<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 1999
(DATE OF REPORT) (DATE OF EARLIEST EVENT REPORTED)
EXCO RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-9204 74-1492779
(COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
5735 PINELAND DRIVE
SUITE 235
DALLAS, TEXAS 75231
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 368-2084
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<PAGE> 2
The undersigned registrant hereby amends the following "Item 7.
Financial Statements and Exhibits" of its Current Report on Form 8-K filed on
July 15, 1999, dated June 30, 1999 to include the following:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
Audited Statements of Operating Revenues and Direct Operating
Expenses for EXCO's share of the Jackson Parish Properties
for the years ended December 31, 1996, 1997, and 1998, and
Unaudited Statements of Operating Revenues and Direct
Operating Expenses for the three months ended March 31, 1999,
together with report of independent auditors Ernst & Young
LLP.
(b) Pro Forma Financial Information.
Pro Forma Combined Condensed Financial Statements of EXCO
Resources, Inc. for the year ended December 31, 1998 and the
three months ended March 31, 1999.
(c) Exhibits.
Number Document
10.1 Purchase and Sale Agreement between Apache
Corporation as seller, and Venus
Exploration, Inc., buyer, dated May 13,
1999, previously filed as an exhibit to
EXCO's Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.2 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, previously filed as an
exhibit to EXCO's Form 8-K filed July 15,
1999 and incorporated by reference herein.
10.3 Limited Liability Company Agreement of EXUS
Energy, LLC, dated June 30, 1999,
previously filed as an exhibit to EXCO's
Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.4 Convertible Promissory Note made by Venus
Exploration, Inc. in favor of EXCO
Resources, Inc., dated June 30, 1999,
previously filed as an exhibit to EXCO's
Form 8-K filed July 15, 1999 and
incorporated by reference herein.
10.5 Pledge Agreement made by Venus Exploration,
Inc. for the benefit of EXCO Resources,
Inc., dated June 30, 1999, previously filed
as an exhibit to EXCO's Form 8-K filed July
15, 1999 and incorporated by reference
herein.
10.6 Registration Rights Agreement between EXCO
Resources, Inc. and Venus Exploration,
Inc., dated June 30, 1999, previously filed
as an
-1-
<PAGE> 3
exhibit to EXCO's Form 8-K filed July 15,
1999 and incorporated by reference herein.
10.7 Agreement Among Members between EXCO
Resources, Inc. and Venus Exploration,
Inc., dated June 30, 1999, previously filed
as an exhibit to EXCO's Form 8-K filed
July 15, 1999 and incorporated by reference
herein.
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, hereunto duly authorized.
EXCO RESOURCES, INC.
By: /s/ T. W. EUBANK
-----------------------
T.W. Eubank, President
Dated: August 13, 1999
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<PAGE> 4
Item 7(a)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
EXCO Resources, Inc.
We have audited the accompanying statements of operating revenues and direct
operating expenses of the share of the Jackson Parish Properties (as defined in
Note 1 to the accompanying statements) acquired by EXCO Resources, Inc. for the
years ended December 31, 1996, 1997 and 1998. These statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the statements of operating revenues
and direct operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of operating revenues and direct operating
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
The accompanying statements of operating revenues and direct operating expenses
were prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission and are not intended to be a complete
presentation of revenues and expenses of the Jackson Parish Properties.
In our opinion, the statements of operating revenues and direct operating
expenses referred to above present fairly, in all material respects, the
results of operations of the share of the Jackson Parish Properties acquired by
EXCO Resources, Inc. for the years ended December 31, 1996, 1997, and 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
July 21, 1999
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<PAGE> 5
JACKSON PARISH PROPERTIES
STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------ ------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Oil and natural gas sales ............................. $3,624 $3,655 $2,812 $760 $486
Direct operating expenses ............................. 291 465 522 118 104
------ ------ ------ ---- ----
Excess of revenues over direct operating expense ...... $3,333 $3,190 $2,290 $642 $382
====== ====== ====== ==== ====
</TABLE>
See accompanying notes.
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<PAGE> 6
JACKSON PARISH PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On June 30, 1999, EXUS Energy, LLC, a Delaware limited liability company
(EXUS), owned 50% by EXCO Resources, Inc. (EXCO) and 50% by Venus Exploration,
Inc. (Venus), completed the acquisition from Apache Corporation (Apache) 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 the
Jackson Parish Properties and assumed operations 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. The purchase
price, before closing adjustments, was approximately $28.5 million, and after
adjustments was approximately $27.6 million cash.
The acquisition was funded with $14 million drawn under a new credit
facility established by EXUS with NationsBank, N.A., and $14 million of EXUS
equity capital which consisted of $7 million cash contributions each by EXCO
and Venus. Venus's capital was funded by a $7 million Convertible Promissory
Note in favor of EXCO dated June 30, 1999.
As is common in the oil and gas industry, EXCO will account for its
interest in EXUS and in turn the Jackson Parish Properties using proportional
consolidation. Thus, EXCO will consolidate only its share of EXUS's assets,
liabilities, revenue and expenses, and no minority interest for Venus's interest
will be included. Accordingly, the accompanying statements present the interest
acquired by EXCO in the operating revenues and direct operating expenses of the
Jackson Parish Properties. The operating revenues and direct operating expenses
presented herein relate only to the interests in the producing oil and natural
gas properties which were acquired and do not represent all of the oil and
natural gas operations of Apache nor the interest acquired by Venus. Direct
operating expenses include the actual costs of maintaining the producing
properties and their production, but do not include charges for depletion,
depreciation, and amortization; federal and state income taxes; interest; or
general and administrative expenses. Presentation of complete historical
financial statements for the years ended December 31, 1996, 1997, and 1998 is
not practicable because the Jackson Parish Properties were not accounted for as
a separate entity by Apache; and therefore, such statements are not available.
The operating revenues and direct operating expenses for the periods presented
may not be representative of future operations.
Revenues in the accompanying statements of operating revenues and direct
operating expenses are recognized on the sales method. Direct operating
expenses are recognized on an accrual basis.
In management's opinion, the accompanying interim statements contain all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the consolidated interest acquired by EXCO in the operating
revenues and direct operating expenses of the Jackson Parish Properties for the
three month periods ended March 31, 1998 and 1999.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results expected for the full year.
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<PAGE> 7
JACKSON PARISH PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
2. SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION (UNAUDITED)
OIL AND NATURAL GAS OPERATIONS
During the years ended December 31, 1996, 1997 and 1998, EXCO's share of
development costs incurred were $2.0 million, $2.4 million and $25,000,
respectively. No exploration or incremental general and administrative costs
were incurred.
RESERVE QUANTITY INFORMATION
The following table presents EXCO's estimate of its share of the proved
oil and natural gas reserves of the Jackson Parish Properties, all of which are
located in the United States, as of December 31, 1998. EXCO and Venus may use
different independent petroleum reservoir engineers to prepare these estimates.
As a result, the reserve quantity estimate and the Standardized Measure of
Discounted Future Net Cash Flows below may differ from those estimates
presented by Venus in its public disclosures. EXCO emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries are
more imprecise than those of producing oil and natural gas properties.
Accordingly, the estimates are expected to change as future information becomes
available.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF) BOE*
---------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Proved reserves......................... 1 34,779 5,798
=================== ================== ==================
Proved developed reserves............... 1 21,716 3,620
=================== ================== ==================
</TABLE>
- ------------------
* Boe - Barrels of oil equivalent calculated by converting 6 Mcf of
natural gas to 1 Bbl of oil. A Bbl is one stock tank barrel, or 42 U.S.
gallons liquid volume, of crude oil or other liquid hydrocarbons. An Mcf
is one thousand cubic feet of natural gas.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69.
The Standardized Measure does not purport to be, nor should it be
interpreted to present, the fair value of the oil and natural gas reserves of
the Jackson Parish Properties. An estimate of fair value would also take into
account, among other things, the recovery of reserves not presently classified
as proved, the value of unproved properties, and consideration of expected
future economic and operating conditions.
-6-
<PAGE> 8
JACKSON PARISH PROPERTIES
NOTES TO STATEMENTS OF OPERATING REVENUES
AND DIRECT OPERATING EXPENSES
Under the Standardized Measure, future cash flows are estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash flows
are reduced by estimated future production costs, based on period-end costs,
and projected future development costs to determine net cash inflows. The
Jackson Parish Properties are not a separate tax paying entity. Accordingly,
the Standardized Measure for the Jackson Parish Properties is presented before
deduction of income taxes. Future net cash flows are discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
The Standardized Measure of discounted future net cash flows relating to
proved oil and natural gas reserves of EXCO's share of the Jackson Parish
Properties at December 31, 1998 follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows ...................................... $68,181
Future production costs .................................. 21,423
Future development costs ................................. 7,936
-------
Future net cash flows .................................... 38,822
Discount of future net cash flows at 10% per annum ....... 26,134
-------
Discounted future net cash flows before income taxes ..... $12,688
=======
</TABLE>
The future cash flows shown above include amounts attributable to
non-producing reserves requiring approximately $7.9 million of future
development costs. If these reserves are not developed, the Standardized
Measure of discounted future net cash flows as of December 31, 1998, shown
above would be reduced significantly.
Estimates of economically recoverable oil and natural gas reserves and
of future net revenues are based upon a number of variable factors and
assumptions, all of which are to some degree speculative and may vary
considerably from actual results. Therefore, actual production, revenues,
taxes, development and operating expenditures may not occur as estimated. The
reserve data are estimates only, are subject to many uncertainties and are
based on data gained from production histories and on assumptions as to
geologic formations and other matters. Actual quantities of natural gas and oil
may differ materially from the amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1998
used in the calculation of the Standardized Measure were $9.75 per Bbl and
$1.96 per Mcf, respectively.
-7-
<PAGE> 9
Item 7(b)
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
As discussed in "Item 2. Acquisition or Disposition of Assets," of EXCO's
Current Report on Form 8-K filed on July 15, 1999, dated June 30, 1999, EXUS
Energy, LLC, a Delaware limited liability company (EXUS), owned 50% by EXCO
Resources, Inc. (EXCO) and 50% by Venus Exploration, Inc. (Venus), completed the
acquisition of the Jackson Parish Properties on June 30, 1999. The acquisition
was funded through borrowings made under the EXUS credit facility with
NationsBank, N.A. (the Borrowings), and cash from working capital.
The accompanying pro forma combined condensed financial statements are
based on the historical financial statements of EXCO for the year ended
December 31, 1998, and the three months ended March 31, 1999. The pro forma
combined condensed financial statements are also based, in part, on the
historical financial statements of Jacobi-Johnson Energy, Inc. (Jacobi-Johnson)
which was acquired by EXCO effective May 8, 1998, Rio Grande, Inc.
(Rio Grande or RGI) which was acquired by EXCO effective March 16, 1999, and on
EXCO's share of the historical operating revenues and direct operating expenses
of the Dawson County Properties (described in EXCO's Form 8-K dated
June 30, 1998) and the Jackson Parish Properties. The statements of operating
revenues and direct operating expenses of the Jackson Parish Properties are
included elsewhere herein.
The Pro Forma Combined Condensed Balance Sheet as of March 31, 1999,
assumes the acquisition of the Jackson Parish Properties and the related
borrowings had been consummated on that date. Because RGI was acquired on March
16, 1999, Jacobi-Johnson and the Dawson County Properties were both acquired in
1998, and the common stock Rights Offering was completed in 1998, they are
already included in EXCO's March 31, 1999 balance sheet. The Pro Forma Combined
Condensed Statement of Operations for the year ended December 31, 1998, and the
three months ended March 31, 1999, have been prepared assuming the acquisitions
of Jacobi-Johnson, the Dawson County Properties, RGI, and the Jackson Parish
Properties, the related borrowings and the common stock Rights Offering had been
consummated on January 1, 1998.
The pro forma adjustments are based upon available information and
assumptions that management of EXCO believes are reasonable. The pro forma
combined condensed financial statements do not purport to represent the
financial position or results of operations of EXCO which would have occurred
had such transactions been consummated on the dates indicated or EXCO's
financial position or results of operations for any future date or period.
-8-
<PAGE> 10
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
EXCO FOR THE PRO FORMA
HISTORICAL ACQUISITION COMBINED
---------- --------------- ----------
(In thousands)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash ......................................... $ 21,924 $(14,158) (7)(8)(9)(10) $ 7,766
Accounts receivable and other assets ......... 1,149 -- 1,149
-------- -------- --------
Total current assets ..................... 23,073 (14,158) 8,915
Net property and equipment ....................... 13,891 14,019 (8) 27,910
Other assets ..................................... 301 155 (10) 456
Investments ...................................... 352 7,000 (9) 7,352
-------- -------- --------
Total assets ............................. $ 37,617 $ 7,016 $ 44,633
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities ..... $ 1,161 $ 16 (8) $ 1,177
Current maturities of long-term debt ......... 1 -- 1
-------- -------- --------
Total current liabilities ................ 1,162 16 1,178
Long-term debt, less current maturities .......... 376 7,000 (7) 7,376
STOCKHOLDERS' EQUITY:
Preferred stock .............................. -- -- --
Common stock ................................. 134 -- 134
Additional paid-in capital ................... 36,609 36,609
Retained earnings ............................ (664) -- (664)
-------- -------- --------
Total stockholders' equity ............... 36,079 -- 36,079
-------- -------- --------
Total liabilities and stockholders'
equity ................................... $ 37,617 $ 7,016 $ 44,633
======== ======== ========
</TABLE>
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<PAGE> 11
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for the 1998
Jacobi- Dawson Acquisitions Adjusted
EXCO Johnson County & Rights EXCO Rio Grande
Historical Historical Historical Offering Historical Historical
---------- ---------- ---------- -------------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and natural gas ............... $ 1,385 $ 236 $ 479 $ -- $ 2,100 $ 4,407
Other ............................. 690 -- -- (315) (4) 375 351
---------- ---------- ----------- -------------- ----------- ---------
Total revenues.................. 2,075 236 479 (315) 2,475 4,758
Expenses:
Oil and natural gas production..... 786 140 106 -- 1,032 2,060
Abandonment costs.................. -- -- -- -- -- 137
Depletion, depreciation and
amortization..................... 465 32 -- 142 (1) 639 6,097
General and administrative......... 1,231 7 -- 16 (2) 1,254 1,350
Interest and other................. 104 10 -- (114) (3) -- 939
---------- ---------- ----------- -------------- ----------- ---------
Income (loss) before income taxes
and minority interest.............. (511) 47 373 (359) (450) (5,825)
Minority interest in limited
partnership........................ -- -- -- -- -- (127)
---------- ---------- ----------- -------------- ------------ ---------
Income (loss) before income taxes.... (511) 47 373 (359) (450) (5,698)
Income taxes......................... -- -- -- -- -- 10
---------- ---------- ----------- -------------- ------------ ---------
Net income (loss).................... (511) 47 373 (359) (450) (5,708)
Dividends on preferred stock......... -- -- -- -- -- (817)
---------- ---------- ----------- -------------- ------------ ---------
Net income (loss) applicable to
common stock....................... $ (511) $ 47 $ 373 $ (359) $ (450) $(6,525)
=========== ========== =========== ============= =========== ========
Basic and diluted earnings (loss)
per share.......................... $ (0.18) $ -- $ -- $ -- $ (0.07) $ --
=========== ========== =========== ============= =========== ========
Weighted average number of common
and common equivalent shares
outstanding........................ 2,871 -- -- 3,711 (5) 6,582 --
=========== ========== =========== ============= =========== ========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Jackson Adjustments
Parish for the 1999 Pro Forma
Historical Acquisitions Combined
---------- ------------ ----------
<S> <C> <C> <C>
Revenues:
Oil and natural gas ............... $ 2,812 $ -- $ 9,319
Other ............................. -- 700 (13) 1,426
---------- ---------- -----------
Total revenues.................. 2,812 700 10,745
Expenses:
Oil and natural gas production..... 522 -- 3,614
Abandonment costs.................. -- -- 137
Depletion, depreciation and
amortization..................... -- 605 (11) 7,341
General and administrative......... -- -- 2,604
Interest and other................. -- (462) (6)(12) 477
---------- ---------- -----------
Income (loss) before income taxes
and minority interest.............. 2,290 557 (3,428)
Minority interest in limited
partnership........................ -- -- (127)
---------- ---------- -----------
Income (loss) before income taxes.... 2,290 557 (3,301)
Income taxes......................... -- -- 10
---------- ---------- -----------
Net income (loss).................... 2,290 557 (3,311)
Dividends on preferred stock......... -- 817 (6) --
---------- ---------- -----------
Net income (loss) applicable to
common stock....................... $ 2,290 $ 1,374 $ (3,311)
=========== ========== ===========
Basic and diluted earnings (loss)
per share.......................... $ -- $ -- $ (0.50)
=========== ========== ===========
Weighted average number of common
and common equivalent shares
outstanding........................ -- -- 6,582
=========== ========== ===========
</TABLE>
-10-
<PAGE> 12
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
RIO JACKSON ADJUSTMENTS
EXCO GRANDE PARISH FOR THE PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS COMBINED
------------- -------------- ------------- --------------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ............... $ 669 $ 176 $486 $ -- $1,331
Other ............................. 315 23 -- (21) (4)(13) 317
------- ----- ---- ----- ------
Total revenues ................ 984 199 486 (21) 1,648
EXPENSES:
Oil and natural gas production .... 368 123 104 -- 595
Depletion, depreciation and
amortization .................... 294 9 -- 130 (11) 433
General and administrative ........ 474 73 -- -- 547
Interest and other ................ 1 0 -- 119 (12) 120
------- ----- ---- ----- ------
Income (loss) before income taxes ..... (153) (6) 382 (270) (47)
Income taxes .......................... -- 1 -- -- 1
------- ----- ---- ----- ------
Net income (loss) ..................... $ (153) $ (7) $382 $(270) $ (48)
======= ===== ==== ===== ======
Basic and diluted earnings (loss)
per share ........................... $ (.02) $ -- $ -- $ -- $ (.01)
======= ===== ==== ===== ======
Weighted average number of
common and common equivalent
shares outstanding .................. 6,688 -- -- -- 6,688
======= ===== ==== ===== ======
</TABLE>
-11-
<PAGE> 13
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE ACQUISITIONS OF JACOBI-JOHNSON AND THE
DAWSON COUNTY PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1998 has been prepared as if the
acquisitions of Jacobi-Johnson and the Dawson County Properties had been
consummated on January 1, 1998 and reflects the following adjustments:
(1) To adjust depreciation, depletion and amortization of the oil and
gas properties to reflect the effect of the acquisitions of
Jacobi-Johnson and the Dawson County Properties using the full cost
method of accounting on total pro forma proved oil and natural gas
reserves.
(2) To adjust general and administrative expense for unused line fees on
the Credit Facility.
(3) To eliminate interest expense on EXCO's and Jacobi-Johnson's
historical borrowings.
B. PRO FORMA ADJUSTMENTS FOR THE COMMON STOCK RIGHTS OFFERING
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1998 and the three months ended
March 31, 1999 have been prepared as if the common stock Rights Offering had
been consummated on January 1, 1998 and reflect the following adjustments:
(4) To adjust interest income on surplus cash of $7.0 million, based on
a 4.0% per annum interest rate.
(5) To adjust the weighted average common shares outstanding as a result
of the exercise of the common stock purchase rights by shareholders
in connection with the Rights Offering.
C. PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF RIO GRANDE
The accompanying unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1998 has been prepared as if the
acquisition of RGI had been consummated on January 1, 1998 and reflects the
following adjustment:
(6) To eliminate the accrued interest on RGI's bank note and RGI's
accrued preferred stock dividends as a result of RGI's bankruptcy
settlement.
D. PRO FORMA ADJUSTMENTS FOR THE JACKSON PARISH PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Balance Sheet
has been prepared as if EXCO's share of the acquisition of the Jackson Parish
Properties and the related borrowings had been consummated on March 31, 1999,
and reflects the following adjustments:
(7) To record EXUS's borrowings of $14.0 million ($7.0 million net to
EXCO's interest) under the NationsBank credit facility.
(8) To record the acquisition of the Jackson Parish Properties in
exchange for consideration of approximately $13.8 million in cash
and related professional fees.
(9) To record the $7.0 million loan to Venus Exploration, Inc.
(10) To record the payment of transaction costs.
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1998 and the three months ended
March 31, 1999 have been prepared as if EXCO's share of the acquisition of the
Jackson Parish Properties and the related borrowings had been consummated on
January 1, 1998 and reflect the following adjustments:
(11) To adjust depreciation, depletion and amortization of the oil and
gas properties to reflect the effect of the acquisition of the
Jackson Parish Properties using the full cost method of accounting
on total pro forma proved oil and natural gas reserves.
(12) To record interest expense on the borrowings of $7.0 million, based
on a 6.8% per annum interest rate.
(13) To record interest income on the loan to Venus Exploration, Inc. of
$7.0 million, based on a 10.0% per annum interest rate for the year
ended December 31, 1998, and an 11.0% per annum interest rate for
the three months ended March 31, 1999, in accordance with the terms
of the Convertible Promissory Note made by Venus in favor of EXCO,
dated June 30, 1999.
-12-
<PAGE> 14
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
E. PRO FORMA COMBINED SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND
STANDARDIZED MEASURE INFORMATION
RESERVE QUANTITY INFORMATION
The following table presents EXCO's estimate of the pro forma combined
proved oil and natural gas reserves of EXCO after giving effect to the
acquisition of Rio Grande, Inc. and EXCO's share of the Jackson Parish
Properties as of December 31, 1998. All reserves are located in the United
States. EXCO and Venus may use different independent petroleum reservoir
engineers to prepare these estimates. As a result, the reserve quantity
estimate and the Standardized Measure of Discounted Future Net Cash Flows below
may differ from those estimates presented by Venus in its public disclosures.
EXCO emphasizes that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of producing oil and
natural gas properties. Accordingly, the estimates are expected to change as
future information becomes available.
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF) BOE*
------------------ ------------------ ------------------
(In thousands)
<S> <C> <C> <C>
Proved reserves................... 1,758 47,836 9,731
================== ================== ==================
Proved developed reserves......... 1,474 32,464 6,885
================== ================== ==================
</TABLE>
- -----------------
* Boe - Barrels of oil equivalent calculated by converting 6 Mcf of natural
gas to 1 Bbl of oil.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND NATURAL GAS RESERVES
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Natural Gas Reserves (Standardized Measure) is a disclosure
requirement under Statement of Financial Accounting Standards No. 69.
The Standardized Measure does not purport to be, nor should it be
interpreted to present, the fair value of EXCO's oil and natural gas reserves.
An estimate of fair value would also take into account, among other things, the
recovery of reserves not presently classified as proved, the value of unproved
properties, and consideration of expected future economic and operating
conditions.
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<PAGE> 15
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
Under the Standardized Measure, future cash flows are estimated by
applying year-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of year-end proved reserves. Future cash
inflows are reduced by estimated future production costs, based on period-end
costs, and projected future development costs to determine pre-tax cash
inflows. Future income taxes are computed by applying the statutory rate (based
on the current tax law adjusted for permanent differences and tax credits) to
the excess of pre-tax net cash flows over EXCO's income tax basis of its oil
and natural gas properties. Future net cash flows are discounted using a 10%
annual discount rate to arrive at the Standardized Measure.
The pro forma Standardized Measure of discounted future net cash flows
relating to EXCO's proved oil and natural gas reserves at December 31, 1998,
follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows....................................... $ 108,541
Future production costs................................... 36,770
Future development costs.................................. 10,855
Future income taxes....................................... 10,338
-----------------
Future net cash flows..................................... 50,578
Discount of future net cash flows at 10% per annum........ 28,019
-----------------
Pro forma Standardized Measure of discounted future
net cash flows.......................................... $ 22,559
=================
</TABLE>
The future cash flows shown above include amounts attributable to
non-producing reserves requiring approximately $10.9 million of future
development costs. If these reserves are not developed, the Standardized
Measure of discounted future net cash flows as of December 31, 1998, shown
above would be reduced significantly.
Estimates of economically recoverable oil and natural gas reserves and
of future net reserves are based upon a number of variable factors and
assumptions, all of which are to some degree speculative and may vary
considerably from actual results. Therefore, actual production, revenues,
taxes, development and operating expenditures may not occur as estimated. The
reserve data are estimates only, are subject to many uncertainties and are
based on data gained from production histories and on assumptions as to
geologic formations and other matters. Actual quantities of oil and natural gas
may differ materially from the amounts estimated.
The weighted average prices of oil and natural gas at December 31, 1998
used in the calculation of the Standardized Measure were $10.18 per Bbl and
$1.89 per Mcf, respectively.
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