EXCO Resources, Inc. Reports Fourth Quarter and Full Year 2013 Results Business Wire DALLAS -- February 25, 2014 EXCO Resources, Inc. (NYSE: XCO) (“EXCO”) today announced fourth quarter and full year operating and financial results for 2013. *Adjusted EBITDA was $124 million for the fourth quarter 2013 and $418 million for the full year 2013, which exceeded our mid-point guidance. *Reduced leverage and improved liquidity since the third quarter 2013 through a $273 million rights offering of our common stock and $305 million of closed and announced divestitures. *Capital expenditures were $101 million for the fourth quarter 2013 and $340 million for the full year 2013. Actual capital expenditures were below our mid-point guidance reflecting continued fiscal discipline. *Drilled and completed 26 gross (11.8 net) operated wells for the fourth quarter 2013 and 99 gross (49.0 net) operated wells for the full year 2013. *Production was 41 Bcfe, or 446 Mmcfe per day, for the fourth quarter 2013 and 162 Bcfe, or 444 Mmcfe per day, for the full year 2013, which exceeded our mid-point guidance. Jeff Benjamin, EXCO’s chairman, commented, “The company completed numerous transactions and operational initiatives in 2013 to improve its balance sheet and position itself for future growth. Most recently, we closed a successful rights offering of our common stock and raised $273 million which the company used to reduce indebtedness. This rights offering demonstrated the support we have from both our broad shareholder base and our principal investors. We will continue to demonstrate capital discipline in 2014 as we develop our asset base in the Haynesville, Marcellus and Eagle Ford shales.” Financial results Adjusted EBITDA for the fourth quarter 2013 was $124 million compared with $108 million for the third quarter 2013. Adjusted EBITDA for the year ended 2013 was $418 million compared with $468 million for the year ended 2012. Adjusted EBITDA is a non-GAAP measure and is computed using earnings before interest, taxes, depletion, depreciation and amortization, and is further adjusted for gains from asset sales, impairments of our oil and natural gas properties, other non-cash income and expenses, and other items impacting comparability. Adjusted net income, a non-GAAP measure, was $0.04 per diluted share for the fourth quarter 2013 compared with $0.04 per diluted share for the third quarter 2013. Adjusted net income was $0.30 per diluted share for the year ended 2013 compared with $0.38 per diluted share for the year ended 2012. The non-GAAP adjustments include gains from asset sales, unrealized gains or losses from derivative financial instruments, non-cash asset impairments and other items typically not included by securities analysts in published estimates. GAAP results were a net loss of $123 million, or $0.57 per diluted share, for the fourth quarter 2013 compared with a net loss of $99 million, or $0.46 per diluted share, for the third quarter 2013. The net loss for the fourth quarter 2013 was primarily due to the non-cash impairment of $98 million to our oil and natural gas properties. The impairment was primarily due to downward revisions of our reserves in the Haynesville shale as a result of operational matters, and the narrowing of basis differentials between oil price indices and higher costs associated with the gathering and transportation of our natural gas production from the Eagle Ford shale. In the Haynesville shale, we have modified our spacing program in our core area from eight wells per section to six wells per section in order to optimize our rate of return and value for each section. We also have plans to reduce line pressure in the field, alleviate loading and expand our artificial lift program. In the Eagle Ford shale, we are developing a long term solution to increase capacity of the gathering system for our core area in order to reduce our costs and improve market access. However, these planned improvements will not be incorporated into our proved reserves until we have the results to support and objectively quantify these amounts. GAAP results were net income of $22 million, or $0.10 per diluted share, for the year ended 2013 compared with a net loss of $1.4 billion, or $6.50 per diluted share, for the year ended 2012. The net income for the year ended 2013 was primarily the result of income from operations benefiting from higher commodity prices and the gain on the divestiture of certain oil and natural gas properties and related assets in connection with the formation of the EXCO/HGI Partnership, which was partially offset by asset impairments. The pro forma operating and financial information for the years ended December31, 2013 and 2012 is presented in a supplemental schedule to this press release as if the acquisitions of the Haynesville and Eagle Ford assets from subsidiaries of Chesapeake Energy Corporation ("Chesapeake") and the formation of the EXCO/HGI Partnership had occurred on January 1, 2012. Oil, natural gas and natural gas liquids ("NGL") production was 41 Bcfe, or 446 Mmcfe per day, for the fourth quarter 2013 compared with 42 Bcfe, or 455 Mmcfe per day, in the third quarter 2013. Fourth quarter 2013 production from the East Texas/North Louisiana region was 311 Mmcfe per day compared with 340 Mmcfe per day in the third quarter 2013. The decrease in production was primarily the result of higher downtime for completion activities, timing of wells turned-to-sales and normal production declines. Fourth quarter production from the South Texas region was 656 Mbbls, or 7 Mboe per day, compared with 377 Mbbls, or 6 Mboe per day, subsequent to the acquisition in the third quarter 2013. The increase in production was the result of our continued development within the Eagle Ford shale including 13 gross wells turned-to-sales and the installation of artificial lift on certain wells during the quarter. The fourth quarter 2013 production in the Appalachia region averaged 66 Mmcfe per day compared with 64 Mmcfe per day in the third quarter 2013. Our proportionate share of production from the EXCO/HGI Partnership was 26 Mmcfe per day in the fourth quarter 2013 compared to 27 Mmcfe per day in the third quarter 2013. Oil, natural gas and NGL production was 162 Bcfe, or 444 Mmcfe per day, for the year ended 2013 compared with 190 Bcfe, or 519 Mmcfe per day, for the year ended 2012. The decrease in year over year production was primarily the result of our contribution of properties to the EXCO/HGI Partnership and natural production declines, partially offset by our acquisition of Haynesville and Eagle Ford assets during 2013. Oil, natural gas and NGL revenues for the fourth quarter 2013 were $180 million compared with $165 million for the third quarter 2013. Our average sales price per Mcfe increased to $4.39 per Mcfe for the fourth quarter 2013 from $3.95 per Mcfe for the third quarter 2013. Our sales price per Mcfe was positively impacted by higher oil production for the fourth quarter 2013 compared to the third quarter 2013. When the impacts of cash settlements from derivatives are considered, oil, natural gas and NGL revenues were $194 million, or $4.73 per Mcfe for the fourth quarter 2013, compared with $176 million, or $4.21 per Mcfe for the third quarter 2013. Oil, natural gas and NGL revenues for the year ended 2013 were $634 million compared with $547 million for the year ended 2012. Our average sales price per Mcfe increased to $3.92 per Mcfe for the full year 2013 from $2.88 per Mcfe for the full year 2012. When the impacts of cash settlements from derivatives are considered, oil, natural gas and NGL revenues were $676 million, or $4.18 per Mcfe for the full year 2013, compared with $749 million, or $3.94 per Mcfe for the full year 2012. Our direct operating costs were $0.45 per Mcfe for the fourth quarter 2013 compared with $0.41 per Mcfe for the third quarter 2013. The increase was primarily the result of higher direct operating costs per Mcfe associated with increased oil production in the Eagle Ford shale. Our direct operating costs were $0.38 per Mcfe for the year ended 2013 compared with $0.41 per Mcfe for the year ended 2012. The decrease was primarily attributable to the contribution of properties to the EXCO/HGI Partnership, which typically have higher operating costs per Mcfe, and was partially offset by higher direct operating costs per Mcfe associated with our oil production in the Eagle Ford shale. Cash flow from operations before changes in working capital and other operating items impacting comparability, a non-GAAP measure, was $100 million for the fourth quarter 2013 compared with $87 million for the third quarter 2013. Cash flow from operations before changes in working capital and other operating items impacting comparability was $345 million for the year ended 2013 compared to $404 million for the year ended 2012. During 2013, we primarily used our cash flow from operations and available borrowing capacity in our credit agreement to fund our drilling and development programs and acquire oil and natural gas properties. Recent developments TGGT sale On November 15, 2013, we closed the sale of 100% of our equity interests in midstream assets in East Texas and North Louisiana ("TGGT") to Azure Midstream Holdings LLC ("Azure") for net cash proceeds of $240 million and approximately 4% of the total outstanding equity interests of Azure. The proceeds from the sale were used to reduce indebtedness under the asset sale requirement of the EXCO Resources Credit Agreement. Rights offering We closed a rights offering of our common stock on January 17, 2014 which resulted in the issuance of 54,574,734 shares for net proceeds of $273 million. We used the net proceeds to pay indebtedness under the EXCO Resources Credit Agreement, including payment in full of the remaining indebtedness related to the asset sale requirement as well as a portion of the indebtedness outstanding under the revolving commitment under the EXCO Resources Credit Agreement. The elimination of the asset sale requirement resulted in a decrease in our interest rate of 100 basis points on the revolving commitment. After giving effect to the repayment of indebtedness using proceeds from the rights offering, the available borrowing base on the revolving commitment under the EXCO Resources Credit Agreement was $900 million with approximately $491 million of outstanding indebtedness and approximately $402 million of unused borrowing base, net of letters of credit. This improved our leverage ratio, as defined in the EXCO Resources Credit Agreement, from 3.6 to 1.0 prior to the rights offering, to 3.0 to 1.0 after the rights offering. We have presented information in a supplemental schedule to this press release relating to our liquidity as of December31, 2013 as well as on a pro forma basis as if the closing of the Rights Offering had occurred on December 31, 2013. Permian JV sale agreement On February 13, 2014, we entered into a purchase and sale agreement to sell our non-operated interest in a joint venture in the Permian Basin for approximately $65 million, subject to customary purchase price adjustments and the receipt of certain third-party consents. This sale includes our interest in producing wells and undeveloped acreage with horizontal drilling opportunities. The effective date of the transaction will be January 1, 2014 and is expected to close in the first half of 2014. We plan to use the proceeds to reduce indebtedness under the EXCO Resources Credit Agreement, which will improve our liquidity and reduce our leverage. Operations activity and outlook We spent $66 million on development and exploration activities, drilling 24 gross (5.8 net) operated wells and completing 26 gross (11.8 net) operated wells in the fourth quarter 2013. In addition, we participated in the drilling of 11 gross (1.9 net) wells operated by others ("OBO") during the fourth quarter 2013. We spent $265 million on development and exploration activities, drilling 64 gross (26.7 net) operated wells and completing 99 gross (49.0 net) operated wells for the full year 2013. In addition, we participated in the drilling of 22 gross (3.6 net) OBO wells for the full year 2013. Our development and exploration activities were focused on our Haynesville shale and Eagle Ford shale properties during 2013. Our actual capital expenditures for the fourth quarter 2013, full year 2013, and 2014 capital budget are presented in the following table. (in thousands) Fourth Quarter Full Year 2014 Budget Capital expenditures (1): Development capital expenditures $ 66,055 $ 265,120 $ 294,000 Lease purchases 10,605 14,835 19,000 Seismic 3,912 10,217 2,000 Field operations, gathering and 12,238 12,379 24,000 water pipelines Corporate and other 8,496 37,287 29,000 Total capital expenditures $ 101,306 $ 339,838 $ 368,000 (1) Excludes capital expenditures related to our partnership with HGI. Our board of directors approved a capital budget of $368 million for 2014 of which $294 million is allocated to development and completion activities. Our developmental activities in the East Texas/ North Louisiana region are primarily focused on our core area in DeSoto Parish, Louisiana as well as a limited drilling program in the Shelby area of East Texas. Our developmental activities in the South Texas region will primarily be focused on our core area in the Eagle Ford shale. We believe the capital budget is appropriate for current commodity prices and our capital structure, and was designed to manage our capital expenditures in relation to our operating cash flow. These capital expenditures exclude the EXCO/HGI Partnership, which funds its capital expenditures through internally generated cash flow and its credit agreement. Proved Reserves Our estimated proved reserves as of December31, 2013, were 1.1 Tcfe with a PV-10 of $1.3 billion calculated pursuant to SEC pricing rules. For 2013, the SEC reference price was $3.67 per Mmbtu for natural gas, $96.78 per Bbl for oil, and $39.92 per barrel for NGLs, in each case adjusted for geographical and historical differentials. Our estimated proved reserves would have been 1.3 Tcfe with a PV-10 of $1.6 billion using NYMEX futures strip prices at December31, 2013, as adjusted for energy content, quality and basis differentials, of $4.24 per Mcf for natural gas, $80.83 per Bbl for oil, and $38.88 per Bbl for NGLs. The discussion of reserves within this press release relates to our estimated proved reserves calculated pursuant to SEC pricing rules. During 2013, we added 400 Bcfe of proved reserves through acquisitions including 260 Bcfe in the Haynesville shale, 116 Bcfe in the Eagle Ford shale, and 25 Bcfe for our proportionate share of the EXCO/HGI Partnership's acquisition of Cotton Valley properties. We also added 86 Bcfe through discoveries and extensions primarily as a result of our development programs in the Haynesville and Eagle Ford shales, as well as completion activities in the Marcellus shale. Our revisions of previous estimates during 2013 included upward revisions to our proved reserve quantities of 280 Bcfe as a result of an increase in price, which extended the economic life of certain producing properties and resulted in the reclassification of unproved locations to proved undeveloped properties that became economical when using the prices prescribed by the SEC. The upward revisions due to changes in price were partially offset by downward revisions of 127 Bcfe in proved reserves due to other factors. These downward revisions were primarily related to operational matters for our Haynesville shale properties such as scaling, liquid loading due to high-line pressure and the impact of drainage on new wells drilled directly offset to the unit wells. We have modified our spacing program from eight wells per section to six wells per section in order to maximize our rate of return for each section. We also have plans to reduce line pressure in the field, alleviate loading and implement an artificial lift program. However, these planned improvements will not be incorporated into our proved reserves until we have the results to support and objectively quantify these amounts. We sold 358 Bcfe of proved reserves during the year, including 328 Bcfe as part of our contribution of properties to the EXCO/HGI Partnership and 30 Bcfe as part of the participation agreement in the Eagle Ford shale. Additionally, we produced 162 Bcfe during the year. The following table presents the details of our changes in proved reserves: Natural Equivalent Oil Natural gas gas natural (Mbbls) (Mmcf) liquids gas (Mmcfe) (Mbbls) Proved Developed 11,274 657,116 2,088 737,291 Reserves Proved Undeveloped 4,104 359,363 495 386,954 Reserves Total Proved 15,378 1,016,479 2,583 1,124,245 Reserves The changes in reserves for the year are as follows: January 1, 2013 5,570 936,132 6,639 1,009,386 Purchases of 16,022 290,933 2,201 400,271 reserves in place Discoveries and 5,960 46,834 513 85,672 extensions Revisions of previous estimates (1): Reclassification to unproved (190 ) (1,509 ) (196 ) (3,825 ) reserves (2) Changes in price 457 272,614 686 279,472 Other factors (3,029 ) (105,186 ) (545 ) (126,630 ) Sales of reserves (8,224 ) (270,018 ) (6,472 ) (358,194 ) in place Production (1,188 ) (153,321 ) (243 ) (161,907 ) December 31, 2013 15,378 1,016,479 2,583 1,124,245 (1) Revisions of previous estimates include both reserves in place at the beginning of the year and acquisitions during the year. (2) Represents proved undeveloped reserves reclassified to unproved pursuant to the five year development rule established by the SEC. This reclassification was a result of decisions not to commit development capital to certain conventional properties held by the EXCO/HGI Partnership in the Permian Basin. While these locations qualify as proved undeveloped reserves as they directly offset a proved location, our planned capital programs do not support development at this time, resulting in the reclassification. Our drilling program during 2013 was primarily focused on the Haynesville shale and our recently acquired properties in the Eagle Ford shale. Additionally, our activities in the Marcellus shale focused on completing our inventory of drilled locations and a limited appraisal and development program. During 2013, our capital expenditures in the Haynesville shale were focused on the development of our core area in DeSoto Parish. Due to our extensive history of development in the core DeSoto Parish area, most of the locations were reflected as discoveries and extensions in prior years. In the Eagle Ford shale, our development included both converting proved undeveloped reserves to developed as well as extensions and discoveries of locations within our core area and adjacent acreage as part of a farmout agreement. Additionally, our completion activities in the Marcellus shale resulted in additional discoveries and extensions of proved undeveloped locations offsetting the proved developed producing properties. Our finding and development costs to convert reserves to the proved developed reserves were $1.69 per Mcfe during 2013 compared to $1.60 per Mcfe during 2012. The increase from prior year was primarily attributable to higher finding and development costs per Mcfe associated with our oil properties in the Eagle Ford shale. The following table details the components of our 2013 proved developed additions: Year Ended (dollars in thousands) December 31, 2013 December 31, 2012 Development costs $ 218,353 $ 329,013 Exploration costs 38,579 3,450 Total development and $ 256,932 $ 332,463 exploration (1) Additions to proved developed reserves 152,007 207,320 (Mmcfe) (2) Finding and development costs per $ 1.69 $ 1.60 Mcfe (1) Excludes $13 million and $71 million for the years ended December 31, 2013 and 2012, respectively, of rig termination fees, field operations capital and other leasehold development costs which are not directly associated with future proved developed reserve additions. (2) Our additions to proved developed reserves include both proved undeveloped reserves converted to proved developed reserves, and unproved reserves converted to proved developed reserves. Financial Data Our consolidated balance sheets as of December31, 2013 and December31, 2012, consolidated statements of operations for the three months ended December31, 2013 and September 30, 2013 and for the year ended December31, 2013 and 2012 and consolidated statements of cash flows for the year ended December31, 2013 and 2012, are included on the following pages. We have also included reconciliations of non-GAAP financial measures referred to in this press release. EXCO will host a conference call on Wednesday, February 26, 2014 at 9:00 a.m. (Central time) to discuss the contents of this release and respond to questions. Please call (800) 309-5788 if you wish to participate, and ask for the EXCO conference call ID#43723853. The conference call will also be webcast on EXCO’s website at www.excoresources.com under the Investor Relations tab. Presentation materials related to this release will be posted, after market close, on EXCO’s website on Tuesday, February 25, 2014. A digital recording will be available starting two hours after the completion of the conference call until March 12, 2014. Please call (800) 585-8367 and enter conference ID#43723853 to hear the recording. A digital recording of the conference call will also be available on EXCO’s website. Additional information about EXCO Resources, Inc. may be obtained by contacting Chris Peracchi, EXCO’s 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. We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. We caution users of the financial statements not to place undue reliance on 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 Form10-K for the year ended December31, 2012, filed with the Securities and Exchange Commission, or the SEC, on February21, 2013 and as amended by Amendment No. 1 to Annual Report on Form 10-K/A on August 30, 2013 and after February 26, 2014 our annual Report on Form 10-K for the year ended December 31, 2013, 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, or the EXCO Resources 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. The SEC permits oil and natural gas companies in filings made with the SEC to disclose 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. The SEC permits optional disclosure of “probable” and “possible” reserves in filings with the commission. EXCO may use broader terms to describe additional reserve opportunities such as “potential,” “unproved,” or “unbooked potential,” to describe volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved, probable or possible reserves and accordingly are subject to substantially greater risk of actually being realized by the company. While we believe our calculations of unproved drillsites and estimation 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 disclosure in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February21, 2013 and as amended by Amendment No. 1 to Annual Report on Form 10-K/A on August 30, 2013, and after February 26, 2014 our Annual Report on Form 10-K for the year ended December 31, 2013 which is available on our website at www.excoresources.com under the Investor Relations tab. EXCO Resources, Inc. Consolidated Balance Sheets (in thousands) December 31, December 31, 2013 2012 Assets Current assets: Cash and cash equivalents $ 50,483 $ 45,644 Restricted cash 20,570 70,085 Accounts receivable, net: Oil and natural gas 128,352 84,348 Joint interest 70,759 69,446 Other 18,022 15,053 Inventory 3,087 5,705 Derivative financial instruments 8,226 49,500 Other 6,355 22,085 Total current assets 305,854 361,866 Equity investments 57,562 347,008 Oil and natural gas properties (full cost accounting method): Unproved oil and natural gas properties and 425,307 470,043 development costs not being amortized Proved developed and undeveloped oil and 3,554,210 2,715,767 natural gas properties Accumulated depletion (2,183,464 ) (1,945,565 ) Oil and natural gas properties, net 1,796,053 1,240,245 Gathering assets 33,473 130,830 Accumulated depreciation and amortization (10,338 ) (34,364 ) Gathering assets, net 23,135 96,466 Office, field and other equipment, net 27,204 20,725 Deferred financing costs, net 28,807 22,584 Derivative financial instruments 6,829 16,554 Goodwill 163,155 218,256 Other assets 29 28 Total assets $ 2,408,628 $ 2,323,732 EXCO Resources, Inc. Consolidated Balance Sheets (in thousands, except per share and share December 31, December 31, data) 2013 2012 Liabilities and shareholders’ equity Current liabilities: Accounts payable and accrued liabilities $ 132,188 $ 83,240 Revenues and royalties payable 154,862 134,066 Accrued interest payable 18,144 17,029 Current portion of asset retirement 191 1,200 obligations Income taxes payable — — Derivative financial instruments 11,919 2,396 Current maturities of long-term debt 31,866 — Total current liabilities 349,170 237,931 Long-term debt 1,858,912 1,848,972 Deferred income taxes — — Derivative financial instruments 9,671 26,369 Asset retirement obligations and other 42,970 61,067 long-term liabilities Commitments and contingencies — — Shareholders’ equity: Preferred stock, $0.001 par value; 10,000,000 — — authorized shares; none issued and outstanding Common stock, $0.001 par value; 350,000,000 authorized shares; 218,783,540 shares issued and 218,244,319 shares outstanding at December 215 215 31, 2013; 218,126,071 shares issued and 217,586,850 shares outstanding at December 31, 2012 Subscription rights, $0.001 par value, 54,574,734 issued and outstanding at December 55 — 31, 2013 Additional paid-in capital 3,219,748 3,200,067 Accumulated deficit (3,064,634 ) (3,043,410 ) Treasury stock, at cost; 539,221 shares at (7,479 ) (7,479 ) December 31, 2013 and December 31, 2012 Total shareholders’ equity 147,905 149,393 Total liabilities and shareholders’ equity $ 2,408,628 $ 2,323,732 EXCO Resources, Inc. Consolidated Statements of Operations Three Months Ended Year Ended December 31, (in thousands, December 31, September 30, except per share 2013 2012 data) 2013 2013 Revenues: (Unaudited) (Unaudited) Total revenues $ 180,440 $ 165,314 $ 634,309 $ 546,609 Costs and expenses: Oil and natural gas operating 18,571 17,187 61,277 77,127 costs Production and 6,668 6,074 21,971 27,483 ad valorem taxes Gathering and 26,096 26,665 100,645 102,875 transportation Depletion, depreciation and 82,580 74,499 245,775 303,156 amortization Impairment of oil and natural 97,839 — 108,546 1,346,749 gas properties Accretion of discount on 649 619 2,514 3,887 asset retirement obligations General and 25,383 21,937 91,878 83,818 administrative (Gain) loss on divestitures and 1,985 2,739 (177,518 ) 17,029 other operating items Total costs and 259,771 149,720 455,088 1,962,124 expenses Operating income (79,331 ) 15,594 179,221 (1,415,515 ) (loss) Other income (expense): Interest (30,818 ) (36,474 ) (102,589 ) (73,492 ) expense, net Gain (loss) on derivative (19,495 ) 7,443 (320 ) 66,133 financial instruments Other income (1,168 ) 94 (828 ) 969 (expense) Equity income 7,949 (85,308 ) (53,280 ) 28,620 (loss) Total other (43,532 ) (114,245 ) (157,017 ) 22,230 income (expense) Income (loss) before income (122,863 ) (98,651 ) 22,204 (1,393,285 ) taxes Income tax — — — — expense Net income $ (122,863 ) $ (98,651 ) $ 22,204 $ (1,393,285 ) (loss) Earnings (loss) per common share: Basic: Net income $ (0.57 ) $ (0.46 ) $ 0.10 $ (6.50 ) (loss) Weighted average common shares 215,410 215,056 215,011 214,321 outstanding Diluted: Net income $ (0.57 ) $ (0.46 ) $ 0.10 $ (6.50 ) (loss) Weighted average common shares and common share 215,410 215,056 230,912 214,321 equivalents outstanding EXCO Resources, Inc. Consolidated Statements of Cash Flows Year Ended December 31, (in thousands) 2013 2012 Operating Activities: Net income (loss) $ 22,204 $ (1,393,285 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization 245,775 303,156 Share-based compensation expense 10,748 8,926 Accretion of discount on asset retirement 2,514 3,887 obligations Impairment of oil and natural gas properties 108,546 1,346,749 (Income) loss from equity investments 53,280 (28,620 ) (Gain) loss on derivative financial 320 (66,133 ) instruments Cash settlements of derivative financial 42,119 202,078 instruments Deferred income taxes — — Amortization of deferred financing costs and 29,624 9,788 discount on debt issuance (Gain) loss on divestitures and other (185,163 ) 1,303 non-operating items Effect of changes in: Accounts receivable (46,176 ) 112,919 Other current assets 9,627 7,090 Accounts payable and other current liabilities 57,216 6,928 Net cash provided by operating activities 350,634 514,786 Investing Activities: Additions to oil and natural gas properties, (320,538 ) (534,175 ) gathering assets and equipment Property acquisitions (976,714 ) (2,748 ) Proceeds from disposition of property and 749,628 38,045 equipment Equity method investments 236,289 (14,907 ) Restricted cash 49,515 85,840 Net changes in advances to joint ventures 10,645 851 Other (1,303 ) — Net cash used in investing activities (252,478 ) (427,094 ) Financing Activities: Borrowings under credit agreements 1,004,523 53,000 Repayments under credit agreements (1,022,785 ) (93,000 ) Proceeds from issuance of common stock 1,712 1,968 Payment of common stock dividends (43,214 ) (34,358 ) Deferred financing costs and other (33,553 ) (1,655 ) Net cash used in financing activities (93,317 ) (74,045 ) Net increase (decrease) in cash 4,839 13,647 Cash at beginning of period 45,644 31,997 Cash at end of period $ 50,483 $ 45,644 Supplemental Cash Flow Information: Cash interest payments $ 88,936 $ 86,298 Income tax payments — — Supplemental non-cash investing and financing activities: Capitalized share-based compensation $ 7,288 $ 7,513 Capitalized interest 18,729 23,809 Issuance of common stock for director services 93 597 Accrued restricted stock dividends 214 300 EXCO/HGI Partnership debt upon formation, net 58,613 — Issuance of subscription rights 55 — EXCO Resources, Inc. Consolidated EBITDA And Adjusted EBITDA Reconciliations and Statement of Cash Flow Data (Unaudited) Three Months Ended December 31, September 30, (in thousands) 2013 2012 2013 2013 Net income $ (122,863 ) $ (98,651 ) $ 22,204 $ (1,393,285 ) (loss) Interest expense 30,818 36,474 102,589 73,492 Income tax — — — — expense Depletion, depreciation and 82,580 74,499 245,775 303,156 amortization EBITDA(1) $ (9,465 ) $ 12,322 $ 370,568 $ (1,016,637 ) Accretion of discount on 649 619 2,514 3,887 asset retirement obligations Impairment of oil and natural 97,839 — 108,546 1,346,749 gas properties (Gain) loss on divestitures and other items 8,143 2,653 (170,550 ) 17,928 impacting comparability Equity (income) (7,949 ) 85,308 53,280 (28,620 ) loss Net (gains) losses on derivative 19,495 (7,443 ) 320 (66,133 ) financial instruments Cash settlements on derivative 13,703 10,904 42,119 202,078 financial instruments Share based compensation 1,255 3,170 10,748 8,926 expense Adjusted EBITDA $ 123,670 $ 107,533 $ 417,545 $ 468,178 (1) Interest expense (30,818 ) (36,474 ) (102,589 ) (73,492 ) Income tax — — — — expense Amortization of deferred 7,184 15,843 29,624 9,788 financing costs and discount Deferred income — — — — taxes Other operating items impacting (6,840 ) (2,769 ) (14,613 ) (16,625 ) comparability Changes in 34,067 (31,994 ) 20,667 126,937 working capital Net cash provided by $ 127,263 $ 52,139 $ 350,634 $ 514,786 operating activities EXCO Resources, Inc. Consolidated EBITDA And Adjusted EBITDA Reconciliations and Statement of Cash Flow Data (Unaudited) Three Months Ended (in December 31, September 30, thousands) 2013 2012 2013 2013 Statement of cash flow data: Cash flow provided by (used in): Operating $ 127,263 $ 52,139 $ 350,634 $ 514,786 activities Investing 146,114 (881,644 ) (252,478 ) (427,094 ) activities Financing (256,387 ) 815,749 (93,317 ) (74,045 ) activities Other financial and operating data: EBITDA(1) $ (9,465 ) $ 12,322 $ 370,568 $ (1,016,637 ) Adjusted 123,670 107,533 417,545 468,178 EBITDA(1) (1) Earnings before interest, taxes, depreciation, depletion and amortization, or “EBITDA” represents net income adjusted to exclude interest expense, income taxes and depreciation, depletion and amortization.“Adjusted EBITDA” represents EBITDA adjusted to exclude other operating items impacting comparability, accretion of discount on asset retirement obligations, non-cash changes in the fair value of derivatives, non-cash write-downs of assets, stock-based compensation and income or losses from equity method investments. We have presented EBITDA and Adjusted EBITDA because they are a widely used measure by investors, analysts and rating agencies for valuations, peer comparisons and investment recommendations.In addition, these measures are used in covenant calculations required under our credit agreement and the indenture governing our 7.5% senior notes due September 15, 2018.Compliance with the liquidity and debt incurrence covenants included in these agreements is considered material to us.Our computations of EBITDA and Adjusted EBITDA may differ from computations of similarly titled measures of other companies due to differences in the inclusion or exclusion of items in our computations as compared to those of others.EBITDA and Adjusted EBITDA are measures that are not prescribed by generally accepted accounting principles, or GAAP.EBITDA and Adjusted EBITDA specifically exclude changes in working capital, capital expenditures and other items that are set forth on a cash flow statement presentation of a company’s operating, investing and financing activities.As such, we encourage investors not to use these measures as substitutes for the determination of net income, net cash provided by operating activities or other similar GAAP measures. EXCO Resources, Inc. Consolidated Adjusted Net Income and Adjusted Net Income Reconciliations (Unaudited) Three Months Ended Year Ended December 31, 2013 September 30, 2013 December 31, 2013 December 31, 2012 (in thousands, Per Per Per Per except per Amount Amount Amount Amount share share share share share amounts) Net income $ (122,863 ) $ (98,651 ) $ 22,204 $ (1,393,285 ) (loss), GAAP Adjustments: Total net (gain) loss 19,495 (7,443 ) 320 (66,133 ) on derivatives Cash receipts on derivative 13,703 10,904 42,119 202,078 financial instruments Impairment of oil and 97,839 — 108,546 1,346,749 natural gas properties Adjustments included in (4,736 ) 94,580 90,214 27,088 equity (income) loss (Gain) loss on divestitures and other 8,143 2,653 (170,550 ) 17,928 items impacting comparability Deferred finance cost 4,256 13,183 20,974 3,000 amortization acceleration Income taxes on above (55,480 ) (45,551 ) (36,649 ) (612,284 ) adjustments (1) Adjustment to deferred tax asset 49,145 39,460 (8,882 ) 557,314 valuation allowance (2) Total adjustments, 132,365 107,786 46,092 1,475,740 net of taxes Adjusted net $ 9,502 $ 9,135 $ 68,296 $ 82,455 income Net income (loss), GAAP $ (122,863 ) $ (0.57 ) $ (98,651 ) $ (0.46 ) $ 22,204 $ 0.10 $ (1,393,285 ) $ (6.50 ) (3) Adjustments shown above 132,365 0.61 107,786 0.50 46,092 0.20 1,475,740 6.88 (3) Dilution attributable to share-based — — — — — — — — payments and rights outstanding (4) Adjusted net $ 9,502 $ 0.04 $ 9,135 $ 0.04 $ 68,296 $ 0.30 $ 82,455 $ 0.38 income Common stock and equivalents used for earnings per share (EPS): Weighted average 215,410 215,056 215,011 214,321 common shares outstanding Dilutive — 274 — — stock options Dilutive restricted 327 902 420 — shares Dilutive subscription 7,118 — 15,481 — rights Shares used to compute diluted EPS 222,855 216,232 230,912 214,321 for adjusted net income (1)The assumed income tax rate is 40% for all periods. (2) Deferred tax valuation allowance has been adjusted to reflect the assumed income tax rate of 40% for all periods. (3) Per share amounts are based on weighted average number of common shares outstanding. (4) Represents dilution per share attributable to common share equivalents from in-the-money stock options, dilutive restricted shares and subscription rights calculated in accordance with the treasury stock method. EXCO Resources, Inc. Consolidated Cash Flow from Operations before Working Capital Changes and Other Operating Items Impacting Comparability and Reconciliations (Unaudited) Three Months Ended December 31, September 30, (in thousands) 2013 2012 2013 2013 Cash flow from operations, $ 127,263 $ 52,139 $ 350,634 $ 514,786 GAAP Net change in (34,067 ) 31,994 (20,667 ) (126,937 ) working capital Other operating items impacting 6,840 2,769 14,613 16,625 comparability Cash flow from operations before changes in working capital and $ 100,036 $ 86,902 $ 344,580 $ 404,474 other operating items impacting comparability, non-GAAP measure (1) (1) Cash flow from operations before working capital changes and other operating items impacting comparability is presented because management believes it is a useful financial indicator for companies in our industry. This non-GAAP disclosure is widely accepted as a measure of an oil and natural gas company’s ability to generate cash used to fund development and acquisition activities and service debt or pay dividends. Cash flow from operations before changes in working capital is not a measure of financial performance pursuant to GAAP and should not be used as an alternative to cash flows from operating, investing, or financing activities. Other operating items impacting comparability have been excluded as they do not reflect our on-going operating activities. EXCO Resources, Inc. Summary of Operating Data (Unaudited) Three Months Ended % Year Ended December % 31, December September 31, 30, Change 2013 2012 Change 2013 2013 Production: Oil (Mbbls) 653 383 70 % 1,188 704 69 % Natural gas 65 53 23 % 243 510 (52 )% liquids (Mbbls) Natural gas 36,765 39,268 (6 )% 153,321 182,644 (16 )% (Mmcf) Total production 41,073 41,884 (2 )% 161,907 189,928 (15 )% (Mmcfe) (1) Average daily production 446 455 (2 )% 444 519 (14 )% (Mmcfe) Average sales price (before cash settlements of derivative financial instruments): Oil (per Bbl) $ 90.79 $ 102.60 (12 )% $ 93.80 $ 88.24 6 % Natural gas liquids (per 35.51 32.04 11 % 35.23 43.27 (19 )% Bbl) Natural gas 3.23 3.17 2 % 3.35 2.53 32 % (per Mcf) Natural gas equivalent (per 4.39 3.95 11 % 3.92 2.88 36 % Mcfe) Costs and expenses (per Mcfe): Oil and natural gas operating $ 0.45 $ 0.41 10 % $ 0.38 $ 0.41 (7 )% costs Production and ad valorem 0.16 0.15 7 % 0.14 0.14 — % taxes Gathering and 0.64 0.64 — % 0.62 0.54 15 % transportation Depletion 1.97 1.74 13 % 1.47 1.52 (3 )% Depreciation and 0.04 0.04 — % 0.05 0.08 (38 )% amortization General and 0.62 0.52 19 % 0.57 0.44 30 % administrative Selected Pro Forma Financial Information (Unaudited) The EXCO/HGI Partnership was formed on February 14, 2013, which resulted in the reduction of our economic interest in certain oil and natural gas properties contributed to the partnership. On March 5, 2013, the EXCO/HGI Partnership purchased the remaining shallow Cotton Valley assets from an affiliate of BG Group, plc. During the third quarter of 2013, we closed the acquisitions of oil and natural gas properties in the Haynesville and Eagle Ford shale formations from Chesapeake. The following table presents selected pro forma operating and financial information for the years ended December 31, 2013 and 2012 as if these transactions had occurred on January 1, 2012. The pro forma information is not necessarily indicative of what actually would have occurred if the transactions had been completed as of January 1, 2012, nor is it necessarily indicative of future consolidated results of operations. Year ended December 31, 2013 EXCO/HGI Chesapeake (dollars in Historical Partnership pro Properties thousands, pro Pro forma except per unit EXCO forma EXCO rate) forma adjustments adjustments Production: Total production 161,907 (2,705 ) 27,279 186,481 (Mmcfe) Average production 444 (7 ) 75 512 (Mmcfe/d) Revenues: Oil and natural $ 634,309 $ (12,657 ) $ 150,319 $ 771,971 gas revenues Average realized 3.92 4.68 5.51 4.14 price ($/Mcfe) Expenses: Direct operating 61,277 (3,489 ) 22,564 80,352 costs Per Mcfe 0.38 1.29 0.83 0.43 Production and 21,971 (1,545 ) 5,965 26,391 ad valorem taxes Per Mcfe 0.14 0.57 0.22 0.14 Gathering and transportation 100,645 (782 ) — 99,863 (1) Per Mcfe 0.62 0.29 — 0.54 Excess of revenues over $ 450,416 $ (6,841 ) $ 121,790 $ 565,365 operating expenses Year ended December 31, 2012 EXCO/HGI Chesapeake (dollars in Historical Partnership pro Properties Pro forma thousands, pro except per unit EXCO forma EXCO rate) forma adjustments adjustments Production: Total production 189,928 (25,077 ) 46,414 211,265 (Mmcfe) Average production 519 (69 ) 127 577 (Mmcfe/d) Revenues: Oil and natural $ 546,609 $ (111,276 ) $ 168,677 $ 604,010 gas revenues Average realized 2.88 4.44 3.63 2.86 price ($/Mcfe) Expenses: Direct operating 77,127 (29,081 ) 28,173 76,219 costs Per Mcfe 0.41 1.16 0.61 0.36 Production and 27,483 (13,379 ) 9,217 23,321 ad valorem taxes Per Mcfe 0.14 0.53 0.20 0.11 Gathering and transportation 102,875 (7,892 ) — 94,983 (1) Per Mcfe 0.54 0.31 — 0.45 Excess of revenues over $ 339,124 $ (60,924 ) $ 131,287 $ 409,487 operating expenses (1) The oil and natural gas revenues for the Chesapeake Properties are presented net of gathering and treating expenses. Selected Pro Forma Financial Information (Unaudited) The following table presents information relating to our liquidity as of December31, 2013 as well as on a pro forma basis as if the closing of the Rights Offering had occurred on December 31, 2013. The pro forma information is not considered to be complete and excludes the impact of all other transactions subsequent to December 31, 2013. (in thousands) December 31, 2013 Pro forma Cash (1)(2) $ 66,518 $ 66,518 Revolving credit facility under the EXCO 735,000 490,992 Resources Credit Agreement Asset sale requirement under the EXCO Resources 28,866 — Credit Agreement Term loan under the EXCO Resources Credit 298,500 298,500 Agreement (3) 2018 Notes (4) 750,000 750,000 Total debt (5) $ 1,812,366 $ 1,539,492 Net debt $ 1,745,848 $ 1,472,974 Borrowing base (6) $ 1,228,866 $ 1,200,000 Unused borrowing base $ 158,112 $ 402,120 (7) Unused borrowing base $ 224,630 $ 468,638 plus cash (1)(7) (1)Includes restricted cash of $20.6 million at December31, 2013. (2)Excludes our proportionate share of cash related to the EXCO/HGI Partnership of $4.5 million at December31, 2013. (3)Excludes unamortized discount of $2.8 million at December31, 2013. (4)Excludes unamortized discount of $7.3 million at December31, 2013. (5)Excludes our proportionate share of the debt related to the EXCO/HGI Partnership of $88.5 million as of December31, 2013. (6)Includes the borrowing base for the revolving commitment and term loan under the EXCO Resources Credit Agreement. (7)Net of $6.9 million in letters of credit and $1.5 million in repayments under the term loan as of December31, 2013. Contact: EXCO Resources, Inc. Chris Peracchi, 214-368-2084 Director of Finance and Investor Relations and Treasurer www.excoresources.com
EXCO Resources, Inc. Reports Fourth Quarter and Full Year 2013 Results
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