EXCO Resources, Inc. Announces a Partnership with Harbinger Group Inc.
Related to Conventional Oil and Gas Properties in Texas and Louisiana
DALLAS -- November 05, 2012
EXCO Resources, Inc. (NYSE:XCO) (“EXCO”) today announced a definitive
agreement with Harbinger Group Inc. (NYSE: HRG) (“HGI”) whereby EXCO will
contribute its conventional non-shale assets in East Texas and North Louisiana
and its shallow Canyon Sand and other miscellaneous assets in West Texas to a
limited partnership (the “Partnership”) with HGI. In exchange for the
contribution of its assets, EXCO will receive cash consideration of $597.5
million, subject to customary purchase price adjustments to reflect an
effective date of July 1, 2012, a 24.5% limited partner interest in the
Partnership and a 50% interest in the general partner of the Partnership. HGI
will contribute $372.5 million cash and will receive a 73.5% limited partner
interest in the Partnership and a 50% interest in the general partner. The
remaining $225 million of the cash consideration paid to EXCO will be funded
by a revolving credit agreement to be entered into by the Partnership. The
formation of the Partnership results in a $725 million valuation of the oil
and gas properties included in the transaction. After giving effect to the 2%
general partner interest in the Partnership, EXCO and HGI will own an economic
interest in the Partnership of 25.5% and 74.5%, respectively.
The properties that will be contributed to the Partnership consist of EXCO’s
existing Cotton Valley assets in its Holly, Waskom, Danville and Vernon fields
in East Texas and North Louisiana. All depths from the base of the Cotton
Valley and above will be included. In addition, all of EXCO’s rights
(excluding all depths below the base of the Canyon Sand intervals) in its
Canyon Sand field in Irion and Tom Green Counties, Texas and certain other
West Texas conventional properties will be included in the Partnership.
Characteristics of the contributed Partnership properties (as of the July 1,
2012 effective date) follow:
West Texas East Texas / Total
Gross Acres 29,715 168,442 198,157
Net Acres 27,158 96,548 123,706
Gross Producing Wells 423 997 1,420
Oil (Bbls/d) 1,464 250 1,714
NGL (Bbls/d) 1,435 - 1,435
Natural Gas (Mcf/d) 7,038 74,182 81,220
Total Daily Production (Mcfe/d) 24,432 75,682 100,114
Proved Reserves (Mmcfe) (1) 113,339 415,348 528,687
(1) The July 1, 2012 Proved Reserves used in this press release were
calculated using June 29, 2012 forward strip prices. The estimated Proved
Reserves attributable to the properties being contributed to the Partnership,
using the unweighted average prices for the twelve months ended June 30, 2012
of $3.15 per Mmbtu of natural gas, $95.67 per Bbl of crude oil and $59.32 per
Bbl of NGL as required by Regulation S-X under the Securities Act, were
Substantially all acreage is held by production. Included in the West Texas
area are 145 undrilled locations which are heavily weighted toward oil and
natural gas liquids and are economic to drill at current prices. There are
numerous undrilled locations and exploitation projects in East Texas and North
Louisiana which, at improved gas prices, can also be developed.
Pro Forma Capitalization and Liquidity
After the contribution of the properties to the Partnership and use of the
proceeds from the transaction, EXCO’s credit agreement, which presently has a
$1.3 billion borrowing base, will be reduced to $900 million and the borrowing
base under the Partnership’s new revolving credit facility is expected to be
$400 million. The unaudited pro forma effect on EXCO’s liquidity after the
contribution of the properties to the Partnership is as follows:
As of September 30, 2012
(Unaudited, Historical Pro Forma Pro Forma Pro Forma
in EXCO EXCO Partnership Consolidated
thousands) EXCO (1)
restricted $ 140,859 $ 140,859 $ 5,000 $ 142,134
EXCO Bank 1,107,500 510,000 - 510,000
Partnership - - 230,000 58,650
Senior 750,000 750,000 - 750,000
Total Debt 1,857,500 1,260,000 230,000 1,318,650
Net Debt 1,716,641 1,119,141 225,000 1,176,516
Borrowing 1,300,000 900,000 400,000 (3)
Liquidity 326,252 523,752 175,000 (3)
% Drawn 85.2% 56.7% 57.5% (3)
(1) Represents Pro Forma EXCO as of September 30, 2012 plus 25.5% of the Pro
(2) Net of $7.1 million outstanding letters of credit.
(3) EXCO will not be a guarantor of the Partnership’s revolving credit
facility, nor will EXCO’s liquidity be impacted by available borrowing
capacity under the Partnership’s revolving credit facility.
Selected Pro Forma Partnership Data
Following are selected operating and financial data for the nine months ended
September 30, 2012 reflecting the pro forma impacts to EXCO after the
contribution of the properties to the Partnership.
Pro Forma Adjustments
dollars in Historical Total EXCO's Consolidated
thousands, EXCO Partnership 25.5% Pro Forma
except per Share EXCO
production 146,040 (27,986 ) 7,136 125,190
production 533 (102 ) 26 457
excluding $ 394,447 $ (118,538 ) $ 30,227 $ 306,136
realized price 2.70 4.24 4.24 2.45
operating 59,084 (34,138 ) 8,705 33,651
Per Mcfe 0.40 1.22 1.22 0.27
ad valorem 20,671 (14,303 ) 3,647 10,015
Per Mcfe 0.14 0.51 0.51 0.08
Gathering and 78,183 (9,352 ) 2,385 71,216
Per Mcfe 0.54 0.33 0.33 0.57
direct 236,509 (60,745 ) 15,490 191,254
The Partnership will continue to produce and develop the contributed assets
and will actively pursue conventional asset acquisition opportunities of
long-life natural gas and oil properties. EXCO will serve as contract operator
of the properties and provide services pursuant to contract operating and
administrative service agreements with the Partnership. The Partnership will
be governed by a Board of Directors of the general partner consisting of two
EXCO directors and two HGI directors.
It is expected that the Partnership will make quarterly distributions of
available free cash flow after capital expenditures and debt service.
Distributable cash, after 30-50% dedication to debt service, will be
distributed 2% to the general partner and 98% to the limited partners until a
certain threshold is met, at which time the distributions above the threshold
will be 25% to the general partner and 75% to the limited partners.
The Unit Purchase and Contribution Agreement signed today is subject to
customary pre and post-closing adjustments, including the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, customary title and environmental
reviews, closing conditions and regulatory approvals, and is expected to close
in early 2013.
As noted above, the cash proceeds to EXCO will be used to repay a portion of
EXCO’s revolving credit facility.
Douglas H. Miller, EXCO’s Chief Executive Officer, commented, “We are very
pleased to enter into a conventional asset partnership with Harbinger Group.
The venture will operate and develop the existing oil and natural gas assets
and pursue acquisitions of long-life natural gas and oil properties with a
significant proved producing component with undeveloped upside. This
transaction allows EXCO to monetize certain of its assets and maintain a
significant interest in the assets and future development upside.”
EXCO Resources, Inc. is an oil and natural gas acquisition, exploitation,
development and production company headquartered in Dallas, Texas with
principal operations in East Texas, North Louisiana, Appalachia and West
Harbinger Group Inc. (HGI) is a diversified holding company. HGI’s principal
operations are conducted through subsidiaries that offer life insurance and
annuity products, and branded consumer products such as batteries, personal
care products, small household appliances, pet supplies, and home and garden
pest control products. HGI is principally focused on acquiring controlling and
other equity stakes in businesses across a diversified range of industries and
growing its existing businesses.
Additional information about EXCO Resources, Inc. may be obtained by
contacting EXCO’s Chairman, Douglas H. Miller, or its President, Stephen F.
Smith, at EXCO’s headquarters, 12377 Merit Drive, Suite 1700, Dallas, TX
75251, telephone number (214) 368-2084, or by visiting our website at
www.excoresources.com. Our 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. Business
plans may change as circumstances warrant. In addition, the conditions to
closing the transactions contemplated by the Unit Purchase and Contribution
Agreement may not be met or the anticipated benefits from the proposed
transaction may not be fully realized. 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 ("SEC"). EXCO undertakes no obligation
to publicly update or revise any forward-looking statements.
The SEC has generally permitted oil and natural gas companies, in filings made
with the SEC, to disclose only proved reserves that a company has demonstrated
by actual production or conclusive formation tests to be economically and
legally producible under existing economic and operating conditions. We use
the terms “probable,” “possible,” or “unproved” to describe volumes of
reserves potentially recoverable through additional drilling or recovery
techniques that the SEC’s guidelines prohibit us from including in filings
with the SEC. These estimates are by their nature more speculative than
estimates of proved reserves and accordingly are subject to substantially
greater risk of being actually realized by the company. While we believe our
calculation of unproved drillsites and estimations of unproved reserves have
been appropriately risked and are reasonable, such calculations and estimates
have not been reviewed by third party engineers or appraisers. Investors are
urged to consider closely the disclosures in our Annual Report on Form 10-K
for the year ended December 31, 2011, which is available on our website at
www.excoresources.com under the Investor Relations tab.
EXCO Resources, Inc.
Douglas H. Miller, 214-368-2084
Stephen F. Smith, 214-368-2084
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