 12.2 , all notices and communications required or permitted under this Agreement shall be in writing and addressed as indicated below, and any communication or delivery hereunder shall be deemed to have been duly delivered and received upon the earliest of: (i) if by personal delivery, then upon actual receipt by the Party to be notified if received during business hours on a Business Day or, if not received during business hours on a Business Day, then on the next Business Day; (ii) if delivered by U.S. Postal Service, certified mail, postage prepaid, return receipt requested, then upon the date shown as received on the return notice; (iii) if by facsimile transmission, then upon confirmation by the recipient of receipt (including electronic confirmation) if received during business hours on a Business Day or, if not received during business hours on a Business Day, then on the next Business Day, or (iv) if by Federal Express overnight delivery (or other reputable overnight delivery service), then the date shown on the date of delivery if such date is a Business Day or if such date is not a Business Day, then on the next Business Day. Addresses for all such notices and communication shall be as follows:
To EXCO:         EXCO Resources, Inc.
12377 Merit Drive
Dallas, Texas 75251
Attention: Mark Mulhern, Chief Financial Officer
Facsimile: 214-706-3409    
With a copy to:    EXCO Resources, Inc.
12377 Merit Drive
Dallas, Texas 75251
Attention: Lanny Boeing, Vice President and General Counsel
Facsimile: 214-706-3409    


To KKR Parties:    Admiral A Holding L.P.
Admiral B Holding L.P.
600 Travis Street, Suite 7200
Houston, TX 77002
Attention: Dash Lane
Facsimile: (713) 583-9430

With a copy to:    RPM Energy Management LLC
600 Travis Street, Suite 7225
Houston, Texas 77002
Attention: Land Department
Email: admiral_notices@rpm-energy.com

With a copy to:    Baker Botts L.L.P.
910 Louisiana Street
Houston, TX 77002
Attention: Hugh Tucker
Facsimile: (713) 229-2856
Any Party may, upon written notice to the other Parties, change the address and Person to whom such communications are to be directed.
12.2      Daily Notices . With respect to any notices and communications required or permitted to be given pursuant to Article 4 or Article 5 , such notices and communications shall be sufficient in all respects if given in accordance with Section 12.1 or if such notice is delivered by email return receipt requested to the address specified for a Person in Section 12.1 ; provided that daily notices required or permitted to be given to the KKR Parties under Article 4 or Article 5 shall be delivered to admiral_data@rpm-energy.com. Any notice given by email shall be deemed to have been given on the Business Day such email was sent, if sent during normal business hours, and on the Business Day following such email being sent, if sent at a time other than normal business hours.
ARTICLE 13     
TERMINATION AND REMEDIES
13.1      Term .
(g)      The “ Term ” of this Agreement shall begin on the Execution Date and, unless earlier terminated by mutual written agreement of the Drilling Parties, shall remain in full force and effect until the resolution of all outstanding offers for the purchase of Approved Wells made pursuant to Article 6 during the Offer Period.
(h)      It is not the intent of the Parties that any provisions in this Agreement violate any Law regarding the rule against perpetuities, the suspension of the absolute power of alienation or other rules regarding the vesting or duration of estates, and this Agreement shall be construed as not violating such rule to the extent the same can be so construed consistent with the intent of the Parties. In the event, however, that any provision of this Agreement is determined to violate such rule, then such provision shall nevertheless be effective for the maximum period (but not longer than the maximum period) permitted by such rule that will result in no violation. To the extent the maximum period is permitted to be determined by reference to “lives in being,” the Parties agree that “lives in being” shall refer to lifetime of the last to die of the living lineal descendants of the late Joseph P. Kennedy, Sr. (father of the late President of the United States of America).
13.2      Notice of Default; Remedies . If a Party is in breach of any of its obligations under this Agreement, the non-breaching Party shall notify the breaching Party of such failure in writing, and the breaching Party shall have 15 days following receipt of such notice to remedy the default. In the event the non-breaching Party fails to timely remedy the default, the non-breaching Party may, at its sole discretion upon notice to the breaching Party, elect to terminate this Agreement. Each Party shall be entitled to receive contractual damages or specific performance for the failure of the other Party to deliver any assignment required to be delivered by such other Party pursuant to the terms hereof.
13.3      Effect of Termination . The provisions of Sections 5.1 , 5.5 , 5.6(a) , 5.12(a) , 5.14 , 11.1(a) , this Section 13.3 , Articles 8 (to the extent set forth therein), 10 and 14 , shall survive the termination of this Agreement. The provisions of Section 11.2 and Section 11.3 shall survive the termination of this Agreement for a period of 10 years from the Execution Date.
ARTICLE 14     
MISCELLANEOUS
14.1      Entire Agreement . This Agreement, together with the Exhibits and Schedules attached hereto, the Tax Partnership Agreement and the Operating Agreements constitute the entire agreement between the Parties, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, including that Memorandum of Understanding dated as of June 13, 2013 between KKR and EXCO Resources, Inc.
14.2      Amendments . No supplement, amendment, alteration, modification, waiver or termination of this Agreement shall be binding unless executed in writing by both Parties.
14.3      Waiver . No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver, unless otherwise expressly provided.
14.4      KKR Representative . For purposes of this Agreement, each KKR Party, without any further action, shall be deemed to have consented to the appointment of RPM Energy Management, LLC, as its representative (in such capacity, the “ KKR Representative ”), as the attorney-in-fact for and on behalf of each such KKR Party, with respect to the exercise of any Election or other action that the KKR Parties are required or permitted to make or take on behalf of the KKR Parties, as the case may be, under the terms of this Agreement, including the approval of any Development Plan Update; the execution of any Area 1 Assignment, Farmout Assignment, Non-Core Well Assignment or any assignment from the KKR Parties in accordance with Section 6.7(a) ; the agreement on the Fair Market Value of the Offer Well(s); the agreement on the classification of Offer Wells; and the receipt of, and Election with respect to, any AFEs (the “ Delegated Matters ”). The KKR Parties (and their respective successors and assigns) may terminate the appointment of the KKR Representative to act on their behalf under this Agreement by providing written notice to EXCO and the KKR Representative; provided that in the event of any such termination prior to the expiration of the Term, then prior to such termination, the KKR Parties (and/or their respective successors and assigns) must designate an alternative Person to serve as KKR Representative. Until the expiration of the Term, each KKR Party (and their respective successors and assigns) will be bound by all actions taken and decisions made by the KKR Representative in connection with this Agreement with respect to the Delegated Matters. For the avoidance of doubt, during the period in which the KKR Representative is acting on the KKR Parties’ behalf under this Agreement, the KKR Parties will be treated as a single Party for purposes of any election made by the KKR Parties under Article 3 , Article 4 , Article 6 or Article 11 . Following the expiration of the Term, each KKR Party may exercise the rights of the “KKR Parties” under Article 4 , Article 6 or Article 11 independently of the other KKR Parties. The Parties acknowledge and agree that (a) the KKR Representative’s actions and omissions with respect to the Delegated Matters are taken or made solely in its capacity as an agent and representative of the applicable KKR Parties, (b) EXCO shall be entitled to rely upon the KKR Representative’s decisions with respect to the Delegated Matters and shall have no obligation to independently verify with any other KKR Party (or its respective successors and assigns) such decisions, and (c) the KKR Representative is a third party beneficiary of this sentence.
14.5      Applicable Law; Venue . THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, USA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EXCEPT FOR ANY MATTER DETERMINED BY A CONSULTANT UNDER SECTION 2.6, A RESERVE ENGINEER UNDER SECTION 6.9 OR AN EXPERT UNDER SECTION 7.7 , THE PARTIES AGREE THAT THE APPROPRIATE, EXCLUSIVE AND CONVENIENT FORUM FOR ANY DISPUTES BETWEEN ANY OF THE PARTIES ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS, AND EACH OF THE PARTIES IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS SOLELY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. THE PARTIES FURTHER AGREE THAT THE PARTIES SHALL NOT BRING SUIT WITH RESPECT TO ANY DISPUTES ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY COURT OR JURISDICTION OTHER THAN THE ABOVE SPECIFIED COURTS. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY LAW, THAT A FINAL AND NON-APPEALABLE JUDGMENT AGAINST A PARTY IN ANY ACTION OR PROCEEDING CONTEMPLATED ABOVE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE OF THE UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND AMOUNT OF SUCH JUDGMENT. EXCEPT TO THE EXTENT THAT A DIFFERENT DETERMINATION OR FINDING IS MANDATED DUE TO THE APPLICABLE LAW BEING THAT OF A DIFFERENT JURISDICTION, THE PARTIES AGREE THAT ALL JUDICIAL DETERMINATIONS OR FINDINGS BY A STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS WITH RESPECT TO ANY MATTER UNDER THIS AGREEMENT SHALL BE BINDING.
14.6      Jury Waiver . TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14.7      Reciprocal Liens . The Parties acknowledge that the Operating Agreements contain reciprocal liens upon any interest a Party now owns or hereafter acquired in the Assets to secure such Party’s payment obligations under such Operating Agreement, including charges paid under this Agreement in accordance with the Operating Agreement. The Parties acknowledge that notwithstanding anything in the Operating Agreements to the contrary, the liens in the Operating Agreements are subject to the EXCO Credit Agreement and the KKR Credit Agreements.
14.8      Expenses . All fees, costs and expenses incurred by the Parties in negotiating this Agreement or in consummating the transactions contemplated hereunder shall be paid by the Party incurring same, including legal and accounting fees, costs and expenses. Any sales Tax, transfer Tax, documentary Tax or recording fees or other charges relating to an assignment made pursuant to this Agreement shall be paid for and borne by the assignee.
14.9      Payments .
(a)      All payments made or to be made under this Agreement to EXCO shall be made by electronic transfer of immediately available funds to EXCO, at the account set forth opposite EXCO’s name on Schedule 14.9 or to another account specified by EXCO to the Person making such payment at least two Business Days prior to such payment.
(b)      All payments made or to be made under this Agreement to the KKR Parties shall be made by electronic transfer of immediately available funds to each KKR Party, at the account set forth opposite such KKR Party’s name on Schedule 14.9 or to another account specified by such KKR Party to the Person making such payment at least two Business Days prior to such payment.
14.10      Limitation on Damages . EACH PARTY HEREBY EXPRESSLY WAIVES, RELEASES AND DISCLAIMS ANY AND ALL RIGHTS TO RECOVER FROM ANY OTHER PARTY ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE, EXEMPLARY OR LOSS OF PROFIT DAMAGES RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR ANY BREACH OF OR FAILURE TO PERFORM UNDER THIS AGREEMENT, INCLUDING LOST SALES, INCOME, REVENUE, PRODUCTION, RESERVES OR OPPORTUNITY.
14.11      Relationship of Parties . This Agreement is not intended to create, and shall not be construed to create, an association for profit, a trust, a joint venture, a mining partnership or other relationship of partnership, or entity of any kind between the Parties.
14.12      Severability . It is the intent of the Parties that the provisions contained in this Agreement shall be severable. If any provisions of this Agreement, in whole or in part, are held invalid as a matter of law, such holding shall not affect the other portions of this Agreement, and such portions that are not invalid shall be given effect without the invalid portion; provided that if any such provision may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by Law.
14.13      Covenants Running with Lands . This Agreement and the terms, conditions and covenants hereof shall be deemed to be covenants running with the lands, and a burden upon a Party’s interest in the Assets, for the benefit of EXCO’s (with respect to the burden on each KKR Party) or each KKR Party’s (with respect to the burden on EXCO) interest in the Assets.
14.14      Timing . This Agreement contains a number of dates and times by which performance or the exercise of rights is due, and the Parties intend that each and every such date and time be the firm and final date and time, as agreed. For this reason, each Party hereby waives and relinquishes any right it might otherwise have to challenge its failure to meet any performance or rights election date applicable to it on the basis that its late action constitutes substantial performance, to require the other Party to show prejudice, or on any equitable grounds. Without limiting the foregoing, time is of the essence in this Agreement. If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day that is a Business Day.
14.15      Successors and Assigns . This Agreement shall be binding upon and shall inure to the benefit of the Parties, Admiral Acquisition Sub, any Other Admiral Sub with respect to which equity ownership has been conveyed to Admiral Acquisition Sub in accordance herewith, and their respective successors and assigns.
14.16      Announcements . The Parties shall consult with each other with regard to all press releases and other announcements concerning (i) this Agreement or (ii) the operations within the Leases to the extent such press releases or announcements make reference to the name of the other Party and, except (i) as may be required by Laws or the applicable rules and regulations of any governmental agency or stock exchange, or (ii) disclosures to any Party’s potential or existing financing sources or institutional investors or as otherwise permitted pursuant to Section 14.17 , neither Party shall issue any such press release or make any other announcement without the prior written consent of the other Party, which consent shall not be unreasonably withheld.
14.17      Confidentiality . The Parties shall keep the terms of this Agreement and all Exhibits and Schedules hereto confidential and not disclose the same to any other Person without the prior written consent of the other Party; provided that the foregoing shall not apply to (i) disclosures required by Law, regulation, securities exchange rules or order or decree of any Governmental Authority, or (ii) disclosures to a Party’s partners, members, directors, officers, employees, financial advisors, accountants, consultants, attorneys, banks and other potential financing sources, institutional investors, agents, nominees, representatives, Persons to which a Party may Transfer its rights and obligations under this Agreement and prospective purchasers of property, as well as their respective representatives, advisors, attorneys and consultants ( provided that such Persons (other than the KKR Parties’ or its Affiliates’ prospective investors) likewise agree to keep this Agreement and all Exhibits and Schedules hereto confidential).
14.18      No Recourse . Notwithstanding anything that may be expressed or implied in this Agreement or any document, agreement, or instrument delivered contemporaneously herewith, and notwithstanding the fact that any Party may be a partnership or limited liability company, each Party, by its acceptance of the benefits of this Agreement, covenants, agrees and acknowledges that no Persons other than the Parties (and their respective successor and assigns, including for the avoidance of doubt Admiral Acquisition Sub and the Other Admiral Subs, collectively, the “ Recourse Parties ”) shall have any obligation hereunder and that it has no rights of recovery hereunder against, and no recourse hereunder or under any documents, agreements, or instruments delivered contemporaneously herewith or in respect of any oral representations made or alleged to be made in connection herewith or therewith against (a) any former, current or future director, officer, agent, Affiliate, manager, incorporator, controlling Person, fiduciary, representative or employee of any Party (or any of the foregoing Persons successors or permitted assignees), (b) any former, current, or future general or limited partner, manager, stockholder or member of any Party (or any of the foregoing Persons successors or permitted assignees) or any Affiliate thereof or (c) any former, current or future director, officer, agent, employee, Affiliate, manager, incorporator, controlling Person, fiduciary, representative, general or limited partner, stockholder, manager or member of any of the foregoing, but in each case not including the Parties (each, but excluding for the avoidance of doubt, the Recourse Parties, a “ Party Affiliate ”), whether by or through attempted piercing of the corporate veil, by or through a claim (whether in tort, contract or otherwise) by or on behalf of such Party against the Party Affiliates, by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other Law, or otherwise; it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on, or otherwise be incurred by any Party Affiliate, as such, for any obligations of the applicable Party under this Agreement or the transactions contemplated hereby, under any documents or instruments delivered contemporaneously herewith, in respect of any oral representations made or alleged to be made in connection herewith or therewith, or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, such obligations or their creation.
14.19      Further Assurances . From time to time after the Execution Date, the Parties shall each execute, acknowledge and deliver to the other such further instruments and take such other action as may be reasonably requested in order to more effectively assure the other of the benefits and enjoyment intended to be conveyed under this Agreement, and otherwise to accomplish the purposes of the transactions contemplated hereby.
14.20      Counterpart Execution . This Agreement may be executed in counterparts, each of which shall be deemed an original, and both of which taken together shall constitute one agreement.
14.21      Memorandum of Agreement . Contemporaneously with the execution hereof, the Parties shall execute a Memorandum of Agreement in the form attached hereto as Exhibit S to be recorded by the KKR Parties in the Real Property Records of Frio, Dimmit, Zavala and LaSalle Counties, Texas.
14.22      References and Construction . In this Agreement:
(a)      References to any gender includes a reference to all other genders;
(b)      References to the singular includes the plural, and vice versa ;
(c)      References to any Article or Section means an Article or Section of this Agreement;
(d)      References to any Exhibit or Schedule means an Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this Agreement;
(e)      Unless expressly provided to the contrary, “hereunder”, “hereof”, “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement;
(f)      “Include” and “including” shall mean include or including without limiting the generality of the description preceding such term and are used in an illustrative sense and not a limiting sense;
(g)      The headings contained in this Agreement are for guidance and convenience of reference only, and shall not limit or otherwise affect any of the terms or provisions of this Agreement; and
(h)      No consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Agreement.
[Remainder of page intentionally blank.]



HN\1023743.15


IN WITNESS WHEREOF, this Agreement is executed by the Parties on the Execution Date.
ADMIRAL A HOLDING L.P.    EXCO OPERATING COMPANY, LP
By:     Admiral A Holding GP LLC,    By:    EXCO PARTNERS OLP GP, LLC,
    its general partner        its general partner
 
 
 
 
By: /s/ David Rockecharlie
By: /s/ William L. Boeing
Name: David Rockecharlie
Name: William L. Boeing
Title: Vice President
Title: Vice President and General Counsel
 
 
 
 
 
 
 
 
ADMIRAL B HOLDING L.P.
By:    Admiral B Holding GP LLC,
its general partner
 
 
 
 
 
 
By: /s/ Michael R. McFerran
 
Name: Michael R. McFerran
 
Title: Chief Operating Officer
 
 
 
 
 
 
 
 
 

Solely for purposes of Section 14.4 :
RPM ENERGY MANAGEMENT LLC
 
 
 
 
By: /s/ David Ryan
Name: David Ryan
Title: Co-President


[Signature Page to Participation Agreement]
HN\1023743.15



Exhibit 31.1
CERTIFICATION
I, Douglas H. Miller, Chief Executive Officer of EXCO Resources, Inc., certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of EXCO Resources, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  
Date:
August 6, 2013
/s/ Douglas H. Miller
 
 
Douglas H. Miller
 
 
Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, Mark F. Mulhern, Executive Vice President and Chief Financial Officer of EXCO Resources, Inc., certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of EXCO Resources, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
August 6, 2013
/s/ Mark F. Mulhern
 
 
Mark F. Mulhern
 
 
Executive Vice President and Chief Financial Officer




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of EXCO Resources, Inc. (the “Company”) in their capacity as Chief Executive Officer and Chief Financial Officer, respectively, does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.
Date:
August 6, 2013
/s/ Douglas H. Miller
 
 
Douglas H. Miller
 
 
Chief Executive Officer
 
 
 
 
/s/ Mark F. Mulhern
 
 
Mark F. Mulhern
 
 
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.