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EXCO Resources, Inc. Reports Third Quarter 2012 Results

Stocks in this article: XCO

"We are encouraged by recent strengthening in gas prices. Since September 27, 2012, we added approximately 110 Mmcf per day of swaps for 2013 at an average price of $3.94 per Mmbtu and also added additional swaps for 2014 and 2015 at prices in excess of $4.20 per Mmbtu.

"We are finalizing the redetermination of our borrowing base and expect the October 2012 redetermination will result in a $1.3 billion borrowing base. We continue to review monetization and joint venture opportunities on our conventional and midstream assets and also are reviewing a number of acquisition opportunities in the currently active producing property market."

Net income

Our reported net income (loss) shown below, a GAAP measure, includes certain items not typically included by securities analysts in their published estimates of financial results. The following table provides a reconciliation of our net income (loss) to the non-GAAP measure of adjusted net income:

      Three Months Ended     Nine Months Ended
September 30, 2012     September 30, 2011 September 30, 2012     September 30, 2011
(in thousands, except per share amounts) Amount    

Per

share

Amount    

Per

share

Amount    

Per

share

Amount    

Per

share

Net income (loss), GAAP $ (346,174 ) $ 84,945 $ (1,124,256 ) $ 189,248
Adjustments:
Non-cash mark-to-market (gains) losses on derivative financial instruments, before taxes 70,986 (51,346 ) 144,339 (47,888 )
Non-cash write down of oil and natural gas properties, before taxes 318,044 1,022,709
Adjustments included in equity income 2,884 21,683
Non-recurring other operating items 1,103 21,587 9,728 27,542
Deferred finance cost amortization acceleration 3,000
Income taxes on above adjustments (1) (157,207 ) 11,904 (480,584 ) 8,139
Adjustment to deferred tax asset valuation allowance (2) 138,470   (33,978 ) 449,702   (75,699 )
Total adjustments, net of taxes 374,280   (51,833 ) 1,170,577   (87,906 )
Adjusted net income $ 28,106   $ 33,112   $ 46,321   $ 101,342  
 
Net income (loss), GAAP (3) $ (346,174 ) $ (1.62 ) $ 84,945 $ 0.40 $ (1,124,256 ) $ (5.25 ) $ 189,248 $ 0.89
Adjustments shown above (3) 374,280 1.75 (51,833 ) (0.24 ) 1,170,577 5.47 (87,906 ) (0.41 )
Dilution attributable to stock options (4)     (0.01 )   (0.01 )
Adjusted net income $ 28,106   $ 0.13   $ 33,112   $ 0.15   $ 46,321   $ 0.22   $ 101,342   $ 0.47  
 
Common stock and equivalents used for earnings per share (EPS):
Weighted average common shares outstanding 214,301 214,068 214,204 213,831
Dilutive stock options   2,246     3,336  
Shares used to compute diluted EPS for adjusted net income 214,301   216,314   214,204   217,167  
 

(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 stock equivalents from in-the-money stock options.

 

Cash flow

Our cash flow from operations before changes in working capital was $107 million for the third quarter 2012. We use our cash flow and available borrowing capacity in our credit agreement to fund our drilling and development programs.

         
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2012     2011 2012     2011
Cash flow from operations, GAAP $ 134,309 $ 127,301 $ 414,777 $ 355,334
Net change in working capital (27,382 ) 7,811 (124,316 ) 39,422
Non-recurring other operating items   15,858   8,625   21,813
Cash flow from operations before changes in working capital and non-recurring other operating items, non-GAAP measure (1) $ 106,927   $ 150,970   $ 299,086   $ 416,569
 

(1)

Cash flow from operations before working capital changes and non-recurring other operating items are 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.  Operating cash flow 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. Non-recurring other operating items have been excluded as they do not reflect our on-going operating activities.

 

Operations activity and outlook

We spent $88 million on development and exploitation activities, drilling and completing 38 gross (18.2 net) operated wells in the third quarter 2012, compared with 36 gross (19.6 net) operated wells during the second quarter 2012. In addition, we participated in 2 gross (0.2 net) wells operated by others (OBO) during the third quarter 2012. We had an overall drilling success rate of 97% for the third quarter 2012. Our total capital expenditures, including leasing and net of acreage reimbursements from BG Group, were approximately $99 million in the third quarter 2012.

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