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EXCO Resources, Inc. Reports Third Quarter 2012 Results

Stock quotes in this article: XCO

TGGT's capital spending for the third quarter of 2012 was $11 million and total capital spending for the first nine months of 2012 was $108 million. We expect TGGT will spend approximately $24 million during the fourth quarter 2012. The additional capital spending will be primarily in the Holly area and legacy East Texas areas associated with pipeline laterals, permanent treating facilities and well connects for third party producers.

Financial Data

Our consolidated balance sheets as of September 30, 2012 and December 31, 2011 and consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, and consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011, are included on the following pages. We have also included reconciliations of non-GAAP financial measures referred to in this press release which have not been previously reconciled.

EXCO will host a conference call on Tuesday, October 30, 2012 at 8:00 a.m. (Dallas 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# 30479650. 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 Monday, October 29, 2012.

A digital recording will be available starting two hours after the completion of the conference call until 11:59 p.m., November 13, 2012. Please call (800) 585-8367 and enter conference ID# 30479650 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 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 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. You are cautioned not to place undue reliance on a forward-looking statement. When considering our forward-looking statements, keep in mind the risk factors and other cautionary statements in this press release and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2011, and our other periodic filings with the SEC.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for oil and natural gas. A decline in oil and/or natural gas prices could have a material adverse effect on the estimated value and estimated quantities of our oil and natural gas reserves, our ability to fund our operations and our financial condition, cash flow, results of operations and access to capital. 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 its filings with the SEC. 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, 2011, which is available on our website at www.excoresources.com under the Investor Relations tab.

       

EXCO Resources, Inc.

Consolidated balance sheets

 
(in thousands) September 30, 2012 December 31, 2011
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 73,553 $ 31,997
Restricted cash 67,306 155,925
Accounts receivable, net:
Oil and natural gas 63,443 88,518
Joint interest 58,886 170,918
Other 31,755 28,488
Inventory 6,591 8,345
Derivative financial instruments 57,997 164,002
Other 17,098   29,815  
Total current assets 376,629   678,008  
Equity investments 336,495 302,833
Oil and natural gas properties (full cost accounting method):
Unproved oil and natural gas properties and development costs not being amortized 546,477 667,342
Proved developed and undeveloped oil and natural gas properties 2,852,748 3,392,146
Accumulated depletion (1,893,294 ) (1,657,165 )
Oil and natural gas properties, net 1,505,931   2,402,323  
Gas gathering assets 130,792 136,203
Accumulated depreciation and amortization (32,818 ) (29,104 )
Gas gathering assets, net 97,974   107,099  
Office, field and other equipment, net 22,422 42,384
Deferred financing costs, net 23,938 29,622
Derivative financial instruments 8,391 11,034
Goodwill 218,256 218,256
Other assets 28   28  
Total assets $ 2,590,064   $ 3,791,587  
       

EXCO Resources, Inc.

Consolidated balance sheets

 
(in thousands, except share data) September 30, 2012 December 31, 2011
(Unaudited)
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities $ 96,888 $ 117,968
Revenues and royalties payable 118,027 148,926
Accrued interest payable 3,233 17,973
Current portion of asset retirement obligations 732 732
Income taxes payable
Derivative financial instruments 2,948   1,800  
Total current liabilities 221,828   287,399  
Long-term debt 1,848,678 1,887,828
Deferred income taxes
Derivative financial instruments 34,542
Asset retirement obligations and other long-term liabilities 61,093 58,028
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; 217,154,647 shares issued and 216,615,426 shares outstanding at September 30, 2012; 217,245,504 shares issued and 216,706,283 shares outstanding at December 31, 2011 215 215
Additional paid-in capital 3,196,871 3,181,063
Accumulated deficit (2,765,684 ) (1,615,467 )
Treasury stock, at cost; 539,221 shares at September 30, 2012 and December 31, 2011 (7,479 ) (7,479 )
Total shareholders’ equity 423,923   1,558,332  
Total liabilities and shareholders’ equity $ 2,590,064   $ 3,791,587  
       

EXCO Resources, Inc.

Consolidated statements of operations

(Unaudited)

 

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except per share data) 2012     2011 2012     2011
Revenues:
Oil and natural gas $ 141,621 $ 207,274 $ 394,447 $ 575,330
Costs and expenses:
Oil and natural gas operating costs 17,425 21,101 59,084 60,843
Production and ad valorem taxes 6,689 6,653 20,671 18,700
Gathering and transportation 25,847 22,279 78,183 59,069
Depreciation, depletion and amortization 70,589 100,491 247,508 253,833
Write-down of oil and natural gas properties 318,044 1,022,709
Accretion of discount on asset retirement obligations 985 938 2,896 2,728
General and administrative 22,052 29,875 62,194 76,435
Other operating items 1,011   21,045   9,346   25,171  
Total costs and expenses 462,642   202,382   1,502,591   496,779  
Operating income (loss) (321,021 ) 4,892 (1,108,144 ) 78,551
Other income (expense):
Interest expense (17,935 ) (15,090 ) (55,068 ) (43,585 )
Gain (loss) on derivative financial instruments (20,261 ) 84,284 18,346 130,978
Other income 149 193 589 555
Equity income 12,894   10,666   20,021   22,749  
Total other income (expense) (25,153 ) 80,053   (16,112 ) 110,697  
Income (loss) before income taxes (346,174 ) 84,945 (1,124,256 ) 189,248
Income tax expense        
Net income (loss) $ (346,174 ) $ 84,945   $ (1,124,256 ) $ 189,248  
Earnings (loss) per common share:
Basic:
Net income (loss) $ (1.62 ) $ 0.40   $ (5.25 ) $ 0.89  
Weighted average common shares outstanding 214,301   214,068   214,204   213,831  
Diluted:
Net income (loss) $ (1.62 ) $ 0.39   $ (5.25 ) $ 0.87  
Weighted average common and common equivalent shares outstanding 214,301   216,314   214,204   217,167  
 

EXCO Resources, Inc.

Consolidated statement of cash flows

(Unaudited)

 
Nine Months Ended September 30,
(in thousands) 2012   2011
Operating Activities:
Net income (loss) $ (1,124,256 ) $ 189,248
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization 247,508 253,833
Share-based compensation expense 8,072 7,537
Accretion of discount on asset retirement obligations 2,896 2,728
Write-down of oil and natural gas properties and other impairment losses on long-lived assets 1,022,709 6,800
Income from equity investments (20,021 ) (22,749 )
Non-cash change in fair value of derivatives 144,339 (47,888 )
Deferred income taxes
Amortization of deferred financing costs and discount on the 2018 Notes 8,111 6,318
(Gain) loss on divestitures and sale of other assets 1,103 (1,071 )
Effect of changes in:
Accounts receivable 133,537 (82,803 )
Other current assets 6,019 (6,397 )
Accounts payable and other current liabilities (15,240 ) 49,778  
Net cash provided by operating activities 414,777   355,334  
Investing Activities:
Additions to oil and natural gas properties, gathering systems and equipment (409,616 ) (754,493 )
Property acquisitions (2,748 ) (737,357 )
Equity method investments (12,997 ) (13,969 )
Proceeds from disposition of property and equipment 22,640 428,332
Restricted cash 88,619 44,378
Net changes in advances (to) from Appalachia JV 6,849 3,306
Distributions from equity method investments 125,000
Deposit on acquisitions 464,151
Other   (5,750 )
Net cash used in investing activities (307,253 ) (446,402 )
Financing Activities:
Borrowings under the EXCO Resources Credit Agreement 53,000 521,000
Repayments under the EXCO Resources Credit Agreement (93,000 ) (397,500 )
Proceeds from issuance of common stock 1,397 11,776
Payment of common stock dividends (25,740 ) (25,673 )
Deferred financing costs and other (1,625 ) (6,346 )
Net cash provided by (used in) financing activities (65,968 ) 103,257  
Net increase in cash 41,556 12,189
Cash at beginning of period 31,997   44,229  
Cash at end of period $ 73,553   $ 56,418  
 
Supplemental Cash Flow Information:
Cash interest payments $ 78,447   $ 70,758  
Income tax payments $   $ 1,458  
Supplemental non-cash investing and financing activities:
Capitalized share-based compensation $ 5,778   $ 4,309  
Capitalized interest $ 18,492   $ 23,155  
Issuance of common stock for director services $ 561   $ 50  
Accrued restricted stock dividends $ 221   $  
     

EXCO Resources, Inc.

Consolidated EBITDA

And Adjusted EBITDA reconciliations and statement of cash flow data

(Unaudited)

 
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2012       2011 2012   2011
Net income (loss) $ (346,174 ) $ 84,945 $ (1,124,256 ) $ 189,248
Interest expense 17,935 15,090 55,068 43,585
Income tax expense
Depreciation, depletion and amortization   70,589     100,491     247,508     253,833  
EBITDA(1) (257,650 ) 200,526 (821,680 ) 486,666
Accretion of discount on asset retirement obligations 985 938 2,896 2,728
Non-cash write down of oil and natural gas properties 318,044 1,022,709
Non-recurring other operating items 1,103 21,587 9,728 27,542
Equity income (12,894 ) (10,666 ) (20,021 ) (22,749 )
Non-cash change in fair value of derivative financial instruments 70,986 (51,346 ) 144,339 (47,888 )
Stock based compensation expense   2,617     2,450     8,072     7,537  
Adjusted EBITDA (1) $ 123,191 $ 163,489 $ 346,043 $ 453,836
Interest expense (17,935 ) (15,090 ) (55,068 ) (43,585 )
Income tax expense
Amortization of deferred financing costs and discount on the 2018 Notes 1,671 2,571 8,111 6,318
Deferred income taxes
Non-recurring other operating items (15,858 ) (8,625 ) (21,813 )
Changes in working capital   27,382     (7,811 )   124,316     (39,422 )
Net cash provided by operating activities $ 134,309   $ 127,301   $ 414,777   $ 355,334  
 
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands)   2012     2011     2012     2011  
Statement of cash flow data (unaudited):
Cash flow provided by (used in):
Operating activities $ 134,309 $ 127,301 $ 414,777 $ 355,334
Investing activities (105,642 ) (249,217 ) (307,253 ) (446,402 )
Financing activities (7,510 ) 113,148 (65,968 ) 103,257
Other financial and operating data:
EBITDA(1) (257,650 ) 200,526 (821,680 ) 486,666
Adjusted EBITDA(1) 123,191 163,489 346,043 453,836
 

(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 non-recurring other operating items, 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.

         

TGGT Holdings, LLC

EBITDA and Adjusted EBITDA reconciliation

(Unaudited)

 
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2012     2011 2012     2011
 
Equity income (loss) $ 12,894 $ 10,666 $ 20,021 $ 22,749
Amortization of the difference in the historical basis of our contribution to TGGT (402 ) (402 ) (1,206 ) (1,206 )
Equity (gain) loss of other investments (1,309 ) (574 ) 1,285   56  
EXCO's share of TGGT net income 11,183 9,690 20,100 21,599
BG Group's share of TGGT net income 11,183   9,690   20,100   21,599  
TGGT net income 22,366 19,380 40,200 43,198
Interest expense 5,356 2,302 11,913 6,169
Margin tax expense 32 399 300 1,118
Depreciation and amortization 8,967   6,769   23,790   19,001  
TGGT EBITDA(1) 36,721 28,850 76,203 69,486
Asset impairments and non-recurring other operating items 5,767   (167 ) 43,365   13,293  
TGGT Adjusted EBITDA(1) $ 42,488   $ 28,683   $ 119,568   $ 82,779  
EXCO's share of TGGT Adjusted EBITDA (2) $ 21,244   $ 14,342   $ 59,784   $ 41,390  
 

(1)

Earnings before interest, taxes, depreciation, depletion and amortization, or “EBITDA” represents net income adjusted to exclude interest expense, income taxes and depreciation and amortization. “Adjusted EBITDA” represents EBITDA adjusted to exclude asset impairments, gains and losses on divestitures and non-recurring other operating items. 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. 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.

 

(2)

Represents our 50% equity share in TGGT.

 
       

 

TGGT Holdings, LLC

Computation of adjusted net income

(Unaudited)

 
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2012     2011 2012     2011
Net income, GAAP $ 22,366 $ 19,380 $ 40,200 $ 43,198
Adjustments:
Loss on asset disposal 241 50 1,640 1,415
Asset impairment, net of insurance recoveries 4,618 (2,917 ) 39,961 9,178
Other non-cash items 908 2,700 1,764 2,700
Income taxes on above adjustments      
Total adjustments, net of taxes 5,767   (167 ) 43,365   13,293
Adjusted net income $ 28,133   $ 19,213   $ 83,565   $ 56,491
 
EXCO's 50% share of TGGT's adjusted net income (1) $ 14,067   $ 9,607   $ 41,783   $ 28,246
 

(1)

TGGT’s net income, computed in accordance with GAAP, includes certain items not typically included by securities analysts in published estimates of financial results.  This table provides a reconciliation of GAAP net income to a non-GAAP measure of adjusted net income.

 
                 

EXCO Resources, Inc.

Summary of operating data

 
Three Months Ended Nine Months Ended
September 30, % September 30, %
  2012   2011 Change 2012     2011 Change
Production:
Oil (Mbbls) 170 182 (7 )% 544 553 (2 )%
Natural gas liquids (Mbbls) 129 131 (2 )% 382 379 1 %
Natural gas (Mmcf) 45,330 48,178 (6 )% 140,484 127,395 10 %
Total production (Mmcfe) (1) 47,124 50,056 (6 )% 146,040 132,987 10 %
Average daily production (Mmcfe) 512 544 (6 )% 533 487 9 %
Average sales price (before cash settlements of derivative financial instruments):
Oil (per Bbl) $ 86.87 $ 85.69 1 % $ 90.33 $ 91.53 (1 )%
Natural gas liquids (per Bbl) 38.64 59.93 (36 )% 43.71 57.94 (25 )%
Natural gas (per Mcf) 2.69 3.82 (30 )% 2.34 3.95 (41 )%
Natural gas equivalent (per Mcfe) 3.01 4.14 (27 )% 2.70 4.33 (38 )%
Costs and expenses (per Mcfe):
Oil and natural gas operating costs $ 0.37 $ 0.42 (12 )% $ 0.40 $ 0.46 (13 )%
Production and ad valorem taxes 0.14 0.13 8 % 0.14 0.14 %
Gathering and transportation 0.55 0.45 22 % 0.54 0.44 23 %
Depletion 1.42 1.92 (26 )% 1.62 1.80 (10 )%
Depreciation and amortization 0.07 0.09 (22 )% 0.08 0.10 (20 )%
General and administrative 0.47 0.60 (22 )% 0.43 0.57 (25 )%
 

(1)

Effective with the second quarter 2012, we began reporting NGL volumes separately and have recast prior period volumes to conform to current period reporting.

 




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