Harbinger Group Inc. ("HGI" or the "Company"; NYSE: HRG) today announced a joint venture with EXCO Resources, Inc. (“EXCO”; NYSE: XCO) to create a private oil and gas limited partnership (the “Partnership”) that will purchase and operate EXCO’s producing U.S. conventional oil and gas assets, for a total consideration of $725 million.
Under the terms of the agreement, the Partnership will own EXCO’s conventional oil and natural gas assets in West Texas including and above the Canyon Sand formation as well as in the Danville, Waskom, Holly and Vernon fields in East Texas and North Louisiana. The more than 520 billion cubic feet equivalent (Bcfe) of estimated proved reserves are approximately 82% proved developed producing, with long-lived and predictable production profiles. Approximately 84% of the reserves are natural gas (55% of current revenues), 8% are oil (35% of current revenues), and 8% are natural gas liquids (10% of current revenues). The assets include about 1,400 producing wells and approximately 124,000 net leasehold acres, of which 91% are held by production. Additionally, EXCO and HGI intend to opportunistically add incremental cash flow to the Partnership through the acquisition of other mature, conventional assets over time.
"This is an exciting transaction for HGI that adds a long-life, proven conventional oil and gas business with strong cash flows to our group of diversified businesses,” said HGI's President, Omar Asali. “We believe this deal will create long-term value by anchoring our new energy operating business with a long-duration gas asset at a time when natural gas is trading near historically-low levels. Our permanent capital structure enables us to take a long-term view on the value of natural gas, while we benefit from reliable cash streams from conservatively-hedged producing wells. The cash flow from the Partnership, together with dividends from our other operating subsidiaries, is expected to comfortably exceed $100 million and more than cover HGI’s existing annual interest and dividend payments. At the same time, we expect the Partnership will retain ample cash flow to reinvest in the business, maintain production and position it for further growth.”