<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-9204
EXCO RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1492779
(State of incorporation) (I.R.S. Employer
Identification No.)
5735 PINELAND DR., SUITE 235
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip Code)
(214) 368-2084
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest practicable date.
Class: Common Stock, par value $0.02 per share
Outstanding at August 10, 1999: 6,687,696 shares
<PAGE> 2
EXCO RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)....................................................... 2
Condensed Consolidated Balance Sheets
December 31, 1998 and June 30, 1999.................................................... 2
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1999............................... 3
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1999................................................ 4
Notes to Condensed Consolidated Financial Statements................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................... 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................. 18
PART II. OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K....................................................... 19
Signatures........................................................................................ 23
Exhibit Index..................................................................................... 24
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ ----------
1998 1999
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 21,493 $ 8,906
Accounts receivable ........................................... 540 1,902
Other ......................................................... 124 91
---------- ----------
Total current assets ................................. 22,157 10,899
Oil and natural gas properties (full cost accounting method):
Proved developed and undeveloped oil and natural gas
properties.................................................. 11,765 31,319
Allowance for depreciation, depletion and amortization ........ (4,211) (4,940)
---------- ----------
Oil and natural gas properties, net ........................... 7,554 26,379
Office and field equipment, net .................................. 248 256
Deferred financing costs, net .................................... 49 66
Investment in Rio Grande, Inc. promissory note ................... 6,539 --
Investment in EXCO Energy Investors, L.L.C ....................... 341 352
Note receivable .................................................. -- 7,000
Other assets ..................................................... -- 264
---------- ----------
Total assets ......................................... $ 36,888 $ 45,216
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 480 $ 1,188
Revenues and royalties payable ................................ 167 297
Current maturities of long-term debt .......................... 1 1
---------- ----------
Total current liabilities ............................ 648 1,486
Long-term debt, less current maturities .......................... -- 7,000
Other long-term liabilities ...................................... -- 376
Stockholders' equity:
Common Stock, $.02 par value:
Authorized shares - 25,000,000
Issued and outstanding shares - 6,687,696 at
December 31, 1998 and June 30, 1999 ....................... 134 134
Additional paid-in capital ................................... 46,241 46,241
Notes receivable-officers .................................... (825) (870)
Deficit eliminated ........................................... (8,799) (8,799)
Minority interest in limited partnership ..................... -- (13)
Retained deficit, as adjusted for quasi-reorganization
at December 31, 1997 ...................................... (511) (339)
---------- ----------
Total stockholders' equity ........................... 36,240 36,354
---------- ----------
Total liabilities and stockholders' equity ........... $ 36,888 $ 45,216
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 4
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ........................... $ 255 $ 1,596 $ 428 $ 2,265
Other income .................................. 17 315 27 630
-------- -------- -------- --------
Total revenues ....................... 272 1,911 455 2,895
COSTS AND EXPENSES:
Oil and natural gas production ................ 147 640 242 1,008
Depreciation, depletion and amortization ...... 68 503 104 797
General and administrative .................... 318 448 557 922
Interest ...................................... 31 0 38 1
-------- -------- -------- --------
Total costs and expenses ............. 564 1,591 941 2,728
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest ............................... (292) 320 (486) 167
Minority interest in limited partnership ......... -- (5) -- (5)
-------- -------- -------- --------
Income (loss) before income taxes ................ (292) 325 (486) 172
Income tax expense (benefit) ..................... -- -- -- --
-------- -------- -------- --------
Net income (loss) ................................ $ (292) $ 325 $ (486) $ 172
======== ======== ======== ========
Basic and diluted earnings (loss) per share ....... $ (.52) $ .05 $ (.91) $ .03
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding:
Basic ..................................... 559 6,688 534 6,688
======== ======== ======== ========
Diluted ................................... 559 6,719 534 6,718
======== ======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 5
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................ $ (486) $ 172
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization .................. 104 797
Effect of changes in:
Accounts receivable .................................... (8) (1,010)
Other current assets ................................... (117) 104
Accounts payable and other current liabilities ......... 380 473
---------- ----------
Net cash provided by (used in) operating activities .......... (127) 536
INVESTING ACTIVITIES:
Payment for acquisitions, net of cash ............................ (943) --
Additions to property and equipment .............................. (4,722) (14,788)
Investment in EXCO Energy Investors, L.L.C ....................... -- (12)
Investment in Rio Grande, Inc. promissory note ................... -- 7,451
Acquisition of Rio Grande, Inc. .................................. -- (7,017)
Purchase of Venus Exploration, Inc. promissory note .............. -- (7,000)
Proceeds from disposition of property and equipment .............. 4 1,340
---------- ----------
Net cash provided by (used in) investing activities .......... (5,661) (20,026)
FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................... 6,060 7,000
Payments on long-term debt ....................................... (9) (10)
Payments on note payable ......................................... -- --
Proceeds from issuance of common stock ........................... -- --
Interest income on notes receivable - officers ................... -- (45)
Deferred financing costs ......................................... (164) (42)
---------- ----------
Net cash provided by (used in) financing activities .......... 5,887 6,903
---------- ----------
Net increase (decrease) in cash .................................. 99 (12,587)
Cash at beginning of period ...................................... 496 21,493
---------- ----------
Cash at end of period ............................................ $ 595 $ 8,906
========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid .................................................... $ 24 $ 1
========== ==========
Income taxes paid ................................................ $ -- $ --
========== ==========
</TABLE>
See accompanying notes.
4
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
In management's opinion, the accompanying financial statements contain
all adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position of EXCO Resources, Inc. as of December 31,
1998 and June 30, 1999, the results of operations for the three and six month
periods ended June 30, 1998 and 1999, and the cash flows for the six month
periods ended June 30, 1998 and 1999.
We have prepared the accompanying unaudited financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission.
We have omitted certain information and disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles pursuant to those rules and regulations, although we believe that the
disclosures we have made are adequate to make the information presented not
misleading. You should read these financial statements in conjunction with our
financial statements and notes included in our Annual Report on Form 10-K for
the year ended December 31, 1998. The accompanying condensed consolidated
financial statements include the financial statements of EXCO Resources, Inc.,
Rio Grande GulfMex, Ltd., and EXUS Energy, LLC.
The results of operations for the three and six month periods ended
June 30, 1999, are not necessarily indicative of the results we expect for the
full year.
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which includes, but is not limited to,
unrealized gains from marketable securities and futures contracts, foreign
currency translation adjustments and minimum pension liability adjustments. For
the three and six month periods ended June 30, 1998 and 1999, our net income
(loss) and comprehensive income were the same.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is
required to be adopted in years beginning after June 15, 2000. Because of our
current minimum use of derivatives, at the present time we do not believe the
adoption of the new Statement will have a significant effect on our earnings or
our financial position.
2. QUASI-REORGANIZATION
Effective December 31, 1997, we effected a quasi-reorganization by
applying approximately $8.8 million of our additional paid-in capital account to
eliminate our accumulated deficit. Our board of directors decided to effect a
quasi-reorganization given the change in management, the infusion of new equity
capital and the increase in our activities. Our
5
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
accumulated deficit was primarily related to past operations and properties that
have been disposed of. We did not adjust the historical carrying values of our
assets and liabilities in connection with the quasi-reorganization.
3. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 "Earnings per
Share" which became effective in 1997, requires presentation of two calculations
of earnings per common share. Basic earnings per common share equals net income
divided by weighted average common shares outstanding during the period. Diluted
earnings per common share equals net income divided by the sum of weighted
average common shares outstanding during the period plus any dilutive shares
assumed to be issued. Common stock equivalents are shares assumed to be issued
if outstanding stock options were exercised.
4. REVERSE STOCK SPLITS
At our 1996 annual meeting of shareholders, our shareholders approved
an amendment to our articles of incorporation, authorizing a one-for-five
reverse stock split of our common stock, which became effective July 19, 1996.
At our 1998 annual meeting of shareholders, our shareholders approved an
amendment to our articles of incorporation, authorizing a one-for-two reverse
stock split of our common stock, which became effective March 31, 1998. We have
adjusted all share and per share numbers retroactively to record the effects of
the reverse stock splits.
5. OIL AND NATURAL GAS PROPERTIES
We have recorded oil and natural gas properties at cost using the full
cost method of accounting, as prescribed by the Securities and Exchange
Commission. Under the full cost method, all costs associated with the
acquisition, exploration or development of oil and natural gas properties are
capitalized as part of the full cost pool. Capitalized costs are limited to the
aggregate of the present value of future net reserves plus the lower of cost or
fair market value of unproved properties.
Depreciation, depletion, and amortization of evaluated oil and natural
gas properties is provided using the unit-of-production method based on total
proved reserves, as determined by independent petroleum reservoir engineers.
Sales, dispositions, and other oil and natural gas property retirements
are accounted for as adjustments to the full cost pool, with no recognition of
gain or loss unless the disposition would significantly alter the amortization
rate.
6
<PAGE> 8
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
6. NATIONSBANK CREDIT AGREEMENT
On February 11, 1998, we entered into a credit facility with
NationsBank of Texas, N.A. The credit facility provided for borrowings up to $50
million, subject to borrowing base limitations. On September 21, 1998, we
entered into an amendment to the credit facility with NationsBank, N.A.
(successor by merger to NationsBank of Texas, N.A.). The amended credit facility
provides for borrowings up to $150 million, subject to borrowing base
limitations, as determined by the lenders from time to time. Under the credit
facility, we are required to pay a fee equal to .25% on any accepted increase in
the borrowing base in excess of the previously determined borrowing base and a
commitment fee of .30% to .425% based on the ratio of outstanding credit to the
borrowing base. The maturity date of the credit facility is February 11, 2000.
The credit facility provides that if our outstanding credit is less
than $5 million, then our interest rate will be LIBOR plus 1.5%. If our
outstanding credit is greater than $5 million, then the credit facility provides
that our interest rate will be either NationsBank's prime rate or LIBOR plus
between 1% and 1.75% based on the ratio of outstanding credit to the borrowing
base.
There are no scheduled principal payments due on the credit facility
until maturity. However, the borrowing base will be redetermined on or around
April 1st and October 1st of each year. A borrowing base deficiency is created
in the event that the outstanding loan balances exceed the borrowing base, as
determined by the lenders in their sole discretion. Upon such event the
borrowing base deficiency must be repaid by:
(1) mandatory reductions of the deficiency over a period of not more
than 6 months;
(2) making a lump sum payment equal to the deficiency; or
(3) providing additional collateral acceptable to lenders in their sole
discretion sufficient to increase the borrowing base and eliminate
the deficiency.
Borrowings under the credit facility are secured by first and prior
liens covering 90% of the recognized value of all the proved mineral interests
we own. The credit facility contains various restrictive covenants, including
limitations on the granting of liens, restrictions on the issuance of additional
debt, requirements to maintain a net worth of at least $500,000 plus 50% of each
quarter's consolidated net income beginning with the quarter ended March 31,
1999, and to maintain a current ratio of not less than 1.0 to 1.0, and currently
prohibits the payment of dividends on our capital stock.
7
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
7. ACQUISITIONS
We have accounted for the following acquisitions in accordance with
Accounting Principles Board No. 16, "Business Combinations" where applicable.
EXCO Energy Investors L.L.C.
On October 9, 1998, we formed a $50 million joint venture with an
institutional investor to acquire oil and natural gas related assets and
securities. Under the terms of the joint venture agreement, we are required to
contribute 5% of the joint venture's capital expenditures. As of June 30, 1999,
the joint venture has invested in various debt securities. Through June 30,
1999, our investment in the joint venture was approximately $352,000.
Related to an investment made by the joint venture, we presented a
restructuring plan to National Energy Group, Inc.'s bondholders' committee on
February 24, 1999. The proposal consisted of a combination of shares of our
common stock and approximately $58 million cash to satisfy all secured and
unsecured liabilities and to acquire the assets of National Energy. The plan
anticipated no consideration for the preferred or common equity of National
Energy. The plan was subject to conditions which included approval by (1) EXCO's
board of directors; (2) EXCO's shareholders; (3) EXCO's bank lenders; (4) due
diligence and (5) the U. S. Bankruptcy Court. This proposal was not accepted by
National Energy, its creditors' constituencies or the U.S. Bankruptcy Court. We
are currently pursuing our rights as bondholders of National Energy.
Rio Grande, Inc. Acquisition
On November 2, 1998, we acquired a promissory note from a Texas bank
for $6.4 million which was secured by substantially all of the assets of Rio
Grande, Inc., its subsidiaries and affiliated entities. Rio Grande, Inc. was an
oil and natural gas producer with principal operations in Texas, Oklahoma,
Louisiana, and Mississippi. At the same time we purchased the note, we also
entered into an agreement with Rio Grande, Inc. and Rio Grande, Inc.'s sole
holder of preferred stock, regarding plans for the ultimate satisfaction of Rio
Grande, Inc.'s debt, including the proposed acquisition of Rio Grande, Inc. or
its assets by us.
On November 12, 1998, Rio Grande, Inc. announced that it had filed for
reorganization under Chapter 11 of the Bankruptcy Code. As the largest secured
creditor, we had negotiated a plan for financial restructuring with Rio Grande,
Inc. and the holder of its preferred stock. On March 5, 1999, the court
confirmed the proposed plan. Pursuant to the terms of the plan, Rio Grande, Inc.
fully repaid its trade creditors. Several of the subsidiaries or affiliates were
merged into Rio Grande, Inc. Then, the outstanding shares of Rio Grande, Inc.'s
common and preferred stock were canceled. We were issued new shares of Rio
Grande, Inc. as settlement of Rio Grande Inc.'s $13 million secured indebtedness
owed to us. The new shares represented all of the outstanding capital stock of
Rio Grande, Inc., and we became the owners of Rio Grande, Inc. effective on
March 16, 1999. On March 30, 1999 Rio Grande, Inc. was merged into EXCO.
Jackson Parish Properties Acquisition
On June 30, 1999, we formed a joint venture with Venus Exploration,
Inc. called EXUS Energy, LLC. On June 30, 1999, EXUS Energy, LLC, a Delaware
limited liability company
8
<PAGE> 10
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
(EXUS), owned 50% by EXCO Resources, Inc. (EXCO) and 50% by Venus Exploration,
Inc. (Venus), completed the acquisition from Apache Corporation of certain oil
and natural gas properties located in Jackson Parish, Louisiana (the Jackson
Parish Properties). Venus is a publicly-held oil and gas exploration company
based in San Antonio, Texas. The Jackson Parish Properties include 17 gross
(14.25 net) producing wells. EXCO became the operator of all 17 wells acquired
in the transaction. The Jackson Parish Properties include 6,411 gross (5,672
net) developed acres and 1,532 gross (1,148 net) undeveloped acres. As of April
1, 1999, the Jackson Parish Properties were estimated to contain 2,815 barrels
of oil (Bbls) and 66.5 billion cubic feet (Bcf) of gas. The purchase price,
before closing adjustments, was approximately $28.5 million, and after
adjustments (the adjustments principally reflect production since March 1,
1999, the effective date of the acquisition), was $27.6 million cash. The
purchase price was funded with $14 million drawn under a new credit facility
established by EXUS and $14 million of EXUS equity capital. The purchase price
was determined based upon arms-length negotiations between Apache Corporation
and Venus taking into account reserve estimates and other items customarily
considered in acquisitions of this type.
EXCO and Venus initially capitalized EXUS with $14 million of equity
capital, all of which was applied to fund the purchase of the Jackson Parish
Properties. EXUS also arranged a credit facility (discussed in greater detail
below) through NationsBank, N.A. to fund a portion of the Jackson Parish
Properties acquisition, additional development drilling of the properties and
additional acquisitions.
CONVERTIBLE NOTE. Of the initial $14 million of EXUS equity capital, $7
million was provided by EXCO from its cash on hand, and $7 million was provided
by Venus from borrowed funds. On June 30, 1999, Venus borrowed $7 million from
EXCO under the terms of an $8 million Convertible Promissory Note (the Note).
The Note provides for borrowings up to $8 million, subject to restrictions on
the use of proceeds. As stated above, Venus drew $7 million under this Note to
fund Venus' capital contribution to EXUS. The Note provides for additional draws
beginning after January 1, 2000 not to exceed $1 million solely to fund
additional capital contributions to EXUS and/or to fund the expenses of one
equity issuance. Venus is not permitted to draw any of the $1 million until it
has obtained the stockholder approval described below. All borrowings under the
Note are secured by a first priority lien providing a security interest in the
membership interest of Venus in EXUS, and the distribution and income rights of
Venus in EXUS. The Note provides that advances will bear interest, which can be
paid in cash or, at Venus' election, Venus common stock, at a rate of 10% from
June 30, 1999 through June 30, 2000, with interest increasing 1% per year
through June 30, 2004. Advances will bear interest at a rate of 15% thereafter
in the event of default. If interest is paid in Venus common stock, the number
of shares to be issued shall be determined by dividing the interest payment due
by the average market price of one share of Venus common stock for the twenty
trading days immediately preceding the interest payment date. Interest is
payable semi-annually commencing on January 1, 2000. The Note matures on July 1,
2004 at which time all of the unpaid principal is due and payable.
9
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Beginning on July 1, 2000 and continuing until the payment in full of
the Note, EXCO, at its option, may convert all or any portion of the outstanding
principal balance and accrued interest into shares of Venus common stock for
$1.50 per share, subject to adjustment in certain events. On or before December
15, 1999, Venus is required to obtain approval of its stockholders (as required
by the rules of the Nasdaq Smallcap Market) of the issuance of the Venus common
stock which may be issued upon the conversion of principal or accrued interest
under the terms of the Note. In the event Venus is unable to obtain such
stockholder approval, Venus would be required to prepay $3 million of the Note
plus accrued interest thereon. (Venus is currently authorized to issue shares of
its common stock upon conversion of up to $4 million of the principal of the
Note without such stockholder approval; accordingly the $3 million mandatory
prepayment equates to the principal amount EXCO would not be able to convert to
Venus common stock if stockholder approval was not obtained). Alternatively,
Venus may elect to transfer membership interests in EXUS held by Venus equal to
21.43% of the aggregate outstanding interests of EXUS (this approximates 3/7 of
Venus' equity interest in EXUS) in exchange for a cancellation of $3 million of
principal owed under the Note.
The Note also requires a mandatory prepayment of principal equal to 50%
of the net proceeds of each equity issuance by Venus on or after June 30, 1999
(excluding the first $5 million of aggregate net proceeds of all equity
issuances after June 30, 1999). Venus may also voluntarily prepay any or all of
the Note (subject to a prepayment penalty of 3.57% of the principal prepaid for
any prepayment occurring on or prior to July 1, 2000).
The Note contains other customary terms including certain
representations, affirmative covenants (such as conduct of Venus' business,
reports to EXCO, compliance with laws), negative covenants (including no
purchase or redemption of Venus' common stock and no sale, transfer, mortgage or
pledge of the collateral securing the Note), and events of default (including
failure to pay principal or interest as required, violation of covenants in the
Note, bankruptcy, change of control of Venus, or default under Venus' secured
credit facility). An event of default would occur if Venus is unable to obtain
stockholder approval.
The shares which may be issued under the terms of the Note are subject
to a Registration Rights Agreement dated June 30, 1999. The Registration Rights
Agreement requires Venus to register with the Securities and Exchange Commission
10,133,333 shares of Venus common stock that may be issuable to EXCO under the
Note for resale by EXCO from time to time. The 10,133,333 shares represent (i)
5,333,333 that would be issued if EXCO were to convert $8 million of principal
under the Note at $1.50 per share and (ii) 4,800,000 shares assuming Venus were
to elect to pay all interest accruing on $8 million principal of the Note at an
assumed market price of $1.00 per share. The Registration Rights Agreement
provides that a registration statement must be filed with the SEC by September
28, 1999 and effective on or prior to the 120th day following the first issuance
of any shares under the Note (which 120 day period may be extended to 210 days
if Venus has timely complied with its covenants under the Registration Rights
Agreement, but the registration statement is still under review by the
Securities and Exchange Commission). The Registration Rights Agreement contains
other customary terms
10
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
and provisions including indemnification for certain facilities under applicable
securities laws. A breach of the agreement would constitute an event of default
under the Note.
EXUS CREDIT FACILITY. On June 30, 1999, EXUS entered into a credit
facility with NationsBank, N.A. as administrative agent and lender. The credit
facility provides for borrowings up to $50 million, subject to borrowing base
limitations. The bank has sole discretion to determine the borrowing base based
on its valuation of EXUS' reserves valued semi-annually.
The credit facility consists of a regular revolver, which on July 15,
1999, had a borrowing base of $19.5 million. At July 15, 1999, EXUS had
approximately $5.5 million available for borrowing under the credit facility. A
portion of the borrowing base is available for the issuance of letters of
credit. All borrowings under the credit facility are secured by a first lien
mortgage providing a security interest in substantially all assets owned by EXUS
including all mineral interests.
The credit facility provides that if the aggregate outstanding
indebtedness of EXUS is less than 75% of the borrowing base, then advances will
bear interest at 1.5% over LIBOR. If the borrowing base usage equals or exceeds
75%, then advances will bear interest at 1.75% over LIBOR.
Under the terms of the credit facility, EXUS must not permit its
consolidated current assets to its consolidated current liabilities to be less
than 1.0 to 1.0 at any time. Furthermore, EXUS must not incur or pay general and
administrative expenses in an aggregate amount exceeding $100,000 during the
period from June 30, 1999 through December 31, 1999, or $200,000 during any
fiscal year thereafter. On July 31, 1999, EXUS was in compliance with both the
current ratio covenant and the general and administrative expense covenant.
Commencing on September 25, 1999 and continuing each month thereafter
until maturity, EXUS shall make mandatory prepayments on the credit facility in
an amount equal to 50% of EXUS' Net Revenues (as defined in the credit facility)
for the immediately preceding calendar month. Each such payment shall be applied
first to accrued but unpaid interest and then to principal. However, if a
borrowing base deficiency were to exist after giving effect to a
redetermination, then EXUS would have to do one of the following:
o eliminate the borrowing base deficiency by making a single
mandatory prepayment of principal on the revolving loan in an
amount equal to the entire amount of the borrowing base
deficiency on the first monthly date following the date on
which the borrowing base deficiency is determined to exist;
11
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
o eliminate the deficiency by making six consecutive mandatory
prepayments of principal on the revolving loan each of which
shall be in the amount of one sixth (1/6th) of the amount of
the borrowing base deficiency commencing on the first monthly
date following the date on which the borrowing base deficiency
is determined to exist and continuing on each monthly date
thereafter; or
o eliminate the borrowing base deficiency by submitting
additional mineral interests to the banks on the first monthly
date following the date on which the borrowing base deficiency
is determined to exist for evaluation as borrowing base
properties which the banks, in their sole discretion,
determine have a value sufficient to increase the borrowing
base by at least the amount of the borrowing base deficiency.
The credit facility matures on June 30, 2002. The next borrowing base
redetermination is scheduled for January 1, 2000, and on or about each April 30
and October 31, thereafter. EXUS may seek additional borrowing capacity at that
time for its development drilling program. However, we and EXUS cannot assure
you that the current development program of EXUS will result in increased
collateral values or that these values will enable us to borrow the funds EXUS
needs to continue the program.
The credit facility contains a number of covenants affecting the
liquidity and capital resources of EXUS, including restrictions on the ability
to incur indebtedness at any time in an amount exceeding $25,000 or to pledge
assets outside of the credit facility, the maintenance of a current ratio,
limitations on general and administrative expenses, and restrictions on the
payment of dividends on the equity capital units of EXUS.
Pro forma results of operations. The following table reflects the pro
forma results of operations as though the acquisitions of Jacobi-Johnson Energy,
Inc., the Dawson County Properties (described in EXCO's Form 8-K dated June 30,
1998), Rio Grande, Inc. and the Jackson Parish Properties (described in EXCO's
Form 8-K dated June 30, 1999), the related borrowings, and the common stock
Rights Offering had occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1999
---------- ----------
(In thousands, except per
share data)
(Unaudited)
<S> <C> <C>
Revenues ......................................................... $ 5,460 $ 4,111
Net income ....................................................... $ 350 $ 295
Basic and diluted earnings per share ............................. $ .05 $ .04
</TABLE>
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Before you invest in our common stock, you should be aware that there
are various risks associated with an investment. Some of the information in this
quarterly report may contain forward-looking statements. We use words such as
"may," "will," "expect," "anticipate," "estimate," "believe," "continue" or
other similar words to identify forward-looking statements. You should read
statements that contain these words carefully because they: (1) discuss future
expectations; (2) contain projections of results of operations or of our
financial conditions; or (3) state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are unable to
accurately predict or over which we have no control. When considering our
forward-looking statements, you should keep in mind the cautionary statements in
this quarterly report and the risk factors contained in our other public
filings.
The following discussion of the results of operations and financial
condition should be read in conjunction with the financial statements and
related notes included in this quarterly report.
OUR RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1998 and 1999
Revenues. Our total revenues for the three month period ended June 30,
1999 increased $1.6 million, or 603%, to $1.9 million versus $272,000 for the
corresponding period of 1998. The increase in revenues was primarily due to the
Rio Grande acquisition, the Jacobi-Johnson acquisition, and the Dawson County
Properties acquisition.
We sold 62,141 Bbls of crude oil during the three months ended June 30,
1999 versus 4,904 Bbls in the corresponding three months of 1998, a 1,167%
increase. We sold 299,406 Mcf of natural gas during the current three months
versus 99,714 Mcf in the second quarter of 1998, a 200% increase. The increases
in oil and gas volumes were primarily attributable to the Rio Grande
acquisition, the Jacobi-Johnson acquisition, and the Dawson County Properties
acquisition.
The average oil price received during the three months ended June 30,
1999 was $14.24 versus $12.34 for the three months ended June 30, 1998, a $1.90
per barrel or 15% increase. The average natural gas price received during the
current three months was $2.06 versus $1.95 for the corresponding three months
of the prior year, a $.11 per Mcf or 6% increase.
Costs and Expenses. Costs and expenses for the three month period ended
June 30, 1999 increased by $1.0 million, or 182%, to $1.6 million as compared to
$564,000 for the corresponding period of 1998. This increase reflects our
increased staffing and new focus on reserve acquisitions, as well as higher
expenses due to several acquisitions.
Net Income (Loss). We had net income for the three months ended June
30, 1999 of $325,000 compared to a net loss of $292,000 for the corresponding
three months of 1998, representing $.05 and ($.52) per share, respectively.
Earnings per share figures are based on
13
<PAGE> 15
restated weighted average shares outstanding after the retroactive effect of the
one-for-two reverse stock split approved at our annual meeting of stockholders
held on March 31, 1998.
Comparison of Six Months Ended June 30, 1998 and 1999
Revenues. EXCO's total revenues for the six month period ended June 30,
1999 increased $2.4 million, or 536%, to $2.9 million versus $455,000 for the
corresponding period of 1998. The increase in revenues was primarily due to the
Rio Grande acquisition, the Jacobi-Johnson acquisition, and the Dawson County
Properties acquisition.
EXCO sold 100,174 Bbls of crude oil during the six months ended June
30, 1999 versus 7,720 Bbls in the corresponding six months of 1998, a 1,198%
increase. EXCO sold 450,715 Mcf of natural gas during the current six months
versus 172,239 Mcf in the first six months of 1998, a 162% increase. The
increase in gas volume was due to the acquisition of Rio Grande, Jacobi-Johnson,
and the Dawson County Properties.
The average oil price received during the six months ended June 30,
1999 was $12.92 versus $12.82 for the six months ended June 30, 1998, a $.10 per
barrel or 1% increase. The average gas price received during the current six
months was $1.87 versus $1.91 for the corresponding six months of the prior
year, a $.04 per Mcf or 2% decrease.
Cost and Expenses. Cost and expenses for the six month period ended
June 30, 1999 increased by $1.8 million, or 190%, to $2.7 million as compared to
$941,000 for the corresponding period of 1998. This was primarily due to an
increase in lease operating expenses and depreciation, depletion and
amortization costs in the current six months resulting from the acquisition of
Rio Grande, Jacobi-Johnson, and the Dawson County Properties. This increase
reflects EXCO's increased staffing and new focus on reserve acquisitions.
Net Income (loss). EXCO had a net income for the six months ended June
30, 1999 of $172,000 compared to a net loss of $486,000 for the corresponding
six months of 1998, representing $.03 and ($.91) per share, respectively.
Earnings per share figures are based on restated weighted average shares
outstanding after the retroactive effect of the one-for-two reverse stock split
approved at EXCO's shareholders' meeting held on March 31, 1998.
OUR LIQUIDITY AND CAPITAL RESOURCES
General
Consistent with our strategy of acquiring and developing reserves, we
have an objective of maintaining financing flexibility. We cannot assure you
that cash from operations will be sufficient in the future to meet our stated
strategy. Low oil prices may impact our general strategy. In the past, we have
utilized a variety of sources of capital to fund our acquisition, development
and exploitation programs, and fund our operations.
Our general financial strategy is to use cash from operations, bank
financing and the issuance of equity securities to service interest when we have
outstanding indebtedness, to pay ongoing operating expenses, and to contribute
limited amounts toward further development of our existing proved reserves as
well as additional acquisitions. We cannot assure you that cash from operations
will be sufficient in the future to cover all of these purposes.
14
<PAGE> 16
We have planned development and exploitation activities for our major
operating areas. In addition, we are continuing to evaluate oil and natural gas
properties and companies for future acquisition. Historically, we have used the
proceeds from the issuance of equity securities and borrowings under the credit
facility to raise cash to fund acquisitions. However, we cannot assure you that
funds will be available to us in the future to meet our budgeted capital
spending. Furthermore, our ability to borrow other than under the credit
facility is subject to restrictions imposed by our credit facility. If we cannot
secure additional funds for our planned development, exploitation and
acquisition activities, then we will be required to delay or reduce
substantially both of these activities.
Credit Facility
On February 11, 1998, we entered into a credit facility with
NationsBank of Texas, N.A. The credit facility initially provided for borrowings
up to $50 million, subject to borrowing base limitations. On September 21, 1998,
we entered into an amendment to the credit facility with NationsBank, N.A.
(successor by merger to NationsBank of Texas, N.A.). The amended credit facility
provides for borrowings up to $150 million, subject to borrowing base
limitations. The bank has sole discretion to determine our borrowing base based
on its valuation of our reserves valued semi-annually.
The credit facility consists of a regular revolver which on June 30,
1999, had a borrowing base of approximately $5.5 million. On June 30, 1999, we
had approximately $5.5 million available for borrowing under the credit
facility. A portion of the borrowing base is available for the issuance of
letters of credit. All borrowings under the credit facility are secured by a
first lien deed of trust providing a security interest in tangible and
intangible assets representing at least 90% of the assessed present value of our
oil and natural gas properties.
The credit facility provides that if our aggregate outstanding
indebtedness is less than $5 million, advances will bear interest at 1.5% over
the appropriate LIBOR rate. If our aggregate outstanding indebtedness is greater
than $5 million, then our advances will bear interest at 1.0% over LIBOR if the
borrowing base usage is less than 50%, 1.25% over LIBOR if the borrowing base
usage is between 50-70%, 1.5% over LIBOR if the borrowing base usage is between
70-90%, and 1.75% over LIBOR if the borrowing base usage exceeds 90%. The
credit facility also permits us to repay and reborrow amounts under the credit
facility without any penalty, thereby allowing us the flexibility to utilize any
available cash to reduce our outstanding indebtedness and thus, our costs of
borrowed funds.
Under the terms of the credit facility, we must not permit our current
ratio of consolidated current assets to our consolidated current liabilities to
be less than 1.0 to 1.0 at any time. In addition, for each fiscal quarter
beginning January 1, 1999, our consolidated tangible net worth must be at least
$500,000 and increase by 50% of our consolidated net income for the fiscal
quarter then ended. Our consolidated tangible net worth must increase on the
date we issue any equity securities after December 31, 1998, by an amount equal
to 75% of the net proceeds we receive from the issuance of these securities. On
June 30, 1999, we were in compliance with both the consolidated tangible net
worth covenant and the current ratio covenant.
No principal amortization will be required during the term of the
credit facility as long as the aggregate principal balance does not exceed the
borrowing base then in effect. However, if a
15
<PAGE> 17
borrowing base deficiency were to exist after giving effect to a
redetermination, then we would have to do one of the following:
o eliminate the borrowing base deficiency by making a single mandatory
prepayment of principal on the revolving loan in an amount equal to the
entire amount of the borrowing base deficiency on the first monthly
date following the date on which the borrowing base deficiency is
determined to exist;
o eliminate the deficiency by making six consecutive mandatory
prepayments of principal on the revolving loan each of which shall be
in the amount of one sixth (1/6th) of the amount of the borrowing base
deficiency commencing on the first monthly date following the date on
which the borrowing base deficiency is determined to exist and
continuing on each monthly date thereafter; or
o eliminate the borrowing base deficiency by submitting additional
mineral interests to the banks on the first monthly date following the
date on which the borrowing base deficiency is determined to exist for
evaluation as borrowing base properties which the banks, in their sole
discretion, determine have a value sufficient to increase the borrowing
base by at least the amount of the borrowing base deficiency.
The credit facility matures on February 11, 2000. Our next borrowing
base redetermination is scheduled for no later than October 1, 1999, and
semi-annually thereafter. We may seek additional borrowing capacity at that time
for our development drilling program. However, we cannot assure you that our
current development program will result in increased collateral values or that
these values will enable us to borrow the funds we need to continue the program.
The credit facility contains a number of covenants affecting our
liquidity and capital resources, including restrictions on our ability to incur
indebtedness at any time in an amount exceeding $100,000 or to pledge assets
outside of the credit facility, our maintenance of a minimum net worth and
restrictions on the payment of dividends on our capital stock.
OUR YEAR 2000 COMPLIANCE
Project. We have placed a high priority on proactively resolving
computer or imbedded chip problems related to the "Year 2000" which may have
adverse material effects on our continuing operations or cash flow. This problem
would be caused by the inability of a component (software, hardware or equipment
with embedded microprocessors) to correctly process date data in and between the
20th and 21st centuries and therefore fail to properly perform its intended
functions, and/or to exchange correct date data with other components. This
problem would most typically be caused by erroneous date calculations, which
results from using two digits to signify a year (century implied), handling leap
years incorrectly or the use of "special" values that can be confused with
legitimate calendar dates. The scope of the Year 2000 project includes
conducting an inventory of our software, hardware and "embedded systems"
equipment, assessing potential for failure and the associated risk, prioritizing
the need for remediation, repairing or replacing significant noncompliant items,
and testing. In addition, we will take a similar approach to mitigating risks
associated with the Year 2000 readiness of material business partners (vendors,
suppliers, customers, etc.). The project will also identify contingency plans to
cope with unexpected events resulting from Year 2000 issues.
16
<PAGE> 18
Beginning in mid 1998, we began an assessment of our core financial and
operational software systems. We identified three critical systems with date
sensitivities: oil and gas financial accounting, production accounting and
land/lease administration. We currently use a Year 2000 ready release of an oil
and gas financial accounting package. We also use a Year 2000 ready production
accounting system. The land/lease administration package we use is also Year
2000 ready. All of these packages will be updated for any releases of new
versions of the vendors' software as it becomes available. We expect to receive
the respective vendors' support and to take advantage of additional features and
performance enhancements. We rely on vendors' representations that our software
is Year 2000 ready and we do not intend to test it. Assessments continue for
lower priority software systems.
In addition, we use a Year 2000 ready AS/400 on which our accounting
software resides.
Other activities which we have started or scheduled to start during the
balance of 1999 include testing of desktop PC's, assessment of material business
partners, and an inventory of embedded systems in field locations. We have
engaged an outside consultant to assist in reviewing equipment used in our oil
and natural gas producing operations. We are also seeking written verification
from our major operators, suppliers and customers that they will be Year 2000
compliant. We anticipate that the costs of seeking verification will be minimal.
We believe that it is not practical to independently verify the responses we
receive because we do not believe we will be given access to carry out
verification or that the cost will be affordable. The cost of replacing
non-compliant or non-responsive operators, suppliers and customers will not be
determined until the review has progressed. The following table summarizes the
current overall status of the project with anticipated completion dates:
<TABLE>
<CAPTION>
PHASE
- -----------------------------------------------------------------------------------------------
COMPONENT INVENTORY ASSESSMENT/PRIORITIZATION REMEDIATION/CONTINGENCY
- ----------------- --------- ------------------------- -----------------------
<S> <C> <C> <C>
Software Complete Complete Complete
Hardware Complete Complete Complete
Business Partners Complete Complete August 31, 1999
Embedded Systems Complete August 31, 1999 August 31, 1999
(Non-IT Systems)
</TABLE>
In addition to the above, during the third quarter of 1999 we will
finish developing an overall contingency plan designed to provide for continued
operations which will include precautionary measures.
Cost. As of July 31, 1999, we have incurred $7,500 in consulting costs
for Year 2000 project planning and scope definition. All software packages
requiring an upgrade which have been identified will be upgraded and may require
additional out-of-pocket expenses which we expect to be minimal. We cannot
determine an accurate cost prior to the conclusion of the
assessment/prioritization phase, but we expect that our total project
expenditures including the use of outside consultants, if any, should not exceed
$20,000 paid from our working capital. This excludes any costs which may be
assessed by joint venture partners on properties we do not operate.
Risks/Contingency. The failure to remediate critical systems (software,
hardware or embedded systems), or the failure of a material business partner to
resolve critical Year 2000 issues could have a serious adverse impact on our
ability to continue operations and meet obligations. Any Year 2000 problems that
do occur will likely manifest themselves in reduced
17
<PAGE> 19
production through equipment shut down or impaired liquidity through an
inability of our customers to take delivery or to process payment. At the
current time, we believe that any interruption in operation will be minor and
short-lived and will pose no safety or environmental risks. However, until all
assessment phases have been completed it is impossible to accurately identify
the risks, quantify potential impacts or establish a contingency plan. We have
not yet clearly identified the most likely worst case scenario if we and our
material business partners do not achieve Year 2000 readiness on a timely basis.
Because of the acquisition of Rio Grande, Inc., and the Jackson Parish
Properties, we currently intend to complete our contingency planning by August
31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
18
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
No. Description of Exhibit
--- ----------------------
<S> <C>
2.1 First Amended Joint Chapter 11 Plan of Reorganization of Rio
Grande, Inc., Rio Grande Drilling Company, Rio Grande Desert
Oil Company, Rio Grande Offshore, Ltd., and Rio Grande
GulfMex, Ltd., dated January 25, 1999 and modified March 4,
1999, previously filed as an exhibit to Rio Grande, Inc.'s
Form 8-K/A filed March 23, 1999 and incorporated by reference
herein.
2.2 Confirmation Order for the Plan of Reorganization, dated March
4, 1999, previously filed as an exhibit to Rio Grande, Inc.'s
Form 8-K/A filed March 23, 1999 and incorporated by reference
herein.
2.3 Findings of Fact and Conclusions of Law regarding Confirmation
Order (which set forth the March 4, 1999 modifications to the
Plan), previously filed as an exhibit to Rio Grande, Inc.'s
Form 8-K/A filed March 23, 1999 and incorporated by reference
herein.
3.1 Restated Articles of Incorporation of EXCO filed as an Exhibit
to EXCO's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated by reference herein.
3.2 Bylaws of EXCO, as amended filed as an Exhibit to EXCO's
Annual Report on Form 10-K for the year ended December 31,
1996 and incorporated by reference herein.
4.1 Restated Articles of Incorporation of EXCO filed as an Exhibit
to EXCO's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated by reference herein.
4.2 Restated Bylaws of EXCO, as amended filed as an Exhibit to
EXCO's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated by reference herein.
4.3 Specimen Stock Certificate for the Common Stock of EXCO filed
as an Exhibit to EXCO's Pre-Effective Amendment No. 1 to Form
S-2 filed on June 2, 1998 and incorporated by reference
herein.
10.1 Standby Purchase Commitment between EXCO Resources, Inc. on
the one hand and Ares Management, L.P. on behalf of Ares
Leveraged Investment Fund, L.P. on the other hand dated July
16, 1998 filed as an Exhibit to EXCO's Form 8-K filed August
25, 1998 and incorporated by reference herein.
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C>
10.2 Standby Purchase Commitment between EXCO Resources, Inc. on
the one hand and Oaktree Capital Management, LLC on behalf of
OCM Principal Opportunities Fund, L.P. on the other hand,
dated July 16, 1998 filed as an Exhibit to EXCO's Form 8-K
filed August 25, 1998 and incorporated by reference herein.
10.3 Credit Agreement among EXCO Resources, Inc., as borrower, and
NationsBank of Texas, N.A., as agent, and financial
institutions listed on Schedule I, dated February 11, 1998
filed as an Exhibit to EXCO's Form 8-K filed February 25, 1998
and incorporated by reference herein.
10.4 First Amendment to Credit Agreement among EXCO Resources,
Inc., as borrower, NationsBank, N.A. (successor by merger to
NationsBank of Texas, N.A.), as agent, and financial
institutions listed on Schedule I, dated September 21, 1998,
filed as an Exhibit to EXCO's Form 8-K filed September 28,
1998 and incorporated by reference herein.
10.5 Purchase and Sale Agreement among EXCO Resources, Inc. and
Osborne Oil Company, et al., dated January 27, 1998 filed as
an Exhibit to EXCO's Form 8-K filed August 25, 1998 and
incorporated by reference herein.
10.6 EXCO Energy Investors, L.L.C. Operating Agreement, dated
October 9, 1998, filed as an Exhibit to EXCO's Annual Report
on Form 10-K for the year ended December 31, 1998 and
incorporated by reference herein.
10.7 Purchase and Sale Agreement among EXCO Resources, Inc. and
Osborne Oil Company, et al., dated January 27, 1998, filed as
an Exhibit to EXCO's Form 8-K dated February 25, 1998 and
incorporated by reference herein.
10.8 Stock Purchase Agreement between EXCO Resources, Inc. and
Jacobi-Johnson Energy, Inc., dated May 1, 1998, filed as an
Exhibit to EXCO's Form 8-K filed May 15, 1998 and incorporated
by reference herein.
10.9 EXCO Resources, Inc. 1998 Stock Option Plan, filed as Appendix
A to EXCO's Proxy Statement dated March 17, 1998 and
incorporated by reference herein.
10.10 Amendment No. 1 to the EXCO Resources, Inc. 1998 Stock Option
Plan, filed as Exhibit 10.10 to EXCO's Form 10-Q dated May 17,
1999 and incorporated by reference herein.
10.11 EXCO Resources, Inc. 1998 Director Compensation Plan filed as
Appendix D to EXCO's Proxy Statement dated March 16, 1999 and
incorporated by reference herein.
10.12 Purchase and Sale Agreement dated June 24, 1998, by and
between Humphrey Oil Interests, L.P. on the one hand and EXCO
Resources, Inc.
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
on the other, filed as an Exhibit to EXCO's Form 8-K dated
June 30, 1998 and incorporated by reference herein.
10.13 Purchase and Sale Agreement dated June 24, 1998, by and
between J. M. Hill, Individually and as Trustee, Walter O.
Hill, and Steven J. Devos on the one hand and EXCO Resources,
Inc. on the other, filed as an Exhibit to EXCO's Form 8-K
dated June 30, 1998 and incorporated by reference herein.
10.14 Purchase and Sale Agreement between Apache Corporation as
seller, and Venus Exploration, Inc., buyer, dated May 13,
1999, filed as an Exhibit to EXCO's Form 8-K filed July 15,
1999 and incorporated by reference herein.
10.15 Credit Agreement among EXUS Energy, LLC, as borrower,
NationsBank, N.A., as administrative agent, and financial
institutions listed on Schedule I, dated June 30, 1999, filed
as an Exhibit to EXCO's Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.16 Limited Liability Company Agreement of EXUS Energy, LLC dated
June 30, 1999, filed as an Exhibit to EXCO's Form 8-K filed
July 15, 1999 and incorporated by reference herein.
10.17 Convertible Promissory Note made by Venus Exploration, Inc. in
favor of EXCO Resources, Inc., dated June 30, 1999, filed as
an Exhibit to EXCO's Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.18 Pledge Agreement made by Venus Exploration, Inc. for the
benefit of EXCO Resources, Inc., dated June 30, 1999, filed as
an Exhibit to EXCO's Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.19 Registration Rights Agreement between EXCO Resources, Inc. and
Venus Exploration, Inc., dated June 30, 1999, filed as an
Exhibit to EXCO's Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.20 Agreement Among Members between EXCO Resources, Inc. and Venus
Exploration, Inc., dated June 30, 1999, filed as an Exhibit to
EXCO's Form 8-K filed July 15, 1999 and incorporated by
reference herein.
16.1 Letter from Belew Averitt LLP regarding change in certifying
accountant dated January 20, 1998 filed as an Exhibit to
EXCO's Form 8-K filed January 21, 1998 and incorporated by
reference herein.
18.1 Letter from Ernst & Young LLP regarding change in accounting
principles dated February 11, 1998 filed as an Exhibit to
EXCO's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated by reference herein.
23.1 Consent of Ernst & Young LLP, independent auditors (filed
herewith).
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
23.1 Consent of Ernst & Young LLP, independent auditors (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Voting Agreement dated October 30, 1998 between Rio Grande,
Inc., Rio Grande Drilling Company, Rio Grande Offshore, Ltd.,
Rio Grande Desert Oil Company and Rio Grande GulfMex, Ltd. and
EXCO Resources, Inc. previously filed as an Exhibit to Rio
Grande, Inc.'s Form 8-K dated November 12, 1998 and
incorporated by reference herein.
</TABLE>
(b) Reports on Form 8-K:
Current Report on Form 8-K/A No. 1 dated March 17, 1999, filed June 1,
1999 pursuant to Item 7 and containing Rio Grande, Inc. Financial
Statements, amending its Current Report on Form 8-K dated March 17,
1999, filed on April 1, 1999.
Current Report on Form 8-K dated June 30, 1999, filed July 15, 1999
as amended by Form 8-K/A No. 1 filed August 13, 1999 reporting the
Jackson Parish Properties Acquisition pursuant to Items 2 and 7.
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCO RESOURCES, INC.
(Registrant)
Date: August 16, 1999 By: /s/ J. DOUGLAS RAMSEY
------------------------------------------
J. Douglas Ramsey
Vice President and Chief Financial Officer
23
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP, independent auditors (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 (No. 333-49135) and related Prospectus for the
registration of 5,043,360 shares of its Common Stock and Registration Statement
Form S-8 (No. 333-64331) both of EXCO Resources, Inc. and to the incorporation
by reference therein of our reports dated (a) July 21, 1999, with respect to the
statement of revenues and direct operating expenses of the Jackson Parish
Properties for the years ended December 31, 1998, 1997 and 1996 and included in
its Current Report on Form 8-K/A No. 1 dated June 30, 1999 and filed on August
13, 1999 and (b) May 21, 1999 with respect to the financial statements of Rio
Grande, Inc. for the year ended January 31, 1999 and included in EXCO Resources,
Inc.'s Current Report on Form 8-K/A No. 1 dated March 17, 1999 and filed on June
1, 1999, both filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,906,000
<SECURITIES> 0
<RECEIVABLES> 1,902,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,899,000
<PP&E> 31,319,000
<DEPRECIATION> 4,940,000
<TOTAL-ASSETS> 45,216,000
<CURRENT-LIABILITIES> 1,486,000
<BONDS> 0
0
0
<COMMON> 134,000
<OTHER-SE> 36,220,000
<TOTAL-LIABILITY-AND-EQUITY> 45,216,000
<SALES> 1,596,000
<TOTAL-REVENUES> 1,911,000
<CGS> 640,000
<TOTAL-COSTS> 1,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 325,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 325,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,000
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
