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): February 6, 2015

 

 

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

Not Applicable

(Former name or former address, if changed since last report)

 

 

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 1 – Registrant’s Business and Operations

Item 1.01 Entry into a Material Definitive Agreement.

On February 6, 2015, EXCO Resources, Inc. (“ EXCO ”) entered into that certain Fourth Amendment to its Amended and Restated Credit Agreement by and among EXCO, as borrower, certain of its subsidiaries, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the “ Fourth Amendment ”).

The Fourth Amendment amended EXCO’s existing Amended and Restated Credit Agreement, dated as of July 31, 2013, as amended (the “ Amended and Restated Credit Agreement ”), to, among other things, decrease the amount of the borrowing base under the Amended and Restated Credit Agreement from $900.0 million to $725.0 million. The borrowing base is subject to semi-annual review and redetermination by the lenders pursuant to the terms of the Amended and Restated Credit Agreement. The Fourth Amendment was entered into in satisfaction of the regular semi-annual redetermination of the borrowing base under the Amended and Restated Credit Agreement that was scheduled to occur on or about April 15, 2015. The Fourth Amendment also amended the semi-annual redetermination of the borrowing base that was scheduled to occur on or about October 1, 2015 so that the redetermination will occur on or about August 1, 2015.

The Fourth Amendment also amended the definition of a permitted refinancing in the Amended and Restated Credit Agreement to, among other things, allow EXCO to refinance or replace its 7.5% senior unsecured notes due September 15, 2018 (“ 2018 Notes ”) and 8.5% senior unsecured notes due April 15, 2022 (“ 2022 Notes ” and together with the 2018 Notes or any additional senior unsecured notes, senior subordinated notes or other indebtedness, “ Senior Notes ”) with net cash proceeds from second lien debt. The Fourth Amendment also amended the negative covenant restricting outstanding indebtedness to an aggregate principal amount of indebtedness of Senior Notes of up to $1.5 billion to also permit EXCO to incur an aggregate principal amount of second lien debt under this covenant. In the event that EXCO issues any second lien debt that is considered a permitted refinancing, the borrowing base under the Amendment and Restated Credit Agreement will not be reduced. However, if EXCO issues any second lien debt that does not constitute a permitted refinancing, the Fourth Amendment provides that the borrowing base under the Amended and Restated Credit Agreement shall be automatically reduced by the lesser of $250 for each $1,000 in stated principal amount of such second lien debt incurred on the date such indebtedness is issued, or such other amount as determined by certain of the lenders in their sole discretion under the Amended and Restated Credit Agreement.

In addition, the Fourth Amendment added and amended certain financial covenants contained in the Amended and Restated Credit Agreement, to require that EXCO:

 

    not permit the ratio of Senior Secured Indebtedness (as defined in the Amended and Restated Credit Agreement) to Consolidated EBITDAX (as defined in the Amended and Restated Credit Agreement) on the last day of any fiscal quarter to be greater than 2.50 to 1.00;

 

    maintain a minimum Interest Coverage Ratio (as defined in the Amended and Restated Credit Agreement) for any four consecutive fiscal quarter period ending on the last day of any such fiscal quarter of at least 2.00 to 1.00; and

 

    not permit its leverage ratio of Consolidated Funded Indebtedness (as defined in the Amended and Restated Credit Agreement) as of the end of each fiscal quarter to Consolidated EBITDAX for the trailing four fiscal quarter period ending on the last day of such fiscal quarter, determined as of the end of each fiscal quarter ending during any period set forth below, to be greater than the ratio set forth below opposite such period:

 

Period    Ratio  

The fiscal quarter period ending on December 31, 2016

     6.00 to 1.00   

The fiscal quarter period from and including March 31, 2017 to and including the fiscal quarter period ending on June 30, 2017

     5.75 to 1.00   

The fiscal quarter ending on September 30, 2017

     5.25 to 1.00   

The fiscal quarter ending on December 31, 2017

     4.75 to 1.00   

Each fiscal quarter ending thereafter

     4.50 to 1.00   

 

2


EXCO is required to comply with these financial covenants from the fiscal quarter ending March 31, 2015 through July 31, 2018, the maturity date of the Amended and Restated Credit Agreement. In addition, in determining compliance with such leverage ratio, EXCO is required to calculate Consolidated EBITDAX in accordance with the following formulas:

 

    Consolidated EBITDAX for the four fiscal quarter period ending December 31, 2016 shall be Consolidated EBITDAX for fiscal quarter ending on December 31, 2016 multiplied by 4.00;

 

    Consolidated EBITDAX for the two fiscal quarter periods ending March 31, 2017 shall be Consolidated EBITDAX for such period multiplied by 2.00; and

 

    Consolidated EBITDAX for the three fiscal quarter period ending June 30, 2017 shall be Consolidated EBITDAX for such period multiplied by 4/3.

The foregoing description of the Fourth Amendment does not purport to be complete and is qualified in its entirety by reference to the Fourth Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein.

On February 9, 2015, EXCO issued a press release announcing the decrease of the borrowing base under the Amended and Restated Credit Agreement. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

Section 2 – Financial Information

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

 

3


Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
No.

  

Description

10.1    Fourth Amendment to Amended and Restated Credit Agreement, dated as of February 6, 2015, 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.
99.1    Press release, dated February 9, 2015, issued by EXCO Resources, Inc.

 

4


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

EXCO RESOURCES, INC.

Date: February 12, 2015     By:  

/s/ William L. Boeing

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

 

 

5


EXHIBIT INDEX

 

Exhibit
No.

  

Description

10.1    Fourth Amendment to Amended and Restated Credit Agreement, dated as of February 6, 2015, 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.
99.1    Press release, dated February 9, 2015, issued by EXCO Resources, Inc.

 

6

Exhibit 10.1

EXECUTION VERSION

FOURTH AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (hereinafter referred to as the “ Amendment ”) is dated as of February 6, 2015, 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 Amended and Restated Credit Agreement dated as of July 31, 2013 (as the same has been amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the “ Existing Agreement ” and as further amended by this Amendment, the “ Credit Agreement ”); and

WHEREAS , Administrative Agent, the Lenders, Borrower and the Guarantors desire to amend the Existing 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 3 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 cross references to definitions contained in the Credit Agreement shall be added to Section 1.01 of the Credit Agreement in alphabetical order:

Fourth Amendment Effective Date ” means February 6, 2015.

Interest Coverage Ratio ” means, for any period, the ratio of (a) Consolidated EBITDAX for such period to (b) Consolidated Interest Expense for such period.

Second Lien Debt ” means Indebtedness for borrowed money and secured by Liens on substantially the same Collateral securing the Obligations but expressly subordinate (such subordination shall be on terms and conditions reasonably satisfactory to the Administrative Agent and the Majority Lenders) to the Liens securing the Obligations; provided that (a) the non-default interest rate on the outstanding principal balance of such Indebtedness does not exceed the prevailing market rate then in effect for

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 1


similarly situated credits at the time such Indebtedness is incurred, (b) the final stated maturity date of such Indebtedness is not earlier than one hundred eighty (180) days after the Revolving Maturity Date (as in effect on the date of issuance of such Indebtedness, (c) such Indebtedness does not provide for any scheduled principal repayment, mandatory redemption or payment of a sinking fund obligation prior to a date that is at least one hundred eighty (180) days after the Revolving Maturity Date and (d) no Subsidiary of the Borrower is required to Guarantee such Indebtedness unless such Subsidiary is (or concurrently with any such Guarantee becomes) a Guarantor hereunder.

Second Lien Debt Documents ” means the intercreditor agreement (on terms and conditions reasonably satisfactory to the Administrative Agent and the Majority Lenders), promissory notes, security documents, second lien credit agreement, guarantees and all other documents or instruments executed and delivered by any Credit Party in connection with and pursuant to, the incurrence of Second Lien Debt.

Senior Secured Indebtedness ” means, at any date, Consolidated Funded Indebtedness that is secured by, or intended to be secured by, a Lien permitted pursuant to clauses (a), (c), (d) and (e) of Section 7.02, but excluding any Subordinated Indebtedness that is unsecured or intended to be unsecured.

Subordinated Indebtedness ” means any Indebtedness of any Person the payment of which is subordinated to the payment of the Obligations to the written satisfaction of the Administrative Agent.

1.2 Amended Definitions . The following definitions in Section 1.01 of the Credit Agreement shall be and they hereby are amended and restated in their entirety to read follows:

Approved Petroleum Engineer ” means Lee Keeling & Associates, Netherland Sewell & Associates, Inc., Ryder Scott Petroleum Consultants or any other reputable firm of independent petroleum engineers selected by the Borrower and approved by the Administrative Agent and the Required Revolving Lenders which approval shall not be unreasonably withheld.

Consolidated Funded Indebtedness ” means, as of any date and without duplication, Indebtedness of the Borrower and the Restricted Subsidiaries of the type described in clauses (a), (b), (c), (d), (e), (f), (g), or (h) of the definition of Indebtedness, minus Surplus Cash.

Consolidated Leverage Ratio ” means the ratio of (A) Consolidated Funded Indebtedness as of the end of such fiscal quarter to (B) Consolidated EBITDAX for the trailing four fiscal quarter period ending on the last day of such fiscal quarter; provided that, Consolidated EBITDAX for the four fiscal quarter period ending December 31, 2016 shall be Consolidated EBITDAX for fiscal quarter ending on December 31, 2016 multiplied by 4.00, Consolidated EBITDAX for the two fiscal quarter periods ending March 31, 2017 shall be Consolidated EBITDAX for such period multiplied by 2.00, Consolidated EBITDAX for the three fiscal quarter period ending June 30, 2017 shall be Consolidated EBITDAX for such period multiplied by 4/3.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 2


Disqualified Stock ” means any Equity Interest, which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (other than solely as a result of a change of control or asset sale), in whole or in part, on or prior to the Revolving Maturity Date.

Material Indebtedness ” means Indebtedness under the Senior Notes and Second Lien Debt (and, in each case, any Permitted Refinancing thereof) and any other Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of the Borrower or any one or more of the Restricted Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Guarantor in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Guarantor would be required to pay if such Swap Agreement were terminated at such time.

Permitted Refinancing ” means any Indebtedness of any Credit Party and Indebtedness constituting Guarantees thereof by any Credit Party, incurred or issued in exchange for, or the Net Cash Proceeds of which are used to extend, refinance, renew, replace, defease or refund (a) any existing Senior Notes, in whole or in part, from time to time, including the refinancing or replacement of such existing Senior Notes with the Net Cash Proceeds of Second Lien Debt; provided that (i) the principal amount of such Permitted Refinancing (or if such Permitted Refinancing is issued at a discount, the initial issuance price of such Permitted Refinancing) does not result in the principal amount of such Indebtedness exceeding the amount permitted under Section 7.01(h) (plus the amount of any premiums, accrued and unpaid interest, fees and expenses incurred in connection therewith), (ii) such Permitted Refinancing does not provide for any scheduled repayment, mandatory redemption (including any required offer to redeem) or payment of a sinking fund obligation prior to a date that is at least one year after the Revolving Maturity Date (except for any offer to redeem such Indebtedness required as a result of asset sales or the occurrence of a “Change of Control” under and as defined in the applicable Indenture), (iii) the non-default cash interest rate on the outstanding principal balance of such Permitted Refinancing does not exceed the prevailing market rate then in effect for similarly situated credits at the time such Permitted Refinancing is incurred, (iv) no Subsidiary of the Borrower is required to Guarantee such Permitted Refinancing unless such Subsidiary is (or concurrently with any such Guarantee becomes) a Guarantor hereunder, and (v) to the extent such Permitted Refinancing is or is intended to be expressly subordinate to the payment in full of all of the Obligations, the subordination provisions contained therein are either (x) at least as favorable to the Secured Parties as the subordination provisions contained in the existing Senior Notes or (y) reasonably satisfactory to the Administrative Agent and the Majority Lenders and (b) any Second Lien Debt, in whole or in part, from time to time; provided that (i) the principal amount of such Permitted Refinancing (or if such Permitted Refinancing is issued at a discount, the discounted principal amount of such Permitted Refinancing) does not result in the principal amount of such Indebtedness exceeding the amount

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 3


permitted under Section 7.01(h) (plus the amount of any premiums, accrued and unpaid interest, fees and expenses incurred in connection therewith), (ii) such Permitted Refinancing does not provide for any scheduled principal repayment, mandatory redemption or payment of a sinking fund obligation prior to a date that is at least one hundred eighty (180) days after the Revolving Maturity Date, and (ii) the non-default cash interest rate on the outstanding principal balance of such Permitted Refinancing does not exceed the prevailing market rate then in effect for similarly situated credits at the time such Permitted Refinancing is incurred.

Revolving Commitment ” means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01, or in the Assignment and Assumption or Lender Certificate pursuant to which such Lender shall have assumed or agreed to provide its Revolving Commitment, as applicable, as such commitment may be (a) reduced from time to time pursuant to Section 2.02, (b) increased from time to time as a result of such Lender delivering a Lender Certificate pursuant to Section 2.03(a), and (c) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 11.04; provided that any Lender’s Revolving Commitment shall not at any time exceed such Lender’s Applicable Percentage of the Available Borrowing Base then in effect. The initial amount of each Lender’s Revolving Commitment is set forth on the Schedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. As of the Fourth Amendment Effective Date, the aggregate amount of the Lenders’ Revolving Commitments is $725,000,000.

Senior Notes ” means, the (i) 7.50% Senior Notes due 2018 issued pursuant to the Indenture and any supplements thereto and the 8.50% Senior Notes due 2022 issued pursuant to the same base Indenture governing the 7.50% Senior Notes due 2018 and the supplement thereto with respect to the 8.50% Senior Notes due 2022, (ii) all additional senior unsecured notes, senior subordinated notes, or other Indebtedness not to exceed the principal amount permitted under Section 7.01(h); provided that (a) the terms of such Indebtedness (other than the 7.50% Senior Notes due 2018 outstanding as of the date hereof) do not provide for any scheduled repayment, mandatory redemption (including any required offer to redeem) or payment of a sinking fund obligation prior to a date that is at least one year after the Revolving Maturity Date, (except for any offer to redeem such Indebtedness (including the 7.50% Senior Notes due 2018 and the 8.50% Senior Notes due 2022) required as a result of asset sales or the occurrence of a “Change of Control” under and as defined in the applicable Indenture) (b) such Indebtedness is unsecured, (c) the non-default interest rate on the outstanding principal balance of such Indebtedness does not exceed the prevailing market rate then in effect for similarly situated credits at the time such Indebtedness is issued, (d) no Subsidiary of the Borrower is required to Guarantee such Indebtedness unless such Subsidiary is (or concurrently with any such Guarantee becomes) a Guarantor hereunder, and (e) with respect to any such Indebtedness evidenced by senior subordinated notes, such notes, are expressly subordinate to the payment in full of and to all of the Obligations on terms and conditions reasonably satisfactory to the Administrative Agent and the Majority Lenders.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 4


Unrestricted Subsidiary ” means (a) any Subsidiary that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Borrower in the manner provided below, (b) any Subsidiary of an Unrestricted Subsidiary, (c) EBG Acquisition and any of its Subsidiaries, (d) Bonchasse Land Company, LLC, a Louisiana limited liability company and any of its Subsidiaries, (e) the Marcellus JV Operator and any of its Subsidiaries and (f) the Marcellus Midstream Owner and any of its Subsidiaries. The Board of Directors of the Borrower may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries at the time of such designation or at any time thereafter (i) is a Material Domestic Subsidiary, (ii) owns Oil and Gas Interests included in the Borrowing Base Properties or (iii) guarantees, or is a primary obligor of, any indebtedness, liabilities or other obligations under any Senior Notes or Second Lien Debt (or any Permitted Refinancing thereof).

1.3 Deleted Definition . The definition of “ Specified Representations ” shall be and hereby is deleted from Section 1.01 of the Credit Agreement.

1.4 Taxes . Section 2.18 of the Credit Agreement shall be and it hereby is amended by (i) re-leterring clause (i)  thereof as a new clause (j)  thereof and (ii) inserting the following as the new clause (i)  thereof to read in its entirety as follows:

(i) Withholding Taxes Under FATCA. From and after the Fourth Amendment Effective Date, the Borrower shall indemnify the Administrative Agent, and hold it harmless from, any and all losses, claims, damages, liabilities and related expenses, including Taxes and the fees, charges and disbursements of any counsel for any of the foregoing, arising in connection with the Administrative Agent’s treating, for purposes of determining withholding Taxes imposed under FATCA, the Credit Agreement as qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).

1.5 Scheduled and Interim Redeterminations . The first sentence of Section 3.02 of the Credit Agreement shall be and it hereby is amended and restated in its entirety as follows:

Except as set forth in the following sentence and the proviso to this sentence, the Borrowing Base shall be redetermined semi-annually in accordance with this Section 3.02 (a “ Scheduled Redetermination ”), and, subject to Section 3.04, such redetermined Borrowing Base shall become effective and applicable to the Borrower, the Administrative Agent, the Issuing Bank and the Lenders on or about April 1 and October 1 of each year, commencing April 1, 2014; provided that with respect to the Scheduled Redetermination to occur on or about October 1, 2015, such Scheduled Redetermination shall occur on or about August 1, 2015 and with respect to such Scheduled Redetermination, the Borrower shall deliver to the Administrative Agent Engineering Reports, including a Reserve Report with an as of date of June 30, 2015, and all other information required by the Administrative Agent in connection with such Scheduled Redetermination on or before July 7, 2015.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 5


1.6 Mandatory Borrowing Base Reductions . Section 3.06(b) of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

(b) Reduction of Borrowing Base Upon Issuance of Senior Notes and Second Lien Debt . Unless otherwise waived in writing by the Required Revolving Lenders, upon the issuance of any Senior Notes or Second Lien Debt by any Credit Party in accordance with Section 7.01(h) (other than any Permitted Refinancing that extends, refinances, renews, replaces, defeases or refunds existing Senior Notes or existing Second Lien Debt), the Borrowing Base then in effect shall automatically be reduced by (i) at any time prior to the Asset Sale Termination Date, the Net Cash Proceeds received by any Credit Party from the issuance of such Senior Notes, and (ii) at all other times, shall automatically be reduced by the lesser of (A) $250 for each $1,000 in stated principal amount of such Senior Notes or Second Lien Debt on the date such Senior Notes or Second Lien Debt are issued or (B) such other amount, if any, determined by the Required Revolving Lenders in their sole discretion prior to the issuance of such Senior Notes or Second Lien Debt, and the Borrowing Base as so reduced shall become the new Borrowing Base immediately upon the date of such issuance, effective and applicable to the Borrower, the Administrative Agent, the Issuing Bank and the Lenders until the next redetermination or adjustment of the Borrowing Base pursuant to this Agreement. Upon any such redetermination, the Administrative Agent shall promptly deliver a New Borrowing Base Notice to the Borrower and the Lenders.

1.7 Credit Event . Section 5.02(a) of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

(a) The representations and warranties of each Credit Party set forth in the Loan Documents shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date.

1.8 Indebtedness . Section 7.01(h) of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

(h) Indebtedness of the Borrower under the Senior Notes and Second Lien Debt (and, in each case, any Permitted Refinancing thereof) in an aggregate outstanding principal amount not to exceed the sum of $1,500,000,000 at any time;

1.9 Liens . Section 7.02 of the Credit Agreement shall be and it hereby is amended by deleting “ and ” from the end of clause (h) of such Section and replacing “.” with “ ; and ” at the end of clause (i) of such Section and adding the following as clause (j) to such Section:

(j) Liens securing Indebtedness permitted under Section 7.01(h) to the extent such Indebtedness is Second Lien Debt.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 6


1.10 Restrictive Agreements . Section 7.08 of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

Section 7.08. Restrictive Agreements. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to the Borrower or any Restricted Subsidiary or to Guarantee Indebtedness of the Borrower or any Restricted Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions set forth in the Loan Documents, the Senior Note Documents or the Second Lien Debt Documents (or any documents evidencing or relating to any Permitted Refinancing), (iii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 7.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.

1.11 Certain Amendments . Section 7.10 of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

Section 7.10. Amendments of Organizational Documents; Certain Agreements, Senior Notes and Second Lien Debt. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, enter into or permit any material modification or amendment of, or waive any material right or obligation of any Person under its Organizational Documents. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, directly or indirectly, prepay, repay, redeem, defease, or purchase in any manner any Senior Notes or any Second Lien Debt (or, in each case, any Permitted Refinancing thereof); provided that so long as no Default has occurred and is continuing or would be caused thereby, the Borrower may prepay, repay, redeem, defease or purchase Senior Notes or Second Lien Debt (i) with the proceeds of any Permitted Refinancing permitted pursuant to Section 7.01(h), and (ii) at any other time, to the extent that the Senior Notes or Second Lien Debt are, by their terms, permitted or required to be retired, redeemed, defeased, repurchased, prepaid or repaid; provided that in the case of this clause (ii), after giving effect to any such prepayment, repayment, redemption, defeasance or purchase, the Revolving Commitments exceed the Aggregate Revolving Credit Exposure by an amount equal to or greater than ten percent (10%) of the Revolving Commitment. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, enter into or permit any modification or amendment of the Senior Note Documents or any Second Lien Debt Documents, the effect of which is to (a) increase the maximum principal amount of the Senior Notes or the Second Lien Debt or the rate of interest on any of the Senior Notes or the Second Lien Debt (other than as a result of the imposition of a default rate of interest in accordance with the terms of the Senior Note Documents or the Second Lien Debt Documents), (b) change or add any event of default or any covenant

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 7


with respect to the Senior Note Documents or the Second Lien Debt Documents if the effect of such change or addition is to cause any one or more of the Senior Note Documents or the Second Lien Debt Documents to be more restrictive on the Borrower or any of its Subsidiaries than such Senior Note Documents or Second Lien Debt Documents were prior to such change or addition, (c) change the dates upon which payments of principal or interest on the Senior Notes or Second Lien Debt are due or shorten the date of maturity of any Senior Notes or Second Lien Debt, (d) change any redemption or prepayment provisions of the Senior Notes or the Second Lien Debt, (e) alter the subordination provisions, if any, with respect to any of the Senior Note Documents or the subordination provisions with respect to the Liens granted to secure the Second Lien Debt, (f) change any of Sections 4.08(a), 9.06 or 9.07 of the Senior Notes First Supplemental Indenture, (g) grant any Liens in any assets of the Borrower or any of its Subsidiaries, except for Liens granted to secure the Second Lien Debt permitted hereunder and under the Second Lien Debt Documents or (h) permit any Subsidiary to Guarantee the Senior Notes or the Second Lien Debt unless such Subsidiary is (or concurrently with any such Guarantee becomes) a Guarantor.

1.12 Financial Covenants . Section 7.11 of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

Section 7.11. Financial Covenants .

(a) Consolidated Current Ratio . The Borrower will not permit the Consolidated Current Ratio as of the end of each fiscal quarter to be less than 1.00 to 1.00.

(b) Interest Coverage Ratio . The Borrower will not permit the Interest Coverage Ratio, for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter, to be less than 2.00 to 1.00.

(c) Senior Secured Indebtedness to Consolidated EBITDAX Ratio. The Borrower will not permit the Senior Secured Indebtedness to Consolidated EBITDAX Ratio on the last day of any fiscal quarter to be greater than 2.50 to 1.00.

(d) Leverage Ratio. The Borrower will not permit the Consolidated Leverage Ratio, determined as of the end of each fiscal quarter ending during any period set forth below, to be greater than the ratio set forth below opposite such period:

 

Period

   Ratio

The fiscal quarter period ending on December 31, 2016

   6.00 to 1.00

The fiscal quarter period from and including March 31, 2017 to and including the fiscal quarter period ending on June 30, 2017

   5.75 to 1.00

The fiscal quarter period ending on September 30, 2017

   5.25 to 1.00

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 8


Period

   Ratio

The fiscal quarter period ending on December 31, 2017

   4.75 to 1.00

Each fiscal quarter ending thereafter

   4.50 to 1.00

1.13 Notices . Clauses (i) and (ii) of subsection (a) of Section 11.01 of the Credit Agreement shall be and they hereby are amended and restated in their entirety to read as follows:

(i) if to the Borrower, to EXCO Resources, Inc., 12377 Merit Drive, Suite 1700, Dallas, Texas 75251, Attention: Richard A. Burnett, Vice President, Chief Financial Officer and Chief Accounting Officer Telecopy No. (972) 699-5180, E-mail: rburnett@excoresources.com , with a copy to EXCO Resources, Inc., 12377 Merit Drive, Suite 1700, Dallas, Texas 75251, Attention: Christopher C. Peracchi, Vice President, Finance & Investor Relations & Treasurer, Telecopy No. (972) 201-0651, E-mail: cperacchi@excoresources.com . For purposes of delivering the documents pursuant to Section 6.01(a), Section 6.01(b) and Section 6.01(d), the website address is www.excoresources.com ;

(ii) if to the Administrative Agent or Issuing Bank, to JPMorgan Chase Bank, N.A., 10 South Dearborn, Floor L2, Chicago, Illinois 60603-2300, Attention: April Yebd, Telecopy No.: (888) 292-9533, E-mail: april.yebd@jpmorgan.com , with a copy to JPMorgan Chase Bank, N.A., 2200 Ross Avenue, 3 rd Floor, Dallas, Texas 75201-2787, Attention: Michele L. Jones, Managing Director, Telecopy No. (214) 302-8695, E-mail: michele.jones@jpmorgan.com ;

1.14 Confidentiality . The second sentence of Section 11.12 of the Credit Agreement shall be and it hereby is amended and restated in its entirety to read as follows:

For the purposes of this Section, “ Information ” means all information received from any Credit Party relating to any Credit Party or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by any Credit Party and other information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry; provided that, in the case of information received from any Credit Party after the date hereof, such information is clearly identified at the time of delivery as confidential.

1.15 Amendments to Schedules . Schedules 1.01 , 2.01 , 4.13 and 4.22 to the Credit Agreement shall be and they hereby are amended and restated in their entireties with Schedules 1.01 , 2.01 , 4.13 and 4.22 attached to this Amendment.

SECTION 2. Redetermined Borrowing Base. This Amendment shall constitute notice of the Redetermination of the Borrowing Base pursuant to Section 3.04 of the Credit Agreement, and the Administrative Agent, the Lenders, Borrower and the Guarantors hereby acknowledge that effective as of the Fourth Amendment Effective Date, the Borrowing Base is $725,000,000, and such redetermined Borrowing Base shall remain in effect until the earlier of (i) the

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 9


Scheduled Redetermination to occur on or about August 1, 2015 pursuant to Section 3.02 and Section 3.03 of the Credit Agreement and (ii) the date such Borrowing Base is otherwise adjusted pursuant to the terms of the Credit Agreement. For the avoidance of doubt, the redetermination of the Borrowing Base contained in this Section 3 constitutes the Scheduled Redetermination, which otherwise would have occurred on or about April 15, 2015 pursuant to Section 3.03 of the Credit Agreement.

SECTION 3. Conditions . The amendments to the Credit Agreement contained in Section 1 of this Amendment and the redetermined Borrowing Base in Section 2 shall be effective upon the satisfaction of each of the conditions set forth in this Section 3.

3.1 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.

3.2 Fees. The Administrative Agent shall have received the fees separately agreed upon in that certain Fee Letter dated as of the date hereof, among Borrower, Administrative Agent, and J.P. Morgan, and all other fees and expenses due to the Administrative Agent, the J.P. Morgan and the Lenders required to be paid as of the date hereof shall have been paid.

3.3 No Default. No Default or Event of Default shall have occurred and be continuing or shall result after giving effect to this Amendment.

3.4 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 4. 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:

4.1 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).

4.2 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 Governmental Authority 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.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 10


4.3 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.

4.4 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 5. Miscellaneous .

5.1 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.

5.2 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.

5.3 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.

5.4 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.

5.5 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.

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 11


5.6 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.

5.7 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.

5.8 Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York.

5.9 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 Existing Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference in the Existing Agreement or in any other Loan Document, or other agreements, documents or other instruments executed and delivered pursuant to the Existing 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]

 

Fourth Amendment to Amended and Restated Credit Agreement – Page 12


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/ Richard A. Burnett

Name:   Richard A. Burnett
Title:   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
EXCO HOLDING MLP, INC.
EXCO EQUIPMENT LEASING, LLC
By:  

/s/ Richard A. Burnett

Name:   Richard A. Burnett
Title:   Vice President and Chief Financial Officer
EXCO OPERATING COMPANY, LP
By:   EXCO Partners OLP GP, LLC,
  its general partner
  By:  

/s/ Richard A. Burnett

  Name:   Richard A. Burnett
  Title:   Vice President and Chief Financial Officer
EXCO GP PARTNERS OLD, LP
By:   EXCO Partners GP, LLC,
  its general partner
  By:  

/s/ Richard A. Burnett

  Name:   Richard A. Burnett
  Title:   Vice President and Chief Financial Officer


JPMORGAN CHASE BANK, N.A., as a Lender
and as Administrative Agent and Issuing Bank
By:  

/s/ Michele L. Jones

Name:   Michele L. Jones
Title:   Authorized Officer


BANK OF AMERICA, N.A., as a Lender
By:  

/s/ Ronald E. McKaig

Name:   Ronald E. McKaig
Title:   Managing Director


BMO HARRIS BANK N.A., as a Lender
By:  

/s/ Kevin Utsey

Name:   Kevin Utsey
Title:   Director


UBS AG, STAMFORD BRANCH,
as a Lender
By:  

/s/ Darlene Arias

Name:   Darlene Arias
Title:   Director, Banking Products Services, US
By:  

/s/ Houssem Daly

Name:   Houssem Daly
Title:   Associate Director, Banking Products Services, US


CREDIT SUISSE AG, Cayman Islands Branch,
as a Lender
By:  

/s/ Nupur Kumar

Name:   Nupur Kumar
Title:   Authorized Signatory
By:  

/s/ Samuel Miller

Name:   Samuel Miller
Title:   Authorized Signatory


NATIXIS, as a Lender
By:  

/s/ Louis P. Laville, III

Name:   Louis P. Laville, III
Title:   Managing Director
By:  

/s/ Vikram Nath

Name:   Vikram Nath
Title:   Vice President


DEUTSCHE BANK AG NEW YORK
BRANCH, as a Lender
By:  

/s/ Michael Winters

Name:   Michael Winters
Title:   Vice President
By:  

/s/ Peter Cucchiara

Name:   Peter Cucchiara
Title:   Vice President


GOLDMAN SACHS BANK USA, as a Lender
By:  

/s/ Michelle Latzoni

Name:   Michelle Latzoni
Title:   Authorized Signatory


CAPITAL ONE, NATIONAL ASSOCIATION,
as a Lender
By:  

/s/ Victor Ponce de León

Name:   Victor Ponce de León
Title:   Senior Vice President


CIT FINANCE LLC, as a Lender
By:  

/s/ John Feeley

Name:   John Feeley
Title:   Director


ING CAPITAL LLC, as a Lender
By:  

/s/ Juli Bieser

Name:   Juli Bieser
Title:   Director
By:  

/s/ Charles Hall

Name:   Charles Hall
Title:   Managing Director

Exhibit 99.1

 

LOGO   

EXCO Resources, Inc.

12377 Merit Drive, Suite 1700, Dallas, Texas 75251

(214) 368-2084        FAX (972) 367-3559

EXCO RESOURCES, INC. ANNOUNCES CREDIT AGREEMENT AMENDMENT, 2015 CAPITAL BUDGET AND PROVIDES OPERATIONS AND RESERVES UPDATE

 

    Amended credit agreement removes total consolidated leverage ratio through September 2016 and adds senior secured leverage ratio of 2.50x and interest coverage ratio of 2.00x

 

    Credit agreement borrowing base set at $725 million, providing $586 million of pro forma liquidity

 

    2014 SEC proved reserves of 1.3 Tcfe (91% natural gas), a 26% increase from 2013 (excluding Compass Production Partners (“Compass”) reserves)

 

    2014 SEC PV-10 of $1.5 billion, a 34% increase from 2013 (excluding Compass reserves)

 

    2015 capital budget expected to be $275 million, a decrease of approximately 35% from 2014

 

    2015 average daily production expected to be between 335 and 355 Mmcfe per day, essentially flat with fourth quarter 2014 production of 340 Mmcfe per day despite the significant capital budget reduction

DALLAS, TEXAS, February 9, 2015… EXCO Resources, Inc. (NYSE: XCO) (“EXCO”, the “Company” or “we”) today announced that it has amended the Amended and Restated Credit Agreement (the “Credit Agreement”) to provide EXCO the financial flexibility to selectively develop its asset base while deferring a significant amount of the Company’s drilling inventory until commodity prices improve. The Credit Agreement was amended to:

 

    remove the total consolidated leverage ratio through September 2016 and then be reinstated in the fourth quarter of 2016 at 6.00x stepping down to 4.50x for the first quarter of 2018;

 

    add a senior secured leverage ratio of 2.50x and an interest coverage ratio of 2.00x; and

 

    set the borrowing base at $725 million.

EXCO has worked aggressively to reduce debt since closing on approximately $1 billion of acquisitions in July 2013 through non-core asset sales and a rights offering of our common stock. Our total debt was reduced from approximately $2.1 billion at July 31, 2013 to $1.5 billion at December 31, 2014. As of December 31, 2014, we had pro forma liquidity of $586 million, based on our borrowing base of $725 million, which will allow us to execute on our capital program and opportunistically pursue strategic acquisitions. We are highly confident in the quality of the Credit Agreement’s underlying collateral asset base and thank our bank group for their continued support of EXCO.

Proved Reserves

As of December 31, 2014, our proved reserves were approximately 1.3 Tcfe, prepared in accordance with SEC standards, of which 91% were natural gas and 47% were proved developed reserves. Approximately 96% of our proved reserves were related to our shale properties, with approximately 69% located in the


Haynesville and Bossier shales in East Texas and North Louisiana, 18% in the Marcellus shale in Appalachia and 9% in the Eagle Ford shale in South Texas. Our non-shale proved reserves represented approximately 4% of total proved reserves as of December 31, 2014, which consisted primarily of conventional assets in the Appalachia region. As of December 31, 2014, the PV-10 and standardized measure of our proved reserves was approximately $1.5 billion. There is no difference in the standardized measure and PV-10 as the impact of net operating loss carry-forwards eliminated future income taxes. The prices used for the SEC year end 2014 reserves were $4.35 per Mmbtu for natural gas, $94.99 per Bbl for oil and $33.03 per Bbl for natural gas liquids.

Proved reserves increased by 140 Bcfe from January 1, 2014, as production of 136 Bcfe and the sale of our remaining interest in Compass of 127 Bcfe were predominantly offset by 168 Bcfe of price revisions, 131 Bcfe of upward performance and other revisions and 96 Bcfe of discoveries and extensions.

Our reserves were positively impacted by the results of our successful 2014 drilling and completion program in the Shelby area of East Texas. The continued performance of the first two initial test wells in Shelby under our new completion and flowback methodology resulted in increasing their proved reserve estimates from 1.0 Bcf per 1,000 feet of lateral to 1.75 Bcf per 1,000 feet, or in excess of 11 Bcf per well. Additionally, our year-end proved undeveloped reserve estimates have increased from 1.0 Bcf per 1,000 feet of lateral to 1.3 Bcfe per 1,000 feet of lateral, which is our minimum target for Shelby wells drilled in 2015. The 131 Bcfe of upward performance and other revisions included 67 Bcfe of upward revisions in the Shelby area of East Texas based on improved well performance as a result of our enhanced completion methods, including more proppant per foot of lateral length, longer laterals and a more restricted flowback. The upward revisions also included 46 Bcfe from our Appalachia region based on a shallower decline than previously forecasted. The 96 Bcfe of discoveries and extensions were primarily due to 52 Bcfe from our drilling in the Shelby area in East Texas and 26 Bcfe from our Eagle Ford shale development.

Capital Budget

Our Board of Directors has approved a 2015 capital budget of up to $275 million. The capital budget includes approximately $215 million allocated to development and completion activities. Our budget was designed to allocate capital to projects that:

 

    produce attractive returns in the current commodity price environment;

 

    add proved reserves to our portfolio; and

 

    maintain high value acreage positions.

Our capital budget will allow us to preserve our liquidity and capital resources in preparation for future growth as we expect 2015 Adjusted EBITDA to be approximately equivalent to our capital budget. We have reduced our drilling activity in South Texas and plan to focus our development on natural gas production in the Haynesville and Bossier shales located in East Texas and North Louisiana where we expect to spend 69% of our drilling and completion capital with our drilling efforts focused in the Shelby area. We believe our Shelby area in East Texas will provide significant growth opportunities for EXCO as we convert undrilled locations to proved developed producing wells and add proved undeveloped locations to our drilling inventory. We will continue to monitor the commodity price environment throughout 2015 and will adjust our capital program as necessary to maximize our returns and manage our cash flow.


The 2015 capital budget is currently allocated among the different budget categories as follows:

 

(Dollars in millions)    2015 Capital Budget  

Drilling and completion

   $ 215   

Field operations, gathering and water projects

     16   

Land and capitalized costs

     44   
  

 

 

 

Total

   $ 275   
  

 

 

 

We expect to fund our 2015 capital budget with cash flow from operations and borrowings under our Credit Agreement. Our financial position and diverse portfolio of high quality oil and natural gas assets allow us flexibility in the current commodity price environment. The 2015 capital budget excludes our offer program with a joint venture partner in the Eagle Ford shale, which is expected to be funded with borrowings under our Credit Agreement.

Capital Budget Detail

Our 2015 operated rig count is expected to average four rigs, of which three will drill in the Haynesville and Bossier shales in East Texas and North Louisiana and one will drill in the Eagle Ford shale and the Buda formation in South Texas. We will also utilize a rig in Appalachia intermittently to drill two appraisal wells.

Details of our plans within the various areas follow:

 

(Dollars in millions)    Gross Wells
Spud (1)
     Net Wells
Spud (1)
     Net Wells
Completed (1)
     Drilling &
Completion
     Other
Capital
     Total Capital  

East TX/North LA

     25         11.9         17.6       $ 150       $ 8       $ 158   

South Texas

     23         7.1         10.7         59         7         66   

Appalachia

     2         0.7         0.5         6         8         14   

Corporate (2)

     —           —           —           —           37         37   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     50         19.7         28.8       $ 215       $ 60       $ 275   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) EXCO operated
(2) Includes $21 million of capitalized interest and $16 million of capitalized general and administrative expenses

East Texas and North Louisiana:

As a result of our successful drilling and completion program in the Shelby area of East Texas during 2014, we will be focusing our efforts in this area in 2015 to capture additional value. Our development in North Louisiana will focus on completing and turning to sales wells drilled in 2014, base production initiatives and a limited drilling program. We plan to spend a total of $158 million developing wells in the Haynesville and Bossier shales, of which $150 million will be spent on drilling and completion, including $18 million to fund our working interest in wells operated by others. We plan to spud 25 gross (11.9 net) horizontal wells and turn to sales 32 gross (17.6 net) horizontal wells in these areas.


We plan to spud 22 gross (9.4 net) horizontal wells and turn to sales 14 gross (5.9 net) horizontal wells in the Shelby area of East Texas. We have approximately 250 operated undeveloped locations in this area which provide a platform for future growth. We will continue to utilize the enhanced completion methods, longer laterals and restricted flowback program that proved to be successful on the wells drilled in 2014. Under our more restrictive flowback methodology, both our recently completed East Texas and North Louisiana wells are exhibiting lower decline rates which we believe will result in reduced capital to maintain production and area operating cash flow in future years. Based on our year end estimates of proved reserves, we estimate the ultimate recoveries (“EUR”) to be 1.3 Bcfe per 1,000 feet of lateral from the wells drilled in the Shelby area during 2015. The wells that are planned to be drilled during 2015 are expected to include laterals ranging from 6,300 to 7,500 feet and average $10.8 million for drilling and completion. Our drilling activity in the Shelby area will add proved undeveloped locations and reserves to our asset base as we continue to develop this area. We believe there is the potential for additional upside in the EURs once we have more historical data to incorporate into the type curves from the wells drilled in this area.

Our development capital in our Holly area in DeSoto Parish, Louisiana will focus on completing and turning to sales 15 wells drilled in 2014, base production initiatives and a limited drilling program. We plan to drill three gross (2.5 net) Haynesville wells in the first half of 2015 and turn-to sales 18 gross (11.7 net) wells in the first half of 2015. In addition, we will continue our refrac program on a limited basis as we analyze the data from the six refracs performed to date and develop a long term plan during 2015.

South Texas:

We have reduced our drilling activity in South Texas in response to lower crude oil prices and plan to average one rig in 2015. Our 2015 capital program is designed to preserve leasehold commitments, fulfill continuous drilling obligations and drill a key test well in the Buda formation. We plan to spend a total of $66 million in this region during 2015, of which $59 million will be spent to spud 23 gross (7.1 net) horizontal wells, at an average of $6.6 million for drilling and completion with 7,400 foot average lateral lengths, and turn to sales 44 gross (10.7 net) horizontal wells. We plan to turn-to-sales 37 gross (7.0 net) Eagle Ford shale horizontal wells in our core area acreage, and six gross (3.2 net) horizontal wells outside of our core area. The most recent wells turned-to-sales feature enhanced completion methods and have provided our best results to date in the region. Our 2015 capital budget includes one gross (0.5 net) operated Buda well which we spud in January (gross cost of $2.9 million) and our participation in three non-operated Buda wells. The Buda formation has the potential to add drilling locations to our inventory characterized by low capital intensity with high rates of return. Our capital program also includes $7 million to fund pumping units to optimize our production and infrastructure development to reduce future operating costs.

Appalachia:

The 2015 capital budget program for our Marcellus shale program totals $14 million, of which $6 million will be spent to drill and complete two gross (0.7 net) appraisal wells. A significant portion of our acreage in the Marcellus shale is held-by-production, which allows us to control the timing of the development in this region. This allows us the optionality for future development activities with minimal cost to hold our position. The appraisal wells to be drilled during 2015 are strategically located nearby areas in which we have observed strong well performance from recent results.


Operations

Oil, natural gas and natural gas liquids production was 31 Bcfe, or 340 Mmcfe per day, for the fourth quarter 2014. Production was at the low end of our guidance range as we further rate restricted the North Louisiana wells we turned to sales in November and December to maximize the wells EURs based on the successful rate restriction production and pressure results we have experienced in East Texas.

In North Louisiana, we completed six refracs in mature Haynesville shale wells and are encouraged by the results. We performed our first refrac in July and the production rate increased from 550 Mcf per day to 1,900 Mcf per day and it is currently producing 1,500 Mcf per day. While our other refracs do not have as much history, we have seen similar production increases. We will continue to monitor the performance of these refracs and gather data as we further refine the techniques and evaluate the application of refracs across our Haynesville shale wells.

We also recently completed the Bossier shale test well that was drilled in DeSoto Parish, Louisiana and it is performing in-line with our expectations. This was the first well we have drilled in the Bossier shale in North Louisiana using the enhanced completion methods we have utilized in both our East Texas Haynesville and Bossier and North Louisiana Haynesville activities. Based on the enhanced completion methods, existing in-place infrastructure and our ability to reduce drilling and completion costs, we believe that we can develop over 300 Bossier shale drilling locations (based on standard lateral lengths and units) in North Louisiana in the future.

In South Texas, we realized improved production rates utilizing enhanced completion methods on wells recently turned to sales with 13 wells averaging 24 hour initial production rates of 839 Bbl per day. The three central facilities in the area are operational and we have recently drilled Eagle Ford wells in 9.5 days with some of the longest laterals in the area. We participated in our first non-operated Buda well which had initial production of 690 Bbl per day. We have drilled our first operated Buda well with a 9,800 foot lateral in January and expect it to start producing in February.

We continue to work with our vendors to achieve cost reductions given the current commodity price environment. We have realized fracture stimulation, cementing, production chemical, rentals and fuel cost savings and are reviewing additional operating and general and administrative cost reduction initiatives. Three of our four remaining rig contracts expire in 2015 (April, August and December, respectively), which could provide opportunities for lowering our costs.

South Texas Offer Process

We made our first offer for wells drilled under the participation agreement with a joint venture partner (“Participation Agreement”) in January. This included seven wells for a total offer price of $14.8 million. One of the wells met the required return hurdle and the specific well criteria for a committed well as defined in the Participation Agreement (“Committed Well”). The remaining six wells did not meet the Committed Well criteria due to the timing of artificial lift installation, off-set fracturing activity and other


factors set forth in the Participation Agreement. These wells are defined as uncertainty wells in the Participation Agreement (“Uncertainty Wells”). Our joint venture partner is only required to accept the offer for the Committed Well of $2.4 million. Our joint venture partner may accept the offers for the Uncertainty Wells. However, they have the right to elect to decline our offer for Uncertainty Wells for up to two quarters. We expect the offer and acceptance process to be completed and the acquisition to close during the first quarter.

There are 34 additional wells that are expected to be included in the offer process during the remainder of 2015; however, the extent and timing of these acquisitions in future periods will be dependent on the terms and conditions of the offer process. We currently do not anticipate that all 34 wells will meet the Committed Well criteria when the initial offer is made. Any offer well that remains an Uncertainty Well for two consecutive quarters converts to a Committed Well and is included in the offer for Committed Wells for the quarter immediately following such period. As such, the number of wells acquired in 2015 could be lower than the 41 wells offered on.

Commodity Derivatives

EXCO has derivative contracts in place protecting approximately 65% of our expected 2015 natural gas production. The Company’s 2015 natural gas derivative contracts consist of 117,500 Mmbtus per day of fixed price swaps at an average NYMEX Henry Hub price of $4.20 per Mmbtu, and 75,000 Mmbtus per day of three-way collar contracts. The three-way collar contracts have an average NYMEX Henry Hub call price of $4.47 per Mmbtu, a put price of $3.83 per Mmbtu and a short put price of $3.33 per Mmbtu. In addition, the Company has derivative contracts in place hedging approximately 50% of our expected 2015 oil production at an average fixed swap price of $91.09 per barrel (including the impact of basis swaps). The mark-to-market value of the Company’s derivative contracts as of December 31, 2014 was approximately $100 million.

Additional information about EXCO Resources, Inc. may be obtained by contacting Chris Peracchi, EXCO’s Vice President 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.

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 you not to place undue reliance on a forward-looking statement. When considering our forward-looking statements, keep in mind the cautionary statements and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2014, and our other periodic filings with the SEC.

Our revenues, operating results and financial condition substantially depend on prevailing prices for oil and natural gas and the availability of capital from our Credit Agreement. 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.