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EXCO Resources, Inc. (NYSE: XCO) (“EXCO”) today announced third quarter results for 2013.
Adjusted net income, a non-GAAP measure, was $0.04 per diluted share for the third quarter 2013 compared with $0.13 per diluted share for the third quarter 2012. The non-GAAP adjustments include gains from asset sales, non-cash gains or losses from derivative financial instruments, non-cash ceiling test write-downs, asset impairments and other items typically not included by securities analysts in published estimates.
Adjusted EBITDA for the third quarter 2013 was $108 million compared with $123 million for the third quarter 2012. Adjusted EBITDA increased to $108 million for the third quarter 2013 from $96 million and $90 million for the first and second quarter 2013, respectively. Adjusted EBITDA is a non-GAAP measure and is computed using earnings before interest, taxes, depletion, depreciation and amortization, and is further adjusted using gains from asset sales, ceiling test write-downs, asset impairments and other non-cash income and expense items.
GAAP results were a net loss of $99 million, or $0.46 per diluted share, for the third quarter 2013 compared with a net loss of $346 million, or $1.62 per diluted share, for the third quarter 2012. The net loss for the third quarter 2013 was primarily due to the impairment of our investment in TGGT and additional costs as a result of the acquisitions of Haynesville and Eagle Ford assets. We recorded an impairment of our investment in TGGT related to the excess of the carrying value over our share of the expected proceeds from the anticipated sale. The significant costs incurred during the quarter related to acquisitions included the acceleration of deferred financing costs, transaction costs and transition services. These acquisitions also resulted in a significant increase to our depletion rate. The third quarter 2012 net loss included a $318 million pre-tax non-cash ceiling test write-down of oil and natural gas properties.The pro forma operating and financial information for the three and nine months ended September 30, 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 42 Bcfe, or 455 Mmcfe per day, for the third quarter 2013 compared with 47 Bcfe, or 512 Mmcfe per day, in the third quarter 2012. Third quarter 2013 production from the East Texas/North Louisiana region was 340 Mmcfe per day compared with 442 Mmcfe per day in the third quarter 2012. The decrease in production was primarily the result of the contribution of conventional properties to the EXCO/HGI Partnership and normal production declines. These decreases were partially offset by additional production from the acquisition of Haynesville assets from Chesapeake during the third quarter 2013. Our South Texas region includes assets focused on oil production in the Eagle Ford shale and other formations acquired from Chesapeake on July 31, 2013. Production from this region subsequent to the acquisition date averaged approximately 6 Mboe per day. The third quarter 2013 production in the Appalachia region averaged 64 Mmcfe per day compared with 46 Mmcfe per day in the third quarter 2012. The increase in production in the Appalachia region was due to our focus on completion activities in the Marcellus shale which resulted in 39 additional wells being brought on production subsequent to the third quarter 2012. Our proportionate share of production from the EXCO/HGI Partnership was 27 Mmcfe per day in the third quarter 2013.
Oil, natural gas and NGL revenues, before cash settlements on derivatives, for the third quarter 2013 were $165 million compared with third quarter 2012 revenues of $142 million. Our average sales price per Mcfe increased to $3.95 per Mcfe for the third quarter 2013 from $3.01 per Mcfe for the third quarter 2012. When the impacts of cash settlements from derivatives are considered, oil, natural gas and NGL revenues were $176 million, or $4.21 per Mcfe in the third quarter 2013, compared with $192 million, or $4.09 per Mcfe in the third quarter 2012.
Our direct operating costs were $0.41 per Mcfe for the third quarter 2013 compared with $0.37 per Mcfe in the third quarter 2012. The increase per Mcfe is primarily due to higher operating costs associated with oil production in the South Texas region. We reduced the operating cost per Mcfe in our East Texas/North Louisiana region to $0.15 per Mcfe in the third quarter 2013 from $0.27 per Mcfe in the third quarter 2012. We also reduced our operating costs in the Appalachia region to $0.66 per Mcfe in the third quarter 2013 from $0.84 in the third quarter 2012.
We closed the acquisition of Haynesville shale assets from Chesapeake on July 12, 2013 for $288 million, after customary preliminary purchase price adjustments. We closed the acquisition of the Eagle Ford assets from Chesapeake on July 31, 2013 for $685 million, after customary preliminary purchase price adjustments. To facilitate the purchase of these assets, we amended our credit agreement which increased our borrowing base to $1.6 billion. The borrowing base of $1.6 billion includes an asset sale requirement of $400 million, which requires mandatory payments from proceeds of asset sales and must be repaid or refinanced by July 31, 2014. The remaining borrowing base of $1.2 billion includes a $300 million term loan. The remaining balance of the asset sale requirement was $269 million as of September 30, 2013.In connection with the closing of the Eagle Ford assets, we entered into a participation agreement with affiliates of Kohlberg Kravis Roberts & Co. L.P. (KKR) to sell an undivided 50% interest in the undeveloped acreage we acquired for $131 million in cash, after preliminary purchase price adjustments. After giving effect to the KKR payment, the credit agreement's initial borrowing base and $400 million asset sale requirement were reduced by $131 million. We will jointly develop the Eagle Ford acreage with KKR under the participation agreement. Details of the acquisitions and terms of the KKR agreement are presented in the "Recent developments" section of this press release.
On October 16, 2013, EXCO and an affiliate of BG Group, plc (BG Group) entered into a definitive agreement to sell their respective equity interests in TGGT to Azure Midstream Holdings LLC (Azure). We expect to receive approximately $230 million in net cash proceeds at the closing, after expected closing adjustments, fees and transaction expenses. We intend to apply all of the net cash proceeds from the anticipated sale of TGGT in the fourth quarter 2013 to reduce outstanding borrowings under the asset sale requirement of our credit agreement, which will result in a corresponding reduction in our borrowing base. Details of the agreement are presented in the "Recent developments" section of this press release. Following the announcement of the definitive agreement to sell TGGT, Standard and Poor's revised EXCO's outlook to stable from negative. Our 50% share of TGGT's adjusted net income for the third quarter 2013 was $9 million compared with $14 million for the third quarter 2012. Our 50% share of TGGT's adjusted EBITDA was $15 million for the third quarter 2013 compared with $21 million for the third quarter 2012, after adjustments for certain non-cash items.
Douglas H. Miller, EXCO's Chief Executive Officer, commented, “Our acquisitions in the Haynesville and Eagle Ford shales support our strategy to grow in our core areas, add to our oil production, and use our outstanding operating expertise. We have begun our development program in the Eagle Ford through the drilling partnership with KKR. Our early drilling and completion results are meeting our expectations, and we plan to quickly implement a manufacturing program on both the Eagle Ford and Haynesville assets. Additionally, we are pleased we've reached an agreement to sell TGGT and will use the proceeds to reduce debt consistent with our financing strategy on the $1 billion of acquisitions we closed on in July.”