UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 15, 2013

 

 

EXCO RESOURCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   001-32743   74-1492779

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

12377 Merit Drive

Suite 1700, LB 82

Dallas, Texas

  75251
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (214) 368-2084

(Former name or former address, if changed since last report): Not applicable

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Section 2 – Financial Information

Item 2.01 Completion of Acquisition or Disposition of Assets.

On November 15, 2013, EXCO Resources, Inc.’s wholly owned subsidiary, EXCO Operating Company, LP (“EXCO”), and BG US Gathering Company, LLC, an affiliate of BG Group plc (“BG”), closed the conveyance of 100% of the equity interests in TGGT Holdings, LLC (“TGGT”) to Azure Midstream Holdings LLC (“Azure”) for an aggregate sales price of approximately $910 million, of which approximately $875 million was paid in cash and the remaining portion was paid in the form of an approximate 7% equity interest in Azure split equally between EXCO and BG Group, subject to post-closing adjustments and customary terms and conditions (the “TGGT Transaction”).

EXCO received cash proceeds of approximately $240 million after repayment of TGGT’s credit agreement. EXCO’s cash proceeds were applied to reduce the asset sale tranche under its credit agreement.

Additionally, in connection with the closing, EXCO and BG entered into a MVC Letter Agreement, whereby EXCO and BG committed, during the 5 year period beginning on December 1, 2013 to November 30, 2018, to deliver to TGGT’s gathering systems a combined total minimum volume of 600,000 MMBtu/day of natural gas production from the Holly and Shelby fields.

A description of the material terms of the TGGT Transaction and the MVC Letter Agreement can be found in EXCO’s Current Report on Form 8-K filed on October 22, 2013, which description is incorporated herein by reference.

Further, the foregoing description of the MVC Letter Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the MVC Letter Agreement, which is filed as Exhibit 10.1 and incorporated herein by reference.

Section 7 – Regulation FD

Item 7.01 Regulation FD Disclosure.

On November 18, 2013, EXCO issued a press release announcing, among other things, the closing of the TGGT Transaction, a copy of which is furnished as Exhibit 99.1.

In accordance with general instruction B.2 to Form 8-K, information contained in Exhibit 99.1 is being “furnished” and not “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, and such information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

 

(b) Pro Forma Financial Information.

The unaudited pro forma financial information of EXCO Resources, Inc. with respect to the TGGT Transaction as of September 30, 2013 and the nine months then ended and for the year ended December 31, 2012 are included as Exhibit 99.2 hereto.

 

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(d) Exhibits.

 

10.1    MVC Letter Agreement, dated November 15, 2013, among BG US Production Company, LLC, BG US Gathering Company, LLC, EXCO Operating Company, LP, Azure Midstream Energy LLC (formerly known as TGGT Holdings, LLC) and TGG Pipeline, Ltd.
99.1    Press Release, dated November 18, 2013.
99.2    The unaudited pro forma financial information of EXCO Resources, Inc. as of September 30, 2013 and the nine months then ended and for the year ended December 31, 2012.

 

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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 hereunto duly authorized.

 

  EXCO RESOURCES, INC.

Date: November 21, 2013

  By:   /s/ Mark F. Mulhern
    Mark F. Mulhern
    Executive Vice President, Chief Financial Officer and Interim Chief Accounting Officer

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description

10.1    MVC Letter Agreement, dated November 15, 2013, among BG US Production Company, LLC, BG US Gathering Company, LLC, EXCO Operating Company, LP, Azure Midstream Energy LLC (formerly known as TGGT Holdings, LLC) and TGG Pipeline, Ltd.
99.1    Press Release, dated November 15, 2013.
99.2    The unaudited pro forma financial information of EXCO Resources, Inc. as of September 30, 2013 and the nine months then ended and for the year ended December 31, 2012.

Exhibit 10.1

Execution Version

MVC LETTER AGREEMENT

This MVC Letter Agreement dated as of November 15, 2013 (this “ Agreement ”) is made and entered into by and between BG US Production Company, LLC, a Delaware limited liability company (“ BG Production ”), BG US Gathering Company, LLC, a Delaware limited liability company (“ BG Gathering ” and, together with BG Production, “ BG ”), EXCO Operating Company, LP, a Delaware limited partnership (“ EXCO ” and together with BG, “ Producers ”), TGG Pipeline, Ltd., a Texas limited partnership (“ TGG ”), and Azure Midstream Energy LLC, a Delaware limited liability company formerly known as TGGT Holdings, LLC (“ TGGT ” and together with TGG, “ Gatherer ”). Producers and Gatherer are referred to herein as the “ Parties ” and individually as a “ Party .” Capitalized terms used but not herein defined will have the meanings given to them in the Contribution Agreement (defined below).

WHEREAS , EXCO, BG Gathering and Azure Midstream Holdings, LLC, a Delaware limited liability company (“ Buyer ”) have entered into that certain Contribution Agreement dated October 16, 2013 (as it may be amended, supplemented, or modified from time to time, the “ Contribution Agreement ”) under which EXCO and BG Gathering agreed to convey to Buyer, and Buyer agreed to acquire from EXCO and BG Gathering, 100% of the issued and outstanding equity interests of Gatherer, all on the terms and subject to the conditions set forth therein; and

WHEREAS , the Producers have agreed to enter into this Agreement with the Gatherer in connection with and effective upon the consummation of the transactions contemplated by the Contribution Agreement.

NOW, THEREFORE , in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein and in the Contribution Agreement, and intending to be legally bound hereby, the Parties hereto hereby agree as follows:

ARTICLE I

MINIMUM VOLUME COMMITMENT

1.1 Minimum Volume Commitment . Subject to Section 2.1 , Producers commit to deliver to Gatherer’s systems a combined total minimum volume of 600,000 MMBtu/day of natural gas production from the Holly and Shelby fields, with such total minimum volume to be calculated on an annual basis based upon the daily average of such volumes delivered during the applicable Subject Year (the “ Minimum Volume Commitment ”). “ Subject Year ” shall mean a 12-month period beginning at 12:01 A.M. (Central Time) on December 1 of any year and ending at 11:59 P.M. (Central Time) on November 30 of the following year. The Minimum Volume Commitment shall be satisfied to the extent any of the following types of natural gas production from the Holly and Shelby fields are delivered to Gatherer’s systems (the “ Subject Production ”): (1) natural gas production of a Producer or any Affiliate of a Producer; (2) natural gas production of any joint venture partner of a Producer or joint venture partner of any Affiliate of a Producer (a “ JV Partner ”); and (3) natural gas production of any non-operating working interest owner over which a Producer, an Affiliate of a Producer or a JV Partner has control or otherwise directs the delivery of such production to a gathering system.


In the event of a transfer or assignment by a Producer (or any of its Affiliates) of oil and gas interests to either a non-Credit-Worthy Assignee or a Credit-Worthy Assignee that is not conveyed and does not assume all or any portion of the Minimum Volume Commitment in each case in accordance with Section 2.7 , all natural gas production attributable to such oil and gas interests that would otherwise qualify as Subject Production under the terms of this Agreement had such oil and gas interests continued to be held by such Producer (or such Affiliate) shall continue to qualify as Subject Production.

In the event of a transfer or assignment by a JV Partner of oil and gas interests, all natural gas production attributable to such oil and gas interests that would otherwise qualify as Subject Production under the terms of this Agreement had such oil and gas interests continued to be held by such JV Partner shall continue to qualify as Subject Production.

In the event of a transfer or assignment by a Producer (or any of its Affiliates) of oil and gas interests to a Credit-Worthy Assignee that is conveyed and assumes all or any portion of the Minimum Volume Commitment in accordance with Section 2.7 , all natural gas production attributable to such oil and gas interests after such assignment becomes effective under Section 2.7 shall be credited to the Credit-Worthy Assignee that was conveyed and assumed the conveyed Minimum Volume Commitment, or portion thereof, in accordance with Section 2.7 and the Minimum Volume Commitment shall be reduced by the amount of the Minimum Volume Commitment, or portion thereof, that was assigned or sold with such interests.

By way of example, Exhibit A hereto sets forth an example of how the Minimum Volume Commitment and the Shortfall Payments (defined below) will be calculated.

1.2 Adjustments to Minimum Volume Commitment .

(a) In the event volumes of the Subject Production are delivered in excess of the Minimum Volume Commitment during any Subject Year (without giving effect to any adjustments to such Subject Year’s Minimum Volume Commitment pursuant to this Section 1.2(a) ), the Minimum Volume Commitment in the immediately subsequent Subject Year shall be reduced by 25% of such excess delivered volumes.

(b) In the event Gatherer is unable or unwilling to receive any Subject Production which is available for delivery to Gatherer’s systems, including (without limitation) in the event Gatherer is rendered unable as a result of Force Majeure (as defined in the applicable Gathering Agreement), a breach by Gatherer of the Gathering Agreements or Gatherer’s failure to connect wells to Gatherer’s systems in accordance with the applicable Gathering Agreement, Producers will be entitled to a reduction to the Minimum Volume Commitment for the Subject Year in which Gatherer is unable or unwilling to receive such production. Such reduction in the Minimum Volume Commitment shall be equal to the average daily amount of such production available for delivery to Gatherer’s systems that Gatherer was unable or unwilling to receive for such Subject Year. Failure by Gatherer to receive any Subject Production pursuant to the second to last sentence of Section 2.03 or Section 7.04 of the Gathering Agreements will not result in a reduction of the Minimum Volume Commitment. In the event Gatherer releases quantities of gas from the Gathering Agreements pursuant to Section 2.06 of the Gathering Agreements, the Minimum Volume Commitment will be proportionately reduced by such amount.

 

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(c) As used herein, (i) the term “ Gathering Agreements ” means the existing gas gathering agreements in place between Gatherer, Producers, their Affiliates, or the JV Partners with respect to the Holly and Shelby fields, as such gas gathering agreements may be amended, supplemented, or modified from time to time, (ii) the term “ BG Gathering Agreements ” means the Gathering Agreements in place between Gatherer and BG, as such Gathering Agreements may be amended, supplemented, or modified from time to time and (iii) the term “ EXCO Gathering Agreements ” means the Gathering Agreements in place between Gatherer and EXCO, as such Gathering Agreements may be amended, supplemented, or modified from time to time.

1.3 Shortfall . To the extent there is a shortfall of the Minimum Volume Commitment, such shortfall to be calculated on an annual basis based upon the daily average of such volumes delivered during the applicable Subject Year and subject to any adjustments to the Minimum Volume Commitment pursuant to Section 1.2 (the total amount of such shortfall, the “ Shortfall Amount ”), then Gatherer shall charge and each Producer shall pay $0.40 per MMBtu times one-half of the Shortfall Amount (the “ Shortfall Payments ”). Any Shortfall Payments will be due within three months following the end of the Subject Year in which the shortfall occurs (the “ Shortfall Year ”). In the event of assignment of all or a portion of a Producer’s Minimum Volume Commitment to a Credit-Worthy Assignee during a Subject Year pursuant to Section 2.7 , the Minimum Volume Commitment shall be reduced by the amount assigned for the remaining portion of the Subject Year and the Credit-Worthy Assignee shall have assumed and be responsible for its Shortfall Amount, if any, calculated during the remaining portion of the Subject Year. Notwithstanding anything in this Agreement to the contrary, each Producer shall be severally liable to Gatherer for its Shortfall Payment and shall not have any liability to the Gatherer for any Shortfall Payment of the other Producer.

1.4 Bossier Shale Discount . For three Subject Years from the date hereof, there shall be a $0.10 per MMBtu discount to any applicable gathering fees owed by Producers, their Affiliates, or the JV Partners to Gatherer under any applicable Gathering Agreement on natural gas production delivered from new wells completed by or on behalf of Producers, their Affiliates, or the JV Partners in the Bossier Shale that are connected to Gatherer’s systems in the Holly field (it being understood and agreed that such production shall not be Subject Production), such discount to be conditioned upon the volume of production delivered to Gatherer’s systems from such wells and field development plan ( i.e. , wells turned to sales) in the Bossier Shale (excluding the Bossier Shale in the Shelby field) being incremental to Producers’, their Affiliates’, or the JV Partners’ aggregate volumes from the Haynesville Shale in the Holly and Shelby fields, from the Cotton Valley in the Holly field and from the Bossier Shale in the Shelby field as set forth below:

(a) 850,000 MMBtu/d in the first Subject Year following the date hereof;

(b) 951,000 MMBtu/d in the second Subject Year following the date hereof; and

(c) 1,100,000 MMBtu/d in the third Subject Year following the date hereof.

 

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This discount is a personal right in favor of Producers, their Affiliates and the JV Partners and is not assignable to any third party.

1.5 Recordkeeping and Audit Rights . At all times during the Term of this Agreement, Gatherer shall keep (or cause to be kept) true and complete books of account. Each Producer or its designated representatives shall have the right, at its own expense, at all reasonable times and during normal business hours, to examine the books and records of the Gatherer to the extent necessary to verify the accuracy of any statement, charge, computation, or demand made under or pursuant to this Agreement. Gatherer agrees to keep records and books of the account in accordance with generally accepted accounting principles and practices in the industry. Each statement shall be final as to both Parties unless questioned within twenty-four (24) Months following receipt of invoice.

ARTICLE II

MISCELLANEOUS

2.1 Termination . This Agreement will terminate on December 1, 2018; provided that such termination will not relieve any Party of any obligations that were incurred prior to such date.

2.2 Notices .

(a) Unless this Agreement specifically requires otherwise, any notice, demand or request provided for in this Agreement, or served, given or made in connection with it, shall be in writing and shall be deemed properly served, given or made if delivered in person or sent by facsimile, by registered or certified mail, postage prepaid, or by a nationally recognized overnight courier service that provides a receipt of delivery, in each case, to the Parties at the addresses specified below:

If to the Producers or, individually, to BG, to:

BG US Gathering Company, LLC

811 Main St., Suite 3400

Houston, TX 77002

Fax: (713) 599-7250

Attention: Roger Coe, Asset General Manager

With a copy to:

BG North America, LLC

811 Main St., Suite 3400

Houston, TX 77002

Fax: (713) 599-3794

Attention: Chris Migura

 

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If to the Producers or, individually, to EXCO, to:

EXCO Operating Company, LP

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Fax: (214) 706-3409

Attention: Mark Mulhern, Executive Vice President and Chief Financial Officer

With a copy to:

EXCO Operating Company, LP

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Fax: (214) 706-3409

Attention: William L. Boeing, Vice President, General Counsel, and Secretary

If to Gatherer, to:

Azure Midstream Energy LLC

12377 Merit Drive, Suite 300A

Dallas, Texas 75251

Facsimile No.: (281) 680-4349

Attn: I.J. “Chip” Berthelot, II

(b) Notice given by personal delivery, mail or overnight courier pursuant to this Section 2.2 shall be effective upon physical receipt. Notice given by facsimile pursuant to this Section 2.2 shall be effective as of the date of confirmed delivery if delivered before 5:00 p.m. Central Time on any business day or the next succeeding business day if confirmed delivery is after 5:00 p.m. Central Time on any business day or during any non-business day. Each Party may change the address by which proper notice shall be given pursuant to this Section 2.2 by providing notice to the other Parties in accordance with this Section 2.2 .

2.3 Entire Agreement .

(a) Solely to the extent Article I of this Agreement relates to BG, Article I of this Agreement constitutes an amendment of, and supplement to, the BG Gathering Agreements with respect to the subject matter thereof and, solely to the extent Article I of this Agreement relates to EXCO, Article I of this Agreement constitutes an amendment of, and supplement to, the EXCO Gathering Agreements with respect to the subject matter thereof. Notwithstanding anything in this Agreement to the contrary, Article II of this Agreement shall not alter, amend or supplement the corresponding provisions of the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable, and the provisions of Article II of this Agreement shall continue to apply to the provisions of Article I of this Agreement notwithstanding this first sentence of this Section 2.3(a) .

 

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(b) Notwithstanding anything in this Agreement to the contrary, the terms and conditions of this Agreement are personal to BG and EXCO, respectively, and no Person that subsequently acquires an interest in the oil and gas interests that are subject to the Gathering Agreements will in any way be subject to, or bound by, the provisions contained in this Agreement unless the provisions of this Agreement are assigned to, and assumed by, such Person in accordance with Section 2.7 . For the avoidance of doubt, (i) this Agreement shall not alter the terms and conditions of the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable, with respect to the provisions on transfer and assignment and the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable, may be transferred and/or assigned without regard to this Agreement as is provided for in the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable (in each case, without regard to this Agreement) and (ii) the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable, shall not alter the terms and conditions of this Agreement with respect to the provisions on transfer and assignment and this Agreement may be transferred and/or assigned as is provided for in this Agreement (in each case, without regard to the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable). To the extent that (i) all or any part of either this Agreement, a BG Gathering Agreement or an EXCO Gathering Agreement is transferred or assigned to a third Person (the “ Transferred Interest ”) and (ii) the portion of either this Agreement (in the case of a transfer or assignment of all or any part of a BG Gathering Agreement or an EXCO Gathering Agreement, as applicable) or the BG Gathering Agreements or the EXCO Gathering Agreements, as applicable (in the case of a transfer or assignment of all or any part of this Agreement), in each case, that constitutes an amendment to or is amended by, as applicable, the Transferred Interest is not also transferred or assigned to such third Person (the “ Non-Transferred Interest ”), then from and after the effective time of such transfer or assignment, the Transferred Interest and the Non-Transferred Interest shall be separate agreements and shall no longer constitute amendments or supplements to each other. For the avoidance of doubt, the portion of this Agreement, a BG Gathering Agreement or an EXCO Gathering Agreement that is not a Transferred Interest pursuant to subsection (i) of the immediately preceding sentence shall continue to constitute an amendment to or be amended by, as applicable, the Non-Transferred Interest.

(c) This Agreement and the BG Gathering Agreements and/or the EXCO Gathering Agreements, as applicable, supersede all prior discussions, representations and agreements between the Parties and/or their Affiliates with respect to the subject matter hereof and thereof and contain the sole and entire agreement between the Parties and their Affiliates with respect to the subject matter hereof and thereof. Except as provided herein, the Gathering Agreements shall remain in full force and effect.

2.4 Waiver . Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law, will be cumulative and not alternative.

 

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2.5 Amendment . This Agreement may be amended, supplemented or modified only by a written instrument duly executed by the Parties.

2.6 No Third Party Beneficiary . Except for the provisions of Section 1.4 (which are intended to be for the benefit of the Persons identified therein), the terms and provisions of this Agreement are intended solely for the benefit of the Parties and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third party beneficiary rights upon any other Person.

2.7 Assignment; Binding Effect . Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Party without the prior written consent of the other Party, and any attempt to do so will be void, except for assignments and transfers by operation of Law; provided , however, Gatherer shall be permitted to assign all or part of its obligation hereunder to an Affiliate and each Producer shall be permitted to assign all or part of its rights (excluding the Bossier Shale discount in Section 1.4 which is not assignable) or obligations hereunder (i) to an Affiliate that is a Credit-Worthy Assignee or (ii) to a purchaser who is a Credit-Worthy Assignee of all or any portion of such Producer’s oil and natural gas interests located in a “Dedicated Area” (as defined in the applicable Gathering Agreements) provided that such purchaser assumes in all respects the terms, conditions and obligations of such Producer set forth in this Agreement (to the extent related to the rights and obligations assigned hereunder) and the applicable Gathering Agreements (to the extent related to the portion of such Producer’s oil and natural gas interests being assigned). From and after any assignment permitted by this Section 2.7 , the assignor shall have no further liability under this Agreement except for liabilities accruing before the time of such assignment, including the Shortfall Payments attributable to such Producer’s time of ownership. Subject to this Section 2.7 , this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and permitted assigns. As used herein the term “ Credit-Worthy Assignee ” means a Person that, or whose obligations are guaranteed by a Person that, has (a) if such Person has a long-term unsecured and non-credit enhanced debt credit rating by either Standard & Poors or Moody’s (a “ Rating ”), a Rating that is equal to or higher than the lesser of: (i) the Rating that the assigning Producer has at the time of such assignment and (ii) a Rating of at least “BB” by Standard & Poors or “Ba2” by Moody’s or (b) if such Person does not have a Rating, produced to Gatherer information sufficient to demonstrate to the reasonable satisfaction of Gatherer that the creditworthiness of such Person is equivalent to a Person that possesses such rating.

2.8 Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

2.9 Invalid Provisions . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the Transactions is not affected in any adverse manner to any of the Parties. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the extent possible.

 

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2.10 Counterparts; Facsimile . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Any facsimile or pdf copies hereof or signature hereon shall, for all purposes, be deemed originals.

2.11 Governing Law; Venue; Jurisdiction; Jury Waiver . THIS AGREEMENT (INCLUDING ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT) AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO SECTION 2.12 , ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY DISPUTE. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY DISPUTE.

2.12 Arbitration . In the event of any dispute between the Parties, the arbitration provisions set forth in Section 11.13 of the Contribution Agreement shall apply mutatis mutandis.

[ Signature Page to Follow ]

 

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IN WITNESS WHEREOF , each of the Parties has caused this Agreement to be duly executed as of the day and year first above written.

 

BG US GATHERING COMPANY, LLC

By:

  /s/ Roger Coe

Name:

  Roger Coe

Title:

  Vice President

 

Signature Page to

MVC Letter Agreement


BG US PRODUCTION COMPANY, LLC

By:

  /s/ Roger Coe

Name:

  Roger Coe

Title:

  Vice President

 

Signature Page to

MVC Letter Agreement


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

 

Signature Page to

MVC Letter Agreement


AZURE MIDSTREAM ENERGY LLC

(f/k/a TGGT Holdings, LLC)

By:

  /s/ I. J. Berthelot, II

Name:

  I.J. “Chip” Berthelot, II

Title:

  President

 

Signature Page to

MVC Letter Agreement


TGG PIPELINE, LTD.

By:

  TGGT GP HOLDINGS, LLC,
  its General Partner

By:

  /s/ I. J. Berthelot, II

Name:

  I.J. “Chip” Berthelot, II

Title:

  President

 

Signature Page to

MVC Letter Agreement


Exhibit A

Example Calculation

Assumptions:

 

  1. Subject Year #1:

 

  a. Subject Production = 700,000 MMBtu/day, consisting of:

 

  i. 500,000 MMBtu/day from Producer and its Affiliates

 

  ii. 100,000 MMBtu/day from JV Partners

 

  iii. 100,000 MMBtu/day from non-operating working interest owners over which Producer, an Affiliate of Producer, or a JV Partner have control or otherwise direct the delivery of such production to a gathering system

 

  2. Subject Year #2:

 

  a. Subject Production = 400,000 MMBtu/day, consisting of:

 

  i. 300,000 MMBtu/day from Producer and its Affiliates

 

  ii. 50,000 MMBtu/day from JV Partners

 

  iii. 50,000 MMBtu/day from non-operating working interest owners over which Producer, an Affiliate of Producer, or a JV Partner have control or otherwise direct the delivery of such production to a gathering system

Example Calculations :

 

  1. Subject Year #1:

 

  a. Shortfall Amount Payable by each Producer = $0.00 [no payment due because Subject Production for Subject Year #1 (700,000 MMBtu/day) exceeds the Minimum Volume Commitment for Subject Year #1 (600,000 MMBtu/day)]

 

  b. Reduction to Minimum Volume Commitment in Subject Year #2 = 25,000 MMBtu/day [25% times difference between (x) Subject Production for Year #1 (700,000 MMBtu/day) and (y) Minimum Volume Commitment for Year #1 (600,000 MMBtu/day)]

 

  2. Subject Year #2:

 

  a. Shortfall Amount Payable by each Producer = $12,775,000 [one half (1/2) of $0.40/MMBtu times 175,000 MMBtu/day shortfall [Minimum Volume Commitment for Subject Year #2 (575,000 MMBtu/day) minus Subject Production for Subject Year #2 (400,000 MMBtu/day)] times 365 days (calendar days in Subject Year #2)]

Exhibit 99.1

 

LOGO

EXCO RESOURCES, INC. ANNOUNCES CLOSING OF TGGT HOLDINGS, LLC SALE

DALLAS, TEXAS, November 18, 2013…EXCO Resources, Inc. (NYSE:XCO) (“EXCO”) today announced that its wholly-owned subsidiary, EXCO Operating Company, LP (“EOC”), and an affiliate of BG Group plc (“BG Group”) have conveyed 100% of the equity interest in TGGT Holdings, LLC (“TGGT”) to Azure Midstream Holdings LLC (“Azure”) for an aggregate sales price of approximately $910 million, of which approximately $875 million was cash and the remaining portion was in the form of an approximate 7% equity interest in Azure split equally between EXCO and BG Group, subject to post-closing adjustments and customary terms and conditions.

EXCO received cash proceeds of approximately $240 million after repayment of TGGT’s credit agreement. EXCO’s cash proceeds were applied to reduce the asset sale tranche under its credit agreement.

EXCO is an oil and natural gas exploration, exploitation, development and production company headquartered in Dallas, Texas with principal operations in Texas, North Louisiana and Appalachia.

Additional information about EXCO may be obtained by contacting Chris Peracchi, Director of Finance and Investor Relations and Treasurer, at EXCO’s headquarters, 12377 Merit Drive, Suite 1700, Dallas, TX 75251, telephone number (214) 368-2084, or by visiting EXCO’s website at www.excoresources.com . EXCO’s SEC filings and press releases can be found under the Investor Relations tab.

###

This release may contain forward-looking statements relating to future financial results, business expectations and business transactions. Actual results may differ materially from those predicted as a result of factors over which EXCO has no control. Such factors include, but are not limited to: estimates of reserves, commodity price changes, regulatory changes and general economic conditions. These risk factors and additional information are included in EXCO’s reports on file with the Securities and Exchange Commission. EXCO undertakes no obligation to publicly update or revise any forward-looking statements.

Exhibit 99.2

EXCO Resources, Inc.

Pro forma financial information and footnotes

for the year ended December 31, 2012 and

nine months ended September 30, 2013

Unless the context requires otherwise, references in this pro forma financial information and footnotes 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.

Sale of TGGT Holdings, LLC

On November 15, 2013, EXCO Resources, Inc.’s wholly owned subsidiary, EXCO Operating Company, LP (“EOC”), and BG US Gathering Company, LLC, an affiliate of BG Group plc (“BG Group”), closed the conveyance of 100% of the equity interests in TGGT Holdings, LLC (“TGGT”) to Azure Midstream Holdings LLC (“Azure”) for an aggregate sales price of approximately $910.0 million, of which approximately $875.0 million was paid in cash and the remaining portion was paid in the form of an approximate 7% equity interest in Azure split equally between EXCO and BG Group, subject to post-closing adjustments and customary terms and conditions (the “TGGT Transaction”).

EXCO received cash proceeds of approximately $240.2 million after repayment of TGGT’s credit agreement. EXCO’s cash proceeds were applied to reduce the asset sale tranche under its credit agreement (“EXCO Resources Credit Agreement”).

Acquisition of Oil and Natural Gas Properties from Chesapeake Energy Corporation

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 (“Chesapeake”).

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 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. BG Group elected not to exercise its preferential right to acquire a 50% interest in these assets.

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 (“KKR Participation Agreement”) with affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and sold an undivided 50% interest in the undeveloped acreage we acquired for approximately $130.9 million, after preliminary closing adjustments. 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. On a quarterly basis, EXCO and KKR will determine the development plan covering the following twelve months. EXCO will be required to offer to purchase KKR’s 75% working interest in wells drilled that have been on production for one year. These offers will be made on a quarterly basis for groups of wells at fair market value, as defined in the KKR Participation Agreement, subject to specific well criteria and return hurdles. We are required to make our first offer during the first quarter of 2015 for wells that have been on line for approximately one year.

 

1


Amended and Restated Credit Agreement

On July 31, 2013, 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 commitment. 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 to (i) 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. On August 19, 2013, the EXCO Resources Credit Agreement was amended to reflect a term loan that ranks pari passu in right of payment and of security with the revolving loans.

The interest rate grid for the revolving commitment under the EXCO Resources Credit Agreement 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. On September 30, 2013, the one month LIBOR was 0.2%, which resulted in an interest rate of approximately 3.7% on the revolving commitment. The term loan bears interest at LIBOR, with a floor of 100 bps, plus 400 bps (or ABR plus 300 bps). The interest rate on the term loan was approximately 5.0% as of September 30, 2013.

Proceeds from the sale of properties under the KKR Participation Agreement and the TGGT Transaction were used to reduce outstanding borrowings under the EXCO Resources Credit Agreement. As a result, our borrowing base under the EXCO Resources Credit Agreement was reduced to approximately $1.2 billion and our asset sale requirement was reduced to $28.9 million as of November 15, 2013.

EXCO/HGI Partnership

On February 14, 2013, we formed a partnership (“EXCO/HGI Partnership”) with Harbinger Group Inc. (“HGI”). 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. We report our 25.5% interest in the EXCO/HGI Partnership using proportional consolidation.

Immediately following the closing, the EXCO/HGI Partnership entered into an agreement to purchase the remaining shallow Cotton Valley assets from an affiliate of BG Group, for $130.7 million, after final 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 (“EXCO/HGI Partnership Credit Agreement”).

Unaudited pro forma financial information

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually occurred had the above described transactions occurred on the indicated dates or that may be achieved in the future. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with EXCO’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 21, 2013 and as amended by Amendment No. 1 to Annual Report on Form 10-K/A filed on August 30, 2013 (as amended, the “Form 10-K”), Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on October 30, 2013 (“Form 10-Q”), and EXCO’s Acquired Chesapeake Oil and Natural Gas Properties Statement of Revenues and Direct Operating Expenses included as an Exhibit 99.1 on Form 8-K/A, filed on September 25, 2013. Management believes that the assumptions used in these unaudited pro forma financial statements provide a reasonable basis for presenting the effect of these transactions. As these pro forma financial statements are based on EXCO’s latest financial statements filed with the Securities and Exchange Commission in its Form 10-K and Form 10-Q, they do not reflect the impact of transactions occurring after September 30, 2013 through the closing dates, which could impact the amounts of the entries related to these transactions.

Pro forma balance sheet

The following unaudited pro forma condensed consolidated balance sheet as of September 30, 2013 is based on the unaudited consolidated balance sheet of EXCO as of September 30, 2013. The pro forma condensed consolidated balance sheet gives effect to the TGGT Transaction as if such transaction had occurred on September 30, 2013.

 

2


EXCO Resources, Inc.

Pro forma condensed consolidated balance sheet

As of September 30, 2013

(Unaudited)

 

     Historical     Pro forma  

(in thousands)

   EXCO Resources,
Inc.
    TGGT
Transaction
    EXCO Resources,
Inc.
 

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 33,493      $ 240,230 (a)    $ 33,493   
       (240,230 )(a)   

Restricted cash

     36,137        —          36,137   

Accounts receivable, net:

       —          —     

Oil and natural gas

     138,932        —          138,932   

Joint interest

     48,453        —          48,453   

Other

     17,814        —          17,814   

Inventory

     3,757        —          3,757   

Derivative financial instruments

     31,575        —          31,575   

Other

     15,742        (4,788 )(b)      10,954   
  

 

 

   

 

 

   

 

 

 

Total current assets

     325,903        (4,788     321,115   
  

 

 

   

 

 

   

 

 

 

Equity investments

     286,142        (230,000 )(c)      56,142   

Oil and natural gas properties (full cost accounting method):

      

Unproved oil and natural gas properties and development costs not being amortized

     494,333        —          494,333   

Proved developed and undeveloped oil and natural gas properties

     3,571,549        —          3,571,549   

Accumulated depletion

     (2,102,595     —          (2,102,595
  

 

 

   

 

 

   

 

 

 

Oil and natural gas properties, net

     1,963,287        —          1,963,287   
  

 

 

   

 

 

   

 

 

 

Gas gathering assets

     33,519        —          33,519   

Accumulated depreciation and amortization

     (9,905     —          (9,905
  

 

 

   

 

 

   

 

 

 

Gas gathering assets, net

     23,614        —          23,614   
  

 

 

   

 

 

   

 

 

 

Office, field and other equipment, net

     16,304        —          16,304   

Deferred financing costs, net

     30,489        —          30,489   

Derivative financial instruments

     12,908        —          12,908   

Goodwill

     163,155        —          163,155   

Other assets

     30        —          30   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,821,832      $ (234,788   $ 2,587,044   
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

3


EXCO Resources, Inc.

Pro forma condensed consolidated balance sheet

As of September 30, 2013

(Unaudited)

 

     Historical     Pro forma  

(in thousands, except per share and share data)

   EXCO Resources,
Inc.
    TGGT
Transaction
    EXCO Resources,
Inc.
 

Liabilities and shareholders’ equity

      

Current liabilities:

      

Accounts payable and accrued liabilities

   $ 197,090        $ 197,090   

Revenues and royalties payable

     145,408          145,408   

Accrued interest payable

     5,748          5,748   

Current portion of asset retirement obligations

     191          191   

Income taxes payable

     —            —     

Derivative financial instruments

     7,414          7,414   

Current portion of long-term debt

     272,096        (240,230 )(a)      31,866   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     627,947        (240,230     387,717   
  

 

 

   

 

 

   

 

 

 

Long-term debt

     1,863,529          1,863,529   

Deferred income taxes

     —            —     

Derivative financial instruments

     10,407          10,407   

Asset retirement obligations and other long-term liabilities

     41,299          41,299   

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; 219,159,738 shares issued and 218,620,517 shares outstanding at September 30, 2013

     216          216   

Additional paid-in capital

     3,216,842          3,216,842   

Accumulated deficit

     (2,930,929     5,442 (d)      (2,925,487

Treasury stock, at cost; 539,221 shares at September 30, 2013

     (7,479       (7,479
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     278,650        5,442        284,092   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,821,832      $ (234,788   $ 2,587,044   
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

4


(a) Pro forma adjustment to reflect the net cash proceeds of $240.2 million received for the sale of our equity interest in TGGT, which were applied to reduce our outstanding borrowings under the asset sale requirement of the EXCO Resources Credit Agreement.
(b) Pro forma adjustment to reflect the write-off of deferred financing costs in connection with a reduction in the borrowing base under the EXCO Resources Credit Agreement as a result of repayment of outstanding borrowings from proceeds of the TGGT Transaction.
(c) Pro forma adjustment to reflect the sale of our equity interest in TGGT which had a carrying value of $241.7 million as of September 30, 2013. The adjustment is net of the equity interest acquired in Azure which is valued at approximately $11.7 million and will be accounted for as a cost method investment.
(d) Pro forma adjustment to reflect the gain recognized on the sale of our equity interest in TGGT as a result of total cash proceeds and equity interest obtained in Azure exceeding the carrying value of our investment in TGGT at September 30, 2013 by approximately $10.2 million. This was offset by the write-off of deferred financing costs in connection with a reduction in the borrowing base under the EXCO Resources Credit Agreement as a result of repayment of outstanding borrowings from proceeds of the TGGT Transaction.

 

5


Pro forma statements of operations

The following unaudited condensed consolidated pro forma financial information presents statements of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013 and is based on the audited consolidated financial statements of EXCO for the year ended December 31, 2012, the audited statement of revenues and direct operating expenses of the acquired Chesapeake properties for the year ended December 31, 2012, the unaudited condensed consolidated financial statements of EXCO for the nine months ended September 30, 2013. The pro forma financial information gives effect to the TGGT Transaction, acquisition of the Haynesville and Eagle Ford oil and natural gas properties, sale of undeveloped properties to KKR, amendment to the EXCO Resources Credit Agreement, and formation of the EXCO/HGI Partnership as if such transactions had occurred on January 1, 2012.

 

6


EXCO Resources, Inc.

Pro forma condensed consolidated statement of operations

Nine months ended September 30, 2013

(Unaudited)

 

    Historical     Pro forma  

(in thousands, except per share data)

  EXCO
Resources, Inc.
    Acquired
Chesapeake
Properties
    TGGT
Transaction
    EXCO/HGI
Partnership
Transaction
    Other pro
forma
adjustments
    EXCO
Resources, Inc.
 

Revenues:

           

Oil and natural gas

  $ 453,869      $ 150,319 (1)    $ —        $ (12,657 )(3)    $ —        $ 591,531   

Costs and expenses:

           

Oil and natural gas operating costs

    42,706        22,564 (1)      —          (3,489 )(3)      —          61,781   

Production and ad valorem taxes

    15,303        5,965 (1)      —          (1,544 )(3)      —          19,724   

Gathering and transportation

    74,549        —          —          (782 )(3)      —          73,767   

Depletion, depreciation and amortization

    163,195        —          —          —          77,659 (7)      240,854   

Write-down of oil and natural gas properties

    10,707        —          —          —          —          10,707   

Accretion of discount on asset retirement obligations

    1,865        —          —          (194 )(4)      169 (8)      1,840   

General and administrative

    66,495        —          —          (809 )(5)      —          65,686   

(Gain) loss on divestitures and other operating items

    (179,503     —          —          —          186,466 (9)      6,963   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    195,317        28,529        —          (6,818     264,294        481,322   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    258,552        121,790        —          (5,839     (264,294     110,209   

Other income (expense):

           

Interest income (expense)

    (71,771     —          —          (312 )(6)      (11,787 )(10)      (68,293
            15,577 (11)   

Gain on derivative financial instruments

    19,175        —          —          —          —          19,175   

Other income

    340        —          —          —          —          340   

Equity loss

    (61,229     —          58,880 (2)      —          —          (2,349
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (113,485     —          58,880        (312     3,790        (51,127
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    145,067        121,790        58,880        (6,151     (260,504     59,082   

Income tax expense

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 145,067      $ 121,790      $ 58,880      $ (6,151   $ (260,504   $ 59,082   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share:

           

Basic:

           

Net income

  $ 0.68              $ 0.27   
 

 

 

           

 

 

 

Weighted average common shares outstanding

    214,877                214,877   
 

 

 

           

 

 

 

Diluted:

           

Net income

  $ 0.67              $ 0.27   
 

 

 

           

 

 

 

Weighted average common shares and common share equivalents outstanding

    215,195                215,195   
 

 

 

           

 

 

 

See accompanying notes.

 

7


(1) Historical revenues and direct operating expenses for the oil and natural gas Haynesville properties acquired from Chesapeake from January 1, 2013 to July 12, 2013 and for the oil and natural gas Eagle Ford properties acquired from Chesapeake from January 1, 2013 to July 31, 2013. These historical results were derived from unaudited statement of revenues and direct operating expenses and accounting records of the acquired Chesapeake properties.
(2) Pro forma adjustment to reflect the reduction in equity losses as a result of the TGGT transaction. The equity interest acquired in Azure will be accounted for as a cost method investment and therefore our share of equity losses were not included in this adjustment.
(3) Pro forma adjustment to reflect the contribution of 74.5% of our interest in conventional oil and natural gas properties to the EXCO/HGI Partnership for the period from January 1, 2013 to February 14, 2013, and the EXCO/HGI Partnership’s acquisition of shallow Cotton Valley assets from BG Group for the period from January 1, 2013 to March 5, 2013.
(4) Pro forma adjustment to eliminate 74.5% of accretion of discount on asset retirement obligations attributable to the assets contributed to the EXCO/HGI Partnership for the period from January 1, 2013 to February 14, 2013, and the increase in accretion of discount on asset retirement obligations attributable to the EXCO/HGI Partnership’s acquisition of shallow Cotton Valley assets from BG Group for the period from January 1, 2013 to March 5, 2013.
(5) Pro forma adjustment to eliminate general and administrative expenses for 74.5% of estimated costs of personnel and other administrative services attributable to the EXCO/HGI Partnership pursuant to an Administrative Services Agreement (“ASA”) executed upon formation of the EXCO/HGI Partnership for the period from January 1, 2013 to February 14, 2013.
(6) Pro forma adjustment to reflect EXCO’s 25.5% proportionate share of EXCO/HGI Partnership interest expense (2.7% interest rate) and amortization of deferred financing costs for the period from January 1, 2013 to February 14, 2013 related to the EXCO/HGI Partnership Credit Agreement.
(7) Pro forma adjustment to depletion, depreciation and amortization on a consolidated basis as a result of the formation of the EXCO/HGI Partnership, the acquisition of oil and natural gas properties from Chesapeake and sale of undeveloped properties to KKR.
(8) Pro forma adjustment to reflect accretion of discount on asset retirement obligations attributable to the oil and natural gas properties acquired from Chesapeake.
(9) Pro forma adjustment to eliminate the gain on the divestiture of 74.5% of our interest in conventional oil and natural gas properties to the EXCO/HGI Partnership on February 14, 2013.
(10) Pro forma adjustment to reflect the incremental interest expense on a consolidated basis as a result of the amendment to the EXCO Resources Credit Agreement (interest rate of 3.7% on the revolving commitment and 5.0% on the term loan) and the changes in outstanding borrowings as a result the formation of the EXCO/HGI Partnership, acquisition of oil and natural gas properties from Chesapeake, sale of undeveloped properties to KKR and TGGT Transaction. The average interest rate on the revolving commitment used in the calculation of this adjustment included the additional 100 bps per annum related to the asset sale requirement under the EXCO Resources Credit Agreement.
(11) Pro forma adjustment to reflect a net reduction in interest expense for the amortization of deferred financing costs associated with the EXCO Resources Credit Agreement. The net reduction in interest expense was primarily due to the elimination of the acceleration of deferred financing costs associated with the formation of the EXCO/HGI Partnership, amendments to the EXCO Resources Credit Agreement, and reductions in the borrowing base as a result of repayments under the asset sale requirement. The adjustment also reflects the incremental interest expense due to deferred financing costs incurred as part of the amendment to the EXCO Resources Credit Agreement to facilitate the acquisition of oil and natural gas properties from Chesapeake as if such transactions had occurred on January 1, 2012.

 

8


EXCO Resources, Inc.

Pro forma condensed consolidated statement of operations

Year ended December 31, 2012

(Unaudited)

 

    Historical     Pro forma  

(in thousands, except per share data)

  EXCO
Resources, Inc.
    Acquired
Chesapeake
Properties
    TGGT
Transaction
    EXCO/HGI
Partnership
Transaction
    Other pro
forma
adjustments
    EXCO
Resources, Inc.
 

Revenues:

           

Oil and natural gas

  $ 546,609      $ 168,677 (1)    $ —        $ (111,047 )(3)    $ —        $ 604,239   

Costs and expenses:

           

Oil and natural gas operating costs

    77,127        28,173 (1)      —          (31,018 )(3)      —          74,282   

Production and ad valorem taxes

    27,483        9,216 (1)      —          (13,371 )(3)      —          23,328   

Gathering and transportation

    102,875        —          —          (7,894 )(3)      —          94,981   

Depletion, depreciation and amortization

    303,156        —          —          —          69,580 (9)      372,736   

Write-down of oil and natural gas properties

    1,346,749        —          —          (472,381 )(4)      —          874,368   

Accretion of discount on asset retirement obligations

    3,887        —          —          (1,574 )(5)      294 (10)      2,607   

General and administrative

    83,818        —          —          (6,558 )(6)      —          77,260   

Other operating items

    17,029        —          —          —          —          17,029   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    1,962,124        37,389        —          (532,796     69,874        1,536,591   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (1,415,515     131,288        —          421,749        (69,874     (932,352

Other income (expense):

           

Interest expense

    (73,492     —          —          (2,866 )(7)      (12,131 )(11)      (97,578
            (9,089 )(12)   

Gain on derivative financial instruments

    66,133        —          —          (3,617 )(8)      —          62,516   

Other income

    969        —          —          —          —          969   

Equity income

    28,620        —          (28,929 )(2)      —          —          (309
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    22,230        —          (28,929     (6,483     (21,220     (34,402
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (1,393,285     131,288        (28,929     415,266        (91,094     (966,754

Income tax expense

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (1,393,285   $ 131,288      $ (28,929   $ 415,266      $ (91,094   $ (966,754
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share:

           

Basic:

           

Net loss

  $ (6.50           $ (4.51
 

 

 

           

 

 

 

Weighted average common shares outstanding

    214,321                214,321   
 

 

 

           

 

 

 

Diluted:

           

Net loss

  $ (6.50           $ (4.51
 

 

 

           

 

 

 

Weighted average common and common equivalent shares outstanding

    214,321                214,321   
 

 

 

           

 

 

 

See accompanying notes.

 

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(1) Historical revenues and direct operating expenses for the oil and natural gas properties acquired from Chesapeake. These historical results were derived from the audited statement of revenues and direct operating expenses of the acquired Chesapeake properties for the year ended December 31, 2012.
(2) Pro forma adjustment to reflect the reduction in equity income as a result of the TGGT transaction. The equity interest acquired in Azure will be accounted for as a cost method investment and therefore our share of equity income was not included in this adjustment.
(3) Pro forma adjustment to reflect the contribution of 74.5% of our interest in conventional oil and natural gas properties to the EXCO/HGI Partnership, and the EXCO/HGI Partnership’s acquisition of shallow Cotton Valley assets from BG Group.
(4) Pro forma adjustment to reflect proportionate elimination of the write-down in the carrying value of oil and natural gas properties contributed to the EXCO/HGI Partnership resulting from the full cost pool ceiling limitation test at December 31, 2012 based upon the relative fair value of the assets sold as compared to the fair value of the assets retained.
(5) Pro forma adjustment to eliminate 74.5% of accretion of discount on asset retirement obligations attributable to the assets contributed to the EXCO/HGI Partnership, and the additional accretion of discount on asset retirement obligations attributable to the EXCO/HGI Partnership’s acquisition of shallow Cotton Valley assets from BG Group.
(6) Pro forma adjustment to eliminate general and administrative expenses for 74.5% of estimated costs of personnel and other administrative services attributable to the EXCO/HGI Partnership pursuant to an ASA executed upon formation of the EXCO/HGI Partnership.
(7) Pro forma adjustment to reflect EXCO’s 25.5% proportionate share of EXCO/HGI Partnership interest expense (2.7% interest rate) and amortization of deferred financing costs related the EXCO/HGI Partnership Credit Agreement.
(8) Pro forma adjustment to eliminate gain on derivative financial instruments attributable to 74.5% of the natural gas swap contracts novated to the EXCO/HGI Partnership.
(9) Pro forma adjustment to depletion, depreciation and amortization on a consolidated basis as a result of the formation of the EXCO/HGI Partnership, sale of undeveloped properties to KKR, and the acquisition of oil and natural gas properties from Chesapeake.
(10) Pro forma adjustment to reflect accretion of discount on asset retirement obligations attributable to the oil and natural gas properties acquired from Chesapeake.
(11) Pro forma adjustment to reflect incremental interest expense on a consolidated basis as a result of the amendment to the EXCO Resources Credit Agreement (interest rate of 3.7% on the revolving commitment and 5.0% on the term loan) and the changes in outstanding borrowings as a result the formation of the EXCO/HGI Partnership, acquisition of oil and natural gas properties from Chesapeake, sale of undeveloped properties to KKR, and TGGT Transaction. The average interest rate on the revolving commitment used in the calculation of this adjustment included the additional 100 bps per annum related to the asset sale requirement under the EXCO Resources Credit Agreement.
(12) Pro forma adjustment to reflect an increase in interest expense for the amortization of deferred financing costs associated with the EXCO Resources Credit Agreement.

 

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