<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 September 30, 2000
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 last practicable date.
Class: Common Stock, par value $0.02 per share
Outstanding at November 7, 2000: 6,842,750 shares
(excludes 10,446 treasury shares)
<PAGE> 2
EXCO RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)..............................................................2
Condensed Consolidated Balance Sheets
December 31, 1999 and September 30, 2000......................................................2
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 2000 ......................................3
Condensed Consolidated Statements of Cash Flow
Nine Months Ended September 30, 1999 and 2000.................................................4
Notes to Condensed Consolidated Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................17
Item 3. Quantitative and Qualitative Disclosure About Market Risk....................................22
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................25
Pro Forma Combined Condensed Financial Statements (Unaudited):
Pro Forma Combined Condensed Balance Sheet...................................................26
Pro Forma Combined Condensed Statements of Operations........................................27
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.........................30
Financial Statements of Properties Acquired - Central Properties:
Report of Independent Public Accountants.....................................................35
Statements of Revenues and Direct Operating Expenses.........................................36
Notes to Statements of Revenues and Direct Operating Expenses................................37
Item 6. Exhibits and Reports on Form 8-K.............................................................41
Signatures.....................................................................................................46
Index to Exhibits..............................................................................................47
</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, SEPTEMBER 30,
------------ -------------
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 9,972 $ 5,616
Accounts receivables:
Oil and natural gas sales ................................................ 824 6,015
Joint interest ........................................................... 1,914 528
Interest and other ....................................................... 18,818 177
Other ......................................................................... 71 409
-------- --------
Total current assets ............................................. 31,599 12,745
Oil and natural gas properties (full cost accounting method):
Proved developed and undeveloped oil and natural gas properties ............... 24,177 89,877
Allowance for depreciation, depletion and amortization ........................ (5,503) (8,472)
-------- --------
Oil and natural gas properties, net ........................................... 18,674 81,405
Office and field equipment, net .......................................................... 264 269
Deferred financing costs ................................................................. 8 315
Investment in EXUS Energy, LLC ........................................................... 257 4
Deferred tax asset ....................................................................... -- 130
Other assets ............................................................................. 130 295
-------- --------
Total assets ..................................................... $ 50,932 $ 95,163
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 3,870 $ 1,704
Revenues and royalties payable ................................................ 1,136 2,186
Accrued interest payable ...................................................... 10 75
Current maturities of long-term debt .......................................... 5,001 --
-------- --------
Total current liabilities ...................................... 10,017 3,965
Long-term debt, less current maturities .................................................. -- 42,874
Deferred income taxes .................................................................... -- 2,356
Other long-term liabilities .............................................................. 227 227
Minority interest in limited partnership ................................................. (192) --
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
Outstanding shares - None ................................................ -- --
Common stock, $.02 par value:
Authorized shares - 25,000,000
Issued and outstanding shares - 6,805,196 and 6,852,696
at December 31, 1999 and September 30, 2000, respectively ................ 136 137
Additional paid-in capital .................................................... 46,941 47,355
Notes receivable-officers ..................................................... (1,552) (1,590)
Deficit eliminated in quasi-reorganization .................................... (8,799) (8,799)
Retained earnings since December 31, 1997 ..................................... 4,154 8,727
Treasury stock, at cost: 0 and 10,446 shares at
December 31, 1999 and September 30, 2000, respectively ................... -- (89)
-------- --------
Total stockholders' equity ..................................... 40,880 45,741
-------- --------
Total liabilities and stockholders' equity ..................... $ 50,932 $ 95,163
======== ========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1999 2000 1999 2000
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ................................ $ 1,536 $ 6,578 $ 3,586 $15,807
Other income ....................................... 339 251 970 997
Equity in the earnings of EXUS Energy, LLC ......... 286 -- 412 --
Gain on disposition of assets ...................... -- 3 -- 538
------- ------- ------- -------
Total revenues ............................... 2,161 6,832 4,968 17,342
COSTS AND EXPENSES:
Oil and natural gas production ..................... 608 2,191 1,587 5,402
Depreciation, depletion and amortization ........... 401 1,239 1,139 3,109
General and administrative ......................... 493 475 1,415 1,425
Interest ........................................... 0 193 1 477
------- ------- ------- -------
Total costs and expenses ..................... 1,502 4,098 4,142 10,413
------- ------- ------- -------
Income before income taxes and minority interest ...... 659 2,734 826 6,929
Minority interest in limited partnership .............. -- -- (5) --
------- ------- ------- -------
Income before income taxes ............................ 659 2,734 831 6,929
Deferred income tax provision ......................... -- 930 -- 2,356
------- ------- ------- -------
Net income ............................................ $ 659 $ 1,804 $ 831 $ 4,573
======= ======= ======= =======
Basic earnings per share .............................. $ .09 $ .26 $ .12 $ .67
======= ======= ======= =======
Diluted earnings per share ............................ $ .09 $ .26 $ .12 $ .66
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding:
Basic .......................................... 6,688 6,848 6,688 6,828
======= ======= ======= =======
Diluted ........................................ 6,704 6,944 6,698 6,894
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 5
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited, in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 2000
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................ $ 831 $ 4,573
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization ........................... 1,139 3,109
Deferred income taxes .............................................. -- 2,356
Gain on disposition of properties .................................. -- (538)
-------- --------
Cash flow before changes in working capital ............................... 1,970 9,500
Effect of changes in:
Accounts receivable ............................................. (1,153) 14,836
Other current assets ............................................ 118 (338)
Accounts payable and other current liabilities .................. 1,435 (1,051)
-------- --------
Net cash provided by operating activities ................................. 2,370 22,947
INVESTING ACTIVITIES:
Additions to property and equipment ....................................... (1,348) (65,040)
Proceeds from disposition of property and equipment ....................... 2,002 585
Investment in Rio Grande, Inc. promissory note ............................ 7,451 --
Acquisition of Rio Grande, Inc. ........................................... (7,017) --
Investment in EXUS Energy, LLC ............................................ (7,626) 257
Purchase of Venus Exploration, Inc. promissory note ....................... (7,000) --
Purchase of treasury stock (cost method) .................................. -- (89)
Other investing activities ................................................ (213) (506)
-------- --------
Net cash used in investing activities ..................................... (13,751) (64,793)
FINANCING ACTIVITIES:
Proceeds from long-term debt .............................................. -- 50,234
Payments on long-term debt ................................................ (10) (12,641)
Proceeds from exercise of stock options ................................... -- 285
Interest income on notes receivable - officers ............................ (59) (79)
Interest payment on notes receivable-officers ............................. 56 41
Deferred financing costs .................................................. (9) (350)
-------- --------
Net cash provided by (used in) financing activities ....................... (22) 37,490
-------- --------
Net decrease in cash ...................................................... (11,403) (4,356)
Cash at beginning of period ............................................... 21,493 9,972
-------- --------
Cash at end of period ..................................................... $ 10,090 $ 5,616
======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid ............................................................. $ 1 $ 412
======== ========
Income taxes paid ......................................................... $ -- $ --
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 6
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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,
1999 and September 30, 2000, the results of operations for the three and nine
month periods ended September 30, 1999 and 2000, and the cash flows for the nine
month periods ended September 30, 1999 and 2000.
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 accounting principles generally
accepted in the United States 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, 1999. The accompanying
condensed consolidated financial statements include the financial statements of
EXCO Resources, Inc., EXCO (Delaware), Inc., Rio Grande Gulfmex, Ltd., EXUS
Energy, LLC, and Pecos-Gomez, L.P. The financial statements of Pecos-Gomez, L.P.
have been consolidated proportionally based on EXCO's 55.1% aggregate ownership
interest in the partnership. As discussed in Note 13. Quarterly Financial
Results to our consolidated financial statements included in our Annual Report
filed on Form 10-K for the year ended December 31, 1999, the condensed
consolidated balance sheet as of September 30, 1999, the condensed consolidated
statements of operations for the three and nine month periods ended September
30, 1999, and the condensed consolidated statement of cash flows for the nine
month period ended September 30, 1999, have been restated to reflect a change
from the proportional consolidation method to the equity method of accounting
for our investment in EXUS Energy, LLC. Any comparisons made in this Form 10-Q
to the three and nine month periods ended September 30, 1999, use these restated
results.
The results of operations for the three and nine month periods ended
September 30, 2000, 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 nine month periods ended September 30, 1999 and 2000, our net
income and comprehensive income were the same.
5
<PAGE> 7
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results from the hedged item on the income statement. Companies
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 2000.
Based on our current hedge position and the prices of oil and natural gas as of
September 30, 2000, the effect of adopting SFAS 133 on other comprehensive
income was insignificant.
Certain prior year amounts have been reclassified to conform to current
year presentation.
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 an increase in our activities. Our 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 or warrants were in-the-money, vested (if subject
to vesting requirements) and exercised.
6
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
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 accounted for 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. BANK OF AMERICA CREDIT AGREEMENTS
EXCO Resources, Inc.
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 the first amendment to the credit facility with NationsBank, N.A.
(successor by merger to NationsBank of Texas, N.A.). The first amendment
provided for borrowings up to $150 million, subject to borrowing base
limitations, as determined by the lenders from time to time. On February 11,
2000, we entered into the second amendment to the credit facility with Bank of
America, N.A. (successor by merger to NationsBank, N.A.). The second amendment
provided for a new termination date, an increase in our borrowing base, subject
to certain conditions, and an increase in certain thresholds customary for a
growing company. On September 22, 2000, we entered into an Amended and Restated
7
<PAGE> 9
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Credit Agreement (the Credit Agreement) with Bank of America, N.A., as
administrative agent, Bank One, Texas, N.A., as syndication agent, and a
syndicate of banks as lenders. The Credit Agreement provides for borrowings up
to $150 million, subject to borrowing base limitations. The banks have sole
discretion to determine the borrowing base based on their valuation of our
reserves conducted semi-annually.
The Credit Agreement consists of a regular revolver, which on September
30, 2000, had a borrowing base of $45.0 million. At September 30, 2000, we had
approximately $5.0 million available for borrowing under the Credit Agreement. A
portion of the borrowing base is available for the issuance of letters of
credit. All borrowings under the Credit Agreement are secured by a first lien
mortgage providing a security interest in 80% of our oil and natural gas
properties including mineral interests. Under the Credit Agreement, 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 an unused
commitment fee of .30% to .425% based on the ratio of outstanding credit to the
borrowing base.
The Credit Agreement provides that if our aggregate outstanding
indebtedness is less than 50% of the borrowing base, then advances will bear
interest at 1.0% over LIBOR. If the borrowing base usage equals or exceeds 50%
but is less than or equal to 70%, then advances will bear interest at 1.25% over
LIBOR. If the borrowing base usage is greater than 70% but is less than or equal
to 90%, then advances will bear interest at 1.5% over LIBOR. If the borrowing
base usage exceeds 90%, then advances will bear interest at 1.75%.
The Credit Agreement matures on September 22, 2003. There are no
scheduled principal payments due on the Credit Agreement until maturity. The
next borrowing base redetermination is scheduled for April 30, 2001, and on or
about each October 31 and April 30, thereafter. A borrowing base deficiency is
created in the event that the outstanding loan balances exceed the borrowing
base. If a borrowing base deficiency were to exist after giving effect to a
redetermination, then we would have to do one of the following:
o make a lump sum payment equal to the deficiency;
o make 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;
or
o provide additional collateral acceptable to the banks in their
sole discretion sufficient to increase the borrowing base and
eliminate the deficiency.
Under the terms of the Credit Agreement, we must not permit our
consolidated current assets to consolidated current liabilities to be less than
1.0 to 1.0 at any time. Furthermore, we
8
<PAGE> 10
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
must maintain a minimum net worth equal to $35 million plus (i) subsequent to
June 30, 2000, 50% of consolidated cumulative net income and (ii) an amount
equal to 75% of the net proceeds received from the issuance of any equity
securities after June 30, 2000. Additionally, the Credit Agreement contains a
number of other covenants regarding our liquidity and capital resources,
including restrictions on our ability to incur indebtedness at any time in an
amount exceeding $500,000, restrictions to pledge assets outside of the Credit
Agreement, and currently prohibits the payment of dividends on our capital
stock. The Credit Agreement also requires that we hedge at least 75% but not
more than 80% of projected oil production from our total proved producing
mineral interests for not less than 30 months following the closing date of the
Central Properties acquisition.
Pecos-Gomez, L.P.
See Note 8. Acquisitions - Pecos County Properties Acquisition for a
description of the Pecos-Gomez, L.P. credit facility.
7. HEDGING ACTIVITIES
In an effort to reduce the effects of the volatility of the price of
oil and natural gas on our operations, management has adopted a policy of
hedging oil and natural gas prices whenever such prices are in excess of the
prices anticipated in our operating budget and profit plan through the use of
commodity futures, options, and swap agreements. Hedging transactions require
the approval of our board of directors.
The following table sets forth our oil and natural gas hedging
activities as of September 30, 2000, and those contracts entered into subsequent
to September 30, 2000. All contracts are swap agreements for the sale of oil or
natural gas and are based on NYMEX pricing. The market values at September 30,
2000 are estimated from quotes by the counterparties and represent the amounts
we would expect to receive to terminate the agreements on September 30, 2000.
9
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
NOTIONAL(1,2) MARKET VALUE AT
VOLUME/RANGE AGGREGATE(1,2) STRIKE SEPTEMBER 30,
COMMODITY CONTRACT DATE EFFECTIVE DATE TERMINATION DATE PER MONTH VOLUME PRICE/RANGE 2000
--------- ------------- -------------- ---------------- ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oil 9/21/1999 10/1/1999 9/30/2000 7,000 Bbls 84,000 Bbls $21.00 $ --
Oil 3/13/2000 4/1/2000 9/30/2000 10,000 Bbls 60,000 Bbls $24.90 - $29.23 $ --
Natural Gas 3/13/2000 4/1/2000 9/30/2000 60,000 Mmbtus 360,000 Mmbtus $2.70 - $2.75 $ --
Oil 9/28/2000 11/1/2000 4/30/2003 29,000 Bbls - 1,083,000 Bbls $23.96 - 30.84 $36,745
46,000 Bbls
Natural Gas 10/13/2000 1/1/2001 12/31/2001 186,000 Mmbtus - 2,383,500 Mmbtus $4.915 N/A
216,000 Mmbtus
</TABLE>
----------
(1)Bbls - Barrels.
(2)Mmbtus - Million British thermal units.
The following table sets forth our oil, natural gas liquids, and
natural gas prices, both realized before hedge results, and realized including
hedge results; and the net effects of settlements of oil and natural gas price
hedges on revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 2000
------------------ -----------------
<S> <C> <C>
Average price per Bbl of oil - realized before hedge results ........................ $ 30.45 $ 28.52
Average price per Bbl of oil - realized including hedge results ..................... $ 25.52 $ 25.26
Average price per Bbl of natural gas liquids - realized before hedge results ........ $ 25.15 $ 23.74
Average price per Bbl of natural gas liquids - realized including hedge results ..... $ 25.15 $ 23.74
Average price per Mcf of natural gas - realized before hedge results ................ $ 3.97 $ 3.25
Average price per Mcf of natural gas - realized including hedge results ............. $ 3.70 $ 3.12
Total reduction in revenue .......................................................... $ 674,000 $ 1,086,000
</TABLE>
10
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
8. ACQUISITIONS
We have accounted for the following acquisitions in accordance with APB
No. 16, "Business Combinations" where applicable.
<TABLE>
<CAPTION>
Entity Transactions in 1998 and 1999 Event Date
------ ----------------------------- ------------
<S> <C> <C>
EXCO Resources, Inc. Purchased Maverick County Properties February 11, 1998
Purchased Jacobi-Johnson Energy, Inc. May 8, 1998
Purchased Dawson County Properties June 30, 1998
Purchased promissory note of Rio Grande, Inc. November 2, 1998
Purchased Carter County Properties December 21, 1998
Merged Jacobi-Johnson Energy, Inc. into EXCO Resources, December 30, 1998
Inc.
Exchanged promissory note of Rio Grande, Inc. for 100% March 16, 1999
of outstanding capital stock of Rio Grande, Inc.
Merged Rio Grande, Inc. into EXCO Resources, Inc. March 30, 1999
Purchased Natchitoches Parish Properties December 31, 1999
EXUS Energy, LLC Purchased Jackson Parish Properties June 30, 1999
Sold Jackson Parish Properties December 31, 1999
EXCO Energy Investors, L.L.C. Sold debt securities of National Energy Group, Inc. November 11, 1999
</TABLE>
All of the transactions described above are incorporated by reference in EXCO's
Form 10-K for the year ended December 31, 1999, filed on March 22, 2000.
<TABLE>
<CAPTION>
Entity Transactions in 2000 Event Date
------ -------------------- ------------
<S> <C> <C>
EXCO Resources, Inc. Purchased Val Verde County Properties February 25, 2000
Purchased Central Properties September 22, 2000
Pecos-Gomez, L.P. Purchased Pecos County Properties March 24, 2000
</TABLE>
Transactions which closed during 2000, are more fully described below.
Val Verde County Properties Acquisition
On February 25, 2000, EXCO purchased certain oil and gas assets located
in Val Verde County, Texas from RVC Energy, Inc. (the Val Verde County
Properties). The Val Verde County Properties include 21 gross (9.8 net)
producing wells. EXCO is operator of 18 of the wells acquired in the
transaction. The Val Verde County Properties include approximately 5,330
11
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
gross (3,370 net) developed acres and approximately 2,030 gross (510 net)
undeveloped acres. As of December 31, 1999, total proved reserves net to EXCO's
interest included 19.1 Bcf of natural gas. Production for December 1999, net to
EXCO's interest was approximately 106 Mmcf of natural gas.
The purchase price of $12.2 million cash (approximately $11.4 million
after contractual adjustments) was paid from existing working capital and
borrowings of $7.1 million under EXCO's credit facility. The effective date of
the acquisition was October 1, 1999. These assets qualify as eligible
replacement properties under EXCO's tax-deferred exchange agreement. This use of
tax-deferred exchange proceeds is in compliance with the like-kind exchange
provisions of Section 1031 of the Internal Revenue Code. The price was
determined through arms-length negotiation between the parties.
Pecos County Properties Acquisition
On March 24, 2000, under terms of a purchase and sale agreement dated
February 22, 2000, Humphrey-Hill, L.P., a Texas limited partnership (the
Partnership), completed the acquisition from the Nebraska Public Gas Agency
(Seller) of certain oil and natural gas properties located in Pecos County,
Texas (the Pecos County Properties). On March 24, 2000, the Partnership was
owned 50% by Taurus Acquisition, Inc. as a limited partner (Taurus is a
wholly-owned subsidiary of EXCO), 49% by certain private investors as limited
partners and 1% by EXCO as general partner. The Pecos County Properties include
8 gross (4.25 net) producing wells. EXCO is the named operator and assumed
operations of 5 of the wells acquired in the transaction. As of January 1, 2000,
the Pecos County Properties were estimated to contain 25.1 Bcf of natural gas.
The purchase price, before closing adjustments, was approximately $10.2
million cash (approximately $10.1 million after contractual adjustments). The
purchase price was paid with $6.6 million drawn under a new credit facility
established by the Partnership and $3.5 million of Partnership equity capital.
The effective date of the acquisition was January 1, 2000. The purchase price
was determined based upon arms-length negotiations between Seller and the
Partnership, taking into account reserve estimates and other items customarily
considered in acquisitions of this type.
Limited Partnership Agreement. EXCO, Taurus and the other investors
(the Humphrey-Hill Partners) have entered into an Amended and Restated Agreement
of Limited Partnership (the Partnership Agreement). The partners share ratably
in the profits and losses of the Partnership, subject to special allocations in
certain events. The Partnership's principal business purpose is initially the
management and development of the Pecos County Properties. The partners have
established an area of mutual interest in respect of the Pecos County Properties
which governs any additional acquisitions of properties by any partner within
the area.
12
<PAGE> 14
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Effective April 14, 2000, the Humphrey-Hill Partners entered into a
Transfer and Assignment Agreement which transferred Taurus' 50% partnership
interest to EXCO (Delaware), Inc., a Delaware corporation. EXCO (Delaware) is a
wholly owned subsidiary of EXCO. Also effective April 14, 2000, the partnership
name was changed to Pecos-Gomez, L.P. under an Amended and Restated Certificate
of Limited Partnership. Subsequently, the Partnership Agreement was amended to
reflect the transfer of the Taurus partnership interest and name change.
Effective May 16, 2000, under terms of a Transfer and Assignment Agreement dated
May 16, 2000, EXCO (Delaware), Inc. purchased an additional 4.13742% limited
partnership interest in Pecos-Gomez, L.P., from one of the other limited
partners. As a result, as of May 16, 2000, EXCO (Delaware), Inc. now owns a
54.13742% limited partnership interest, and EXCO still owns a 1% general
partnership interest in Pecos-Gomez, L.P.
The Partnership is managed by EXCO as general partner. Certain
Partnership actions require consent of partners holding 70% of the partnership
interests including: merger, sale of all of the Partnership's assets,
liquidation, conversion of the legal form of the entity to another form or
amending the Partnership Agreement to change any minority partnership interest
protection.
EXCO and Taurus initially capitalized the Partnership with $3.5 million
of equity capital, all of which was applied to fund the purchase of the Pecos
County Properties. Upon execution of the Partnership Agreement, the partners
agreed that the value of the Partnership's Purchase Agreement was approximately
$3.4 million. This value was allocated entirely to the capital accounts of the
three private investors who initially formed the Partnership and arranged the
Purchase Agreement with the Seller. Accordingly, the Partnership's full cost
pool has been increased by $3.4 million. This value will be amortized over the
economic reserve life of the Pecos County Properties. The Partnership also
arranged a credit facility (discussed in greater detail below) through Bank of
America, N.A. to fund a portion of the Pecos County Properties acquisition and
to fund additional development drilling of the properties.
The Partnership Agreement permits the general partner to call for
additional capital contributions from the partners to fund the capital needs of
the Partnership. Furthermore, the general partner or well operator may propose a
Subsequent Operation (as that term is defined in the Partnership Agreement) on
the Pecos County Properties. A "Subsequent Operation" would encompass
significant drilling activities such as a new well, recompletion of an existing
well or workover project. In the event a partner fails to fund the project, the
contributing Humphrey-Hill Partners may elect to proceed with the Subsequent
Operation in the Partnership's name, but the project will be funded solely by
the contributing partners. In that event, all expenses, losses, gain or income
from the project shall be specially allocated solely to the contributing
partners until the contributing partners have recouped a sum equal to 300% of
the additional capital contribution that would have been funded by the
non-contributing partner had it participated in the project. Thereafter, all
losses, expenses, gain or income shall be allocated to the partners pro rata
according to their equity interest in the Partnership.
13
<PAGE> 15
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
The Partnership Agreement includes other customary terms including
terms governing transfers of partnership interests (including a buy/sell right),
voting, meetings and tax matters.
Partnership Credit Facility
On March 24, 2000, the Partnership entered into a credit facility with
Bank of America, N.A. as administrative agent and lender. The credit facility
provides for borrowings up to $25 million, subject to borrowing base
limitations.
The credit facility consists of a regular revolver, which on September
30, 2000, had a borrowing base of $6.6 million. At September 30, 2000, the
Partnership had approximately $300,000 available for borrowing under the credit
facility. A portion of the borrowing bse is available for the issuance of
letters of credit. Under terms of the credit facility, the borrowing base is
reduced by $200,000 commencing on June 30, 2000, and on each quarter end
thereafter.
All borrowings under the credit facility are secured by a first lien
mortgage providing a security interest in substantially all assets owned by the
Partnership including all mineral interests. In addition, EXCO has guaranteed
the Partnership's obligations under the credit facility. EXCO has pledged its
Partnership interest to secure the credit facility.
The credit facility provides that if the aggregate outstanding
indebtedness of the Partnership 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.
Commencing on August 15, 2000, and continuing quarterly thereafter
until maturity, the Partnership shall make mandatory prepayments on the credit
facility in an amount equal to 75% of the Partnership's Net Revenues (as defined
in the credit facility) for the immediately preceding calendar quarter if NYMEX
gas prices for the immediately preceding calendar quarter averaged $3.00 per
Mmbtu or less, otherwise, the dedication rate is 60% . 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 the Partnership would have to do one of the following:
o make a lump sum payment equal to the deficiency;
o make 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;
or
o provide additional collateral acceptable to the banks in their
sole discretion sufficient to increase the borrowing base and
eliminate the deficiency.
The credit facility matures on March 24, 2003. The next borrowing base
redetermination is scheduled for April 1, 2001, and on or about each October 1
and April 1, thereafter.
14
<PAGE> 16
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Under the terms of the credit facility, the Partnership must maintain a
current ratio of not less than 1.0 to 1.0 at any time. Furthermore, the
Partnership must not incur or pay general and administrative expenses in an
aggregate amount exceeding $75,000 during the period from March 24, 2000 through
December 31, 2000, or $100,000 during any fiscal year thereafter. Additionally,
the credit facility contains a number of other covenants affecting the liquidity
and capital resources of the Partnership, 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, and restrictions on the payment of
dividends on the equity partnership interests of the Partnership.
Central Properties Acquisition
On September 22, 2000, EXCO completed the acquisition of certain oil
and natural gas properties located in various counties in West, South, North,
and Central Texas; Southeast and Northwest New Mexico; Southern Louisiana;
Northeastern Colorado; Western Nebraska; Clarke, Jones, and Perry Counties in
Mississippi; Beaver and Cleveland Counties in Oklahoma; Meade County in Kansas;
and Campbell, Converse, and Niobrara Counties in Wyoming (the Central
Properties) from Central Resources, Inc. (the Seller). The properties consist of
1,890 producing oil and natural gas wells. Under terms of the acquisition,
effective October 1, 2000, EXCO expects to become operator of 217 of the wells.
As of June 1, 2000, estimated total proved reserves net to EXCO's interest
included 8.3 million Bbls of oil and natural gas liquids and 37.3 Bcf of natural
gas. Production for August 2000, net to EXCO's interest, was approximately 1,440
Bbls of oil per day and 5.2 Mmcf of natural gas per day.
The purchase price consisted of $48.0 million cash ($44.9 million after
contractual adjustments) and warrants to purchase 200,000 shares of EXCO common
stock at $11.00 per share. The cash consideration was paid from existing working
capital and borrowings of $39.4 million under EXCO's amended and restated credit
agreement. The effective date of the acquisition was June 1, 2000. The purchase
price was determined through arms-length negotiations between the parties taking
into account reserve estimates and other items customarily considered in
acquisitions of this type.
Purchase and Sale Agreement. The Central Properties were acquired
pursuant to the terms of a Purchase and Sale Agreement (the Purchase Agreement)
dated as of August 31, 2000, entered into between the Seller and EXCO. The
Purchase Agreement includes representations, warranties, covenants, indemnities
and closing conditions customary for transactions of this type.
Warrant Agreement and Form of Registration Rights Agreement. As part of
the consideration paid for the acquisition of the Central Properties, EXCO (the
Issuer) issued a warrant to Central Resources, Inc. (the Registered Holder) to
purchase 200,000 shares of EXCO common stock for $11.00 per share. This warrant
expires on September 22, 2003. Under terms of the Registration Rights Agreement,
a Registered Holder may make one written demand registration request to the
Issuer to file a Form S-3 registration statement for the resale of the
15
<PAGE> 17
EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
securities. A Registered Holder may also elect to have the securities included
in a registration statement when the Issuer files a public offering of equity
securities solely for cash, referred to as piggyback registration rights.
Pro Forma Results of Operations
Pro forma results of operations as though the acquisition of Rio
Grande, Inc., the disposition of the Jackson Parish Properties, the addition of
the Seward/Meade County Properties, and the acquisitions of the Natchitoches
Parish Properties, the Val Verde County Properties, EXCO's share of the Pecos
County Properties, and the Central Properties and the related borrowings had
been consummated on January 1, 1999, are shown in Part II - Other Information,
Item 5. Other Information - Pro Forma Combined Condensed Financial Statements,
beginning on page 25.
16
<PAGE> 18
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 September 30, 1999 and 2000
Revenues. Our total revenues for the three month period ended September
30, 2000, increased $4.7 million, or 216%, to $6.8 million versus $2.2 million
for the corresponding period of 1999. The increase in revenues was due to both
(1) production increases as a result of the acquisitions of the Natchitoches
Parish Properties, the Val Verde County Properties, the Pecos County Properties,
and the Central Properties, and (2) oil and natural gas price increases.
We sold 84,400 Bbls of oil during the three months ended September 30,
2000, versus 52,100 Bbls in the corresponding three months of 1999, a 62%
increase. We sold 1.0 Bcf of natural gas during the current three months versus
212 Mmcf in the third quarter of 1999, a 375% increase. We sold 27,300 Bbls of
natural gas liquids during the three months ended September 30, 2000, versus 0
Bbls in 1999. The increases in production were primarily attributable to the
Natchitoches Parish Properties, the Val Verde County Properties, the Pecos
County Properties, and the Central Properties acquisitions.
The average oil price excluding hedge results received during the three
months ended September 30, 2000, was $30.45 versus $20.05 for the three months
ended September 30, 1999, a $10.40 per barrel or 52% increase. The average
natural gas price, excluding hedge results, received during the current three
months was $3.97 versus $2.32 for the corresponding three months of the prior
year, a $1.65 per Mcf or 71% increase. The average natural gas liquids price
received during the three months ended September 30, 2000, was $25.15 per
barrel. We did not sell any natural gas liquids during the three months ended
September 30, 1999.
17
<PAGE> 19
Costs and Expenses. Costs and expenses for the three month period ended
September 30, 2000, increased by $2.6 million, or 173%, to $4.1 million as
compared to $1.5 million for the corresponding period of 1999. The increase was
due primarily to the Natchitoches Parish Properties, the Val Verde County
Properties, the Pecos County Properties and the Central Properties acquisitions.
Net Income. We had net income for the three months ended September 30,
2000, of $1.8 million compared to a net income of $659,000 for the corresponding
three months of 1999, representing $.26 and $.09 per basic and diluted share,
respectively.
Comparison of Nine Months Ended September 30, 1999 and 2000
Revenues. EXCO's total revenues for the nine month period ended
September 30, 2000, increased $12.4 million, or 249%, to $17.3 million versus
$5.0 million for the corresponding period of 1999. The increase in revenues was
due to both (1) production increases as a result of the acquisitions of the
Natchitoches Parish Properties, the Val Verde County Properties, the Pecos
County Properties, and the Central Properties, and (2) oil and natural gas price
increases.
EXCO sold 228,800 Bbls of oil during the nine months ended September
30, 2000, versus 152,300 Bbls in the corresponding nine months of 1999, a 50%
increase. EXCO sold 2.7 Bcf of natural gas during the current nine months versus
571 Mmcf in the first nine months of 1999, a 372% increase. We sold 68,400 Bbls
of natural gas liquids during the nine months ended September 30, 2000, versus 0
Bbls in 1999. The increases in production were due to the Natchitoches Parish
Properties, the Val Verde County Properties, the Pecos County Properties and the
Central Properties acquisitions.
The average oil price excluding hedge results received during the nine
months ended September 30, 2000, was $28.52 versus $16.20 for the nine months
ended September 30, 1999, a $12.32 per barrel or 76% increase. The average
natural gas price, excluding hedge results, received during the current nine
months was $3.25 versus $1.96 for the corresponding nine months of the prior
year, a $1.29 per Mcf or 66% increase. The average natural gas liquids price
received during the nine months ended September 30, 2000, was $23.74 per barrel.
We did not sell any natural gas liquids during the nine months ended September
30, 1999.
In March 2000, we recorded an additional pre-tax gain of approximately
$523,000 from the sale of the Jackson Parish Properties.
Cost and Expenses. Cost and expenses for the nine month period ended
September 30, 2000, increased by $6.3 million, or 151%, to $10.4 million as
compared to $4.1 million for the corresponding period of 1999. This was
primarily due to the Natchitoches Parish Properties, the Val Verde County
Properties, the Pecos County Properties and the Central Properties acquisitions.
Net Income. EXCO had a net income for the nine months ended September
30, 2000, of $4.6 million compared to a net income of $831,000 for the
corresponding nine months of 1999, representing $.67 and $.12 per basic share,
and $.66 and $.12 per diluted share, respectively.
18
<PAGE> 20
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 principal and
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.
We have planned development and exploitation activities for our major
operating areas. We have budgeted approximately $600,000 for our development and
exploitation activities in the fourth quarter of this year, all of which is
discretionary. In addition, we are continuing to evaluate oil and natural gas
properties for future acquisitions. Historically, we have used the proceeds from
the issuance of equity securities and borrowings under our credit facilities 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 our credit facilities is
subject to restrictions imposed by our credit facilities. If we cannot secure
additional funds for our planned development and exploitation activities, then
we will be required to delay or reduce substantially both of these activities.
Credit Agreement - EXCO Resources, Inc.
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 the first amendment to the credit facility with NationsBank, N.A.
(successor by merger to NationsBank of Texas, N.A.). The first amendment
provided for borrowings up to $150 million, subject to borrowing base
limitations, as determined by the lenders from time to time. On February 11,
2000, we entered into the second amendment to the credit facility with Bank of
America, N.A. (successor by merger to NationsBank, N.A.). The second amendment
provided for a new termination date, an increase in our borrowing base, subject
to certain conditions, and an increase in certain thresholds customary for a
growing company. On September 22, 2000, we entered into an Amended and Restated
Credit Agreement (the Credit Agreement) with Bank of America, N.A., as
administrative agent, Bank One, Texas, N.A., as syndication agent, and a
syndicate of banks as lenders. The Credit Agreement provides for borrowings up
to $150 million, subject to borrowing base limitations. The banks have sole
discretion to determine the borrowing base based on their valuation of our
reserves conducted semi-annually.
19
<PAGE> 21
The Credit Agreement consists of a regular revolver, which on September
30, 2000, had a borrowing base of $45.0 million. At September 30, 2000, we had
approximately $5.0 million available for borrowing under the Credit Agreement. A
portion of the borrowing base is available for the issuance of letters of
credit. All borrowings under the Credit Agreement are secured by a first lien
mortgage providing a security interest in 80% of our oil and natural gas
properties including mineral interests. Under the Credit Agreement, 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 an unused
commitment fee of .30% to .425% based on the ratio of outstanding credit to the
borrowing base.
The Credit Agreement provides that if our aggregate outstanding
indebtedness is less than 50% of the borrowing base, then advances will bear
interest at 1.0% over LIBOR. If the borrowing base usage equals or exceeds 50%
but is less than or equal to 70%, then advances will bear interest at 1.25% over
LIBOR. If the borrowing base usage is greater than 70% but is less than or equal
to 90%, then advances will bear interest at 1.5% over LIBOR. If the borrowing
base usage exceeds 90%, then advances will bear interest at 1.75%. At September
30, 2000, the 6 month LIBOR rate was 6.64%, which would result in an interest
rate of approximately 8.14% on any new indebtedness we may incur. At September
30, 2000, the interest rate on our outstanding indebtedness was approximately
8.12%, and is fixed at this rate through November 26, 2000.
The Credit Agreement matures on September 22, 2003. There are no
scheduled principal payments due on the Credit Agreement until maturity. The
next borrowing base redetermination is scheduled for April 30, 2001, and on or
about each October 31 and April 30, thereafter. A borrowing base deficiency is
created in the event that the outstanding loan balances exceed the borrowing
base. If a borrowing base deficiency were to exist after giving effect to a
redetermination, then we would have to do one of the following:
o make a lump sum payment equal to the deficiency;
o make 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;
or
o provide additional collateral acceptable to the banks in their
sole discretion sufficient to increase the borrowing base and
eliminate the deficiency.
Under the terms of the Credit Agreement, we must not permit our
consolidated current assets to consolidated current liabilities to be less than
1.0 to 1.0 at any time. Furthermore, we must maintain a minimum net worth equal
to $35 million plus (i) subsequent to June 30, 2000, 50% of consolidated
cumulative net income and (ii) an amount equal to 75% of the net proceeds
received from the issuance of any equity securities after June 30, 2000.
Additionally, the Credit Agreement contains a number of other covenants
regarding our liquidity and capital resources, including restrictions on our
ability to incur indebtedness at any time in an amount exceeding $500,000,
restrictions to pledge assets outside of the Credit Agreement, and currently
prohibits the payment of dividends on our capital stock. The Credit Agreement
also requires that we hedge at least 75% but not more than 80% of projected oil
production from our existing proved
20
<PAGE> 22
producing mineral interests for not less than 30 months following the closing
date of the Central Properties acquisition.
Credit Facility - Pecos-Gomez, L.P.
On March 24, 2000, Pecos-Gomez, L.P. entered into a credit facility
with Bank of America, N.A. as administrative agent and lender. The credit
facility provides for borrowings up to $25 million, subject to borrowing base
limitations. The bank has sole discretion to determine the borrowing base based
on its semi-annual valuation of the Partnership's reserves.
The credit facility consists of a regular revolver, which on September
30, 2000, had a borrowing base of $6.6 million. At September 30, 2000, the
Partnership had approximately $300,000 available for borrowing under the credit
facility. A portion of the borrowing base is available for the issuance of
letters of credit. Under terms of the credit facility, the borrowing base is
reduced by $200,000 commencing on June 30, 2000, and on each quarter end
thereafter. All borrowings under the credit facility are secured by a first lien
mortgage providing a security interest in substantially all assets owned by the
Partnership including all mineral interests. In addition, EXCO has guaranteed
the Partnership's obligations under the credit facility. EXCO has pledged its
Partnership interest to secure the credit facility.
The credit facility provides that if the aggregate outstanding
indebtedness of the Partnership 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. At
September 30, 2000, the 6 month LIBOR rate was 6.64%, which would result in an
interest rate of approximately 8.39% on any new indebtedness the Partnership
may incur. At September 30, 2000, the interest rate on the Partnership's
outstanding indebtedness was approximately 8.43%, and is fixed at this rate
through November 14, 2000.
Commencing on August 15, 2000, and continuing quarterly thereafter
until maturity, the Partnership shall make mandatory prepayments on the credit
facility in an amount equal to 75% of the Partnership's Net Revenues (as defined
in the credit facility) for the immediately preceding calendar quarter if NYMEX
gas prices for the immediately preceding calendar quarter averaged $3.00 per
Mmbtu or less, otherwise, the dedication rate is 60% . 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 the Partnership 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
21
<PAGE> 23
increase the borrowing base by at least the amount of the
borrowing base deficiency.
The credit facility matures on March 24, 2003. The next borrowing base
redetermination is scheduled for April 1, 2001, and on or about each October 1
and April 1, thereafter. The Partnership may seek additional borrowing capacity
at that time for its development drilling program. However, there can be no
assurance that the current development program of the Partnership will result in
increased collateral values or that these values will enable the Partnership to
borrow the funds the Partnership needs to continue the program.
Under the terms of the credit facility, the Partnership 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, the Partnership must not incur or
pay general and administrative expenses in an aggregate amount exceeding $75,000
during the period from March 24, 2000 through December 31, 2000, or $100,000
during any fiscal year thereafter. Additionally, the credit facility contains a
number of other covenants affecting the liquidity and capital resources of the
Partnership, 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, and restrictions on the payment of dividends on the equity partnership
interests of the Partnership.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Some of the information below contains forward-looking statements. The
primary objective of the following information is to provide forward-looking
quantitative and qualitative information about our potential exposure to market
risks. The term "market risk" refers to the risk of loss arising from adverse
changes in oil and natural gas prices, and interest rates charged on borrowings
and earned on cash equivalent investments. The disclosure is not meant to be a
precise indicator of expected future losses, but rather an indicator of
reasonably possible losses. This forward-looking information provides an
indicator of how we view and manage our ongoing market risk exposures. Our
market risk sensitive instruments were entered into for hedging purposes, not
for trading purposes.
Commodity Price Risk
Our major market risk exposure is in the pricing applicable to our oil
and natural gas production. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot market prices for natural gas.
Pricing for oil and natural gas production is volatile.
In an effort to reduce the effects of the volatility of the price of
oil and natural gas on our operations, management has adopted a policy of
hedging oil and natural gas prices whenever such prices are in excess of the
prices anticipated in our operating budget and profit plan through the use of
commodity futures, options, and swap agreements. Hedging transactions require
the approval of the board of directors.
The following table sets forth our oil and natural gas hedging
activities as of September 30, 2000, and those contracts entered into subsequent
to September 30, 2000. All contracts are swap agreements for the sale of oil or
natural gas and are based on NYMEX pricing. The market
22
<PAGE> 24
values at September 30, 2000 are estimated from quotes by the counterparties and
represent the amounts we would expect to receive to terminate the agreements on
September 30, 2000.
<TABLE>
<CAPTION>
NOTIONAL(1,2) MARKET VALUE
TERMINATION VOLUME/RANGE AGGREGATE(1,2) STRIKE AT SEPTEMBER 30,
COMMODITY CONTRACT DATE EFFECTIVE DATE DATE PER MONTH VOLUME PRICE/RANGE 2000
--------- ------------- -------------- -------------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oil 9/21/1999 10/1/1999 9/30/2000 7,000 Bbls 84,000 Bbls $21.00 $ --
Oil 3/13/2000 4/1/2000 9/30/2000 10,000 Bbls 60,000 Bbls $24.90 - $29.23 $ --
Natural Gas 3/13/2000 4/1/2000 9/30/2000 60,000 Mmbtus 360,000 Mmbtus $2.70 - $2.75 $ --
Oil 9/28/2000 11/1/2000 4/30/2003 29,000 Bbls - 1,083,000 Bbls $23.96 - 30.84 $ 36,745
46,000 Bbls
Natural Gas 10/13/2000 1/1/2001 12/31/2001 186,000 Mmbtus - 2,383,500 Mmbtus $4.915 N/A
216,000 Mmbtus
</TABLE>
----------
(1) Bbls - Barrels.
(2) Mmbtus - Million British thermal units.
Realized gains or losses from the settlement of the swaps are recorded
separately in the financial statements as increases or decreases in total
revenues. For example, using the oil swap entered into on September 21, 1999,
for a given month when the settlement price exceeded $21.00, then a reduction
in total revenues would have been recorded for the difference between the
settlement price and $21.00 multiplied by the notional volume of 7,000 Bbls.
Conversely, if the settlement price was less than $21.00, then an increase in
total revenues would have been recorded for the difference between the
settlement price and $21.00 multiplied by the notional volume of 7,000 Bbls. For
example, for a given month, if the settlement price was $22.00, then total
revenues would have decreased by $7,000. Conversely, if the settlement price
for a given month was $20.00, total revenues would have increased by $7,000.
We report average oil and natural gas prices including the effects of
quality, gathering and transportation costs but excluding the net effect of the
oil and natural gas hedges. The following table sets forth our oil, natural gas
liquids, and natural gas prices, both realized before hedge results and realized
including hedge results; and the net effects of settlements of oil and natural
gas price hedges on revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 2000
------------------ -----------------
<S> <C> <C>
Average price per Bbl of oil - realized before hedge results ........................ $ 30.45 $ 28.52
Average price per Bbl of oil - realized including hedge results ..................... $ 25.52 $ 25.26
Average price per Bbl of natural gas liquids - realized before hedge results ........ $ 25.15 $ 23.74
Average price per Bbl of natural gas liquids - realized including hedge results ..... $ 25.15 $ 23.74
Average price per Mcf of natural gas - realized before hedge results ................ $ 3.97 $ 3.25
Average price per Mcf of natural gas - realized including hedge results ............. $ 3.70 $ 3.12
Total reduction in revenue .......................................................... $ 674,000 $ 1,086,000
</TABLE>
23
<PAGE> 25
Interest Rate Risk
At September 30, 2000, our exposure to interest rates relates primarily
to borrowings under our credit facilities and interest earned on commercial
paper investments. As of September 30, 2000, we are not using any derivatives to
manage interest rate risk. Interest is payable on borrowings under the credit
facilities based on a floating rate as more fully described in Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources, beginning on page 19. If
short-term interest rates would have averaged 1% higher during the nine months
ended September 30, 2000, our interest expense would have increased by
approximately $51,000. This amount was determined by applying the hypothetical
interest rate change of 1% to our outstanding borrowings under the credit
facilities at September 30, 2000. We currently invest a portion of our idle cash
in commercial paper which typically mature in 30 to 60 days. Our exposure to
changes in the interest rates on these investments is considered to be nominal.
As of September 30, 2000, we had $3.0 million face value invested in commercial
paper.
24
<PAGE> 26
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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 October 2, 2000, dated September 22,
2000, EXCO Resources, Inc. purchased certain oil and gas assets located in
various counties in West, South, North, and Central Texas; Southeast and
Northwest New Mexico; Southern Louisiana; Northeastern Colorado; Western
Nebraska; Clarke, Jones, and Perry Counties in Mississippi; Beaver and Cleveland
Counties in Oklahoma; Meade County in Kansas; and Campbell, Converse, and
Niobrara Counties in Wyoming (the Central Properties) from Central Resources,
Inc. for approximately $44.9 million after contractual adjustments.
The accompanying pro forma combined condensed financial statements are
based on the historical financial statements of EXCO for the year ended December
31, 1999, and the nine months ended September 30, 2000. The pro forma combined
condensed financial statements are also based, in part, on the historical
financial statements of Rio Grande, Inc. (Rio Grande or RGI) which was acquired
on March 16, 1999, the Seward/Meade County Properties received as partial
consideration from the sale of the Jackson Parish Properties effective December
31, 1999, the Natchitoches Parish Properties acquired effective December 31,
1999, the Val Verde County Properties acquired on February 25, 2000, EXCO's
share of the Pecos County Properties acquired on March 24, 2000, and the Central
Properties acquired on September 22, 2000.
Because the acquisition of RGI, the disposition of the Jackson Parish
Properties, the addition of the Seward/Meade County Properties, and the
acquisition of the Natchitoches Parish Properties all occurred in 1999, the Val
Verde County Properties were acquired on February 25, 2000, the Pecos County
Properties were acquired on March 24, 2000, and the Central Properties were
acquired on September 22, 2000, they are already included in EXCO's September
30, 2000, balance sheet. The Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared assuming the acquisition of RGI, the
disposition of the Jackson Parish Properties, the addition of the Seward/Meade
County Properties, and the acquisitions of the Natchitoches Parish Properties,
the Val Verde County Properties, the Pecos County Properties, and the Central
Properties had all been consummated on January 1, 1999. The Pecos County
Properties historical financial information has been restated from previously
filed pro forma financial statements to reflect EXCO's acquisition of
approximately an additional 4.1% partnership interest in Pecos-Gomez, L.P. on
May 16, 2000.
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.
25
<PAGE> 27
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
EXCO PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ---------------- ---------
(In thousands)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash ................................................ $ 5,616 $ -- $ 5,616
Accounts receivable and other assets ................ 7,129 -- 7,129
-------- ---------------- --------
Total current assets ............................ 12,745 -- 12,745
Net property and equipment .............................. 81,674 -- 81,674
Other assets ............................................ 744 -- 744
-------- ---------------- --------
Total assets .................................... $ 95,163 $ -- $ 95,163
======== ================ ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities ............ $ 3,965 $ -- $ 3,965
Current maturities of long-term debt ................ -- -- --
-------- ---------------- --------
Total current liabilities ....................... 3,965 -- 3,965
Long-term debt, less current maturities ................. 42,874 -- 42,874
Deferred income taxes ................................... 2,356 -- 2,356
Other long-term liabilities ............................. 227 -- 227
Stockholders' equity:
Preferred stock ..................................... -- -- --
Common stock ........................................ 137 -- 137
Additional paid-in capital .......................... 36,966 -- 36,966
Retained earnings ................................... 8,727 -- 8,727
Treasury stock ...................................... (89) -- (89)
-------- ---------------- --------
Total stockholders' equity ...................... 45,741 -- 45,741
-------- ---------------- --------
Total liabilities and stockholders' equity ...... $ 95,163 $ -- $ 95,163
======== ================ ========
</TABLE>
See accompanying notes.
26
<PAGE> 28
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SEWARD/MEADE NATCHITOCHES VAL VERDE
EXCO RIO GRANDE COUNTY PARISH COUNTY
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
---------- ---------- ------------ ------------ ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ...................................... $ 5,294 $ 176 $ 185 $ 5,357 $ 2,211
Other .................................................... 2,008 23 -- -- --
Gain on disposition of property .......................... 5,102 -- -- -- --
-------- -------- -------- -------- --------
Total revenues ................................... 12,404 199 185 5,357 2,211
EXPENSES:
Oil and natural gas production ........................... 2,375 123 45 2,688 319
Depletion, depreciation and amortization ................. 1,446 9 -- -- --
General and administrative ............................... 1,934 73 -- -- --
Interest and other ....................................... 17 0 -- -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority interest ...... 6,632 (6) 140 2,669 1,892
Minority interest in limited partnership ..................... (7) 1 -- -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes ............................ 6,639 (7) 140 2,669 1,892
Deferred income tax provision ................................ 2,139 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary item ...................... 4,500 (7) 140 2,669 1,892
Fee income from early extinguishment of debt, net of tax ..... 165 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) ............................................ $ 4,665 $ (7) $ 140 $ 2,669 $ 1,892
======== ======== ======== ======== ========
Basic and diluted earnings per share ......................... $ .69 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding:
Basic ............................................. 6,688 -- -- -- --
======== ======== ======== ======== ========
Diluted ........................................... 6,714 -- -- -- --
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
27
<PAGE> 29
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
PECOS CENTRAL ACQUISITIONS
COUNTY PROPERTIES AND PRO FORMA
HISTORICAL HISTORICAL DISPOSITION COMBINED
---------- ---------- ------------ ------------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and natural gas .................................... $ 1,251 $ 18,474 $ -- $ 32,948
Other .................................................. -- -- (1,334) (1)(2)(8)(12) 697
(16)(20)
Gain on disposition of property ........................ -- -- (5,102) (5) --
-------- -------- -------- ------------- --------
Total revenues ................................. 1,251 18,474 (6,436) 33,645
EXPENSES:
Oil and natural gas production ......................... 292 10,416 -- 16,258
Depletion, depreciation and amortization ............... -- -- 6,548 (3)(6)(9) 8,003
(13)(17)
General and administrative ............................. -- -- (686) (7)(10) 1,321
(14)(18)
Interest and other ..................................... -- -- 3,250 (11)(15)(19) 3,267
-------- -------- -------- ------------- --------
Income (loss) before income taxes and minority interest .... 959 8,058 (15,548) 4,796
Minority interest in limited partnership ................... -- -- -- (6)
-------- -------- -------- ------------- --------
Income (loss) before income taxes .......................... 959 8,058 (15,548) 4,802
Deferred income tax provision .............................. -- -- (506) (21) 1,633
-------- -------- -------- ------------- --------
Income (loss) before extraordinary item .................... -- -- (15,042) 3,169
Fee income from early extinguishment of debt, net of tax ... -- -- (165) (4) --
-------- -------- -------- ------------- --------
Net income (loss) .......................................... $ 959 $ 8,058 $(15,207) $ 3,169
======== ======== ======== ============= ========
Basic and diluted earnings per share ....................... $ -- $ -- $ -- $ .47
======== ======== ======== ============= ========
Weighted average number of common and
common equivalent shares outstanding:
Basic ........................................... -- -- -- 6,688
======== ======== ======== ============= ========
Diluted ......................................... -- -- -- 6,714
======== ======== ======== ============= ========
</TABLE>
See accompanying notes.
28
<PAGE> 30
EXCO RESOURCES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
VAL VERDE PECOS CENTRAL ADJUSTMENTS
EXCO COUNTY COUNTY PROPERTIES FOR THE PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS COMBINED
---------- ---------- ---------- ---------- ------------ ------------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ................. $15,807 $ 184 $ 242 $17,130 $ -- $33,363
Other ............................... 997 -- -- -- (307) (1)(2)(8)(12) 690
(16)(20)
Gain on disposition of assets ....... 538 -- -- -- (523) (5) 15
------- ------- ------- ------- ------- ------------- -------
Total revenues .............. 17,342 184 242 17,130 (830) 34,068
EXPENSES:
Oil and natural gas production ...... 5,402 27 76 6,922 -- 12,427
Depletion, depreciation and
amortization....................... 3,109 -- -- -- 2,205 (3)(6)(9) 5,314
(13)(17)
General and administrative .......... 1,425 -- -- -- (111) (7)(10) 1,314
(14)(18)
Interest and other .................. 477 -- -- -- 1,853 (11)(15)(19) 2,330
------- ------- ------- ------- ------- ------------- -------
Income (loss) before income taxes
and minority interest ................. 6,929 157 166 10,208 (4,777) 12,683
Deferred income tax provision ........... 2,356 -- -- -- 1,956 (21) 4,312
------- ------- ------- ------- ------- ------------- -------
Net income (loss) ....................... $ 4,573 $ 157 $ 166 $10,208 $(6,733) $ 8,371
======= ======= ======= ======= ======= ============= =======
Basic earnings per share ................ $ .67 $ -- $ -- $ -- $ -- $ 1.22
======= ======= ======= ======= ======= ============= =======
Diluted earnings per share .............. $ .66 $ -- $ -- $ -- $ -- $ 1.21
======= ======= ======= ======= ======= ============= =======
Weighted average number of common and
common equivalent shares outstanding:
Basic ........................ 6,828 -- -- -- -- 6,828
======= ======= ======= ======= ======= ============= =======
Diluted ...................... 6,894 -- -- -- -- 6,894
======= ======= ======= ======= ======= ============= =======
</TABLE>
See accompanying notes.
29
<PAGE> 31
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE JACKSON PARISH PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared as if EXCO's share of the disposition of
the Jackson Parish Properties, the addition of the Seward/Meade County
Properties, and the related repayment of debt had been consummated on January 1,
1999, and reflect the following adjustments:
(1) To record a decrease in interest income as a result of the
repayment of the Venus convertible promissory note.
(2) To eliminate the 1999 equity in the earnings of EXUS Energy,
LLC.
(3) To adjust depreciation, depletion and amortization of the oil
and gas properties to reflect the effect of the addition of
the Seward/Meade County Properties using the full cost method
of accounting on total pro forma proved oil and natural gas
reserves.
(4) To eliminate the fee income, net of tax, on the early
extinguishment of the Venus convertible promissory note.
(5) To eliminate the gain from the sale of EXCO's share of the
Jackson Parish Properties.
B. PRO FORMA ADJUSTMENTS FOR THE NATCHITOCHES PARISH PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared as if the acquisition of the Natchitoches
Parish Properties had been consummated on January 1, 1999, and reflect the
following adjustments:
(6) To adjust depreciation, depletion and amortization of the oil
and gas properties to reflect the effect of the acquisition of
the Natchitoches Parish Properties using the full cost method
of accounting on total pro forma proved oil and natural gas
reserves.
(7) To reduce general and administrative expenses as a result of
the reimbursement of COPAS overhead charges.
30
<PAGE> 32
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(8) To record a decrease in interest income on invested cash of
$7.2 million, based on a 4% per annum interest rate.
C. PRO FORMA ADJUSTMENTS FOR THE VAL VERDE COUNTY PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared as if the acquisition of the Val Verde
County Properties had been consummated on January 1, 1999, and reflect the
following adjustments:
(9) To adjust depreciation, depletion and amortization of the oil
and gas properties to reflect the effect of the acquisition of
the Val Verde County Properties using the full cost method of
accounting on total pro forma proved oil and natural gas
reserves.
(10) To reduce general and administrative expenses as a result of
the reimbursement of COPAS overhead charges.
(11) To adjust interest expense on the borrowings of approximately
$7.1 million based on a 7.0% per annum interest rate.
(12) To record a decrease in interest income on invested cash of
approximately $4.3 million, based on a 4% per annum interest
rate.
D. PRO FORMA ADJUSTMENTS FOR THE PECOS COUNTY PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared as if EXCO's share of the acquisition of
the Pecos County Properties had been consummated on January 1, 1999, and reflect
the following adjustments:
(13) To adjust depreciation, depletion and amortization of the oil
and gas properties to reflect the effect of the acquisition of
the Pecos County Properties using the full cost method of
accounting on total pro forma proved oil and natural gas
reserves.
(14) To reduce general and administrative expenses as a result of
the reimbursement of COPAS overhead charges.
(15) To adjust interest expense on the borrowings of approximately
$3.4 million based on a 7.0% per annum interest rate.
31
<PAGE> 33
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(16) To record a decrease in interest income on invested cash of
$3.5 million, based on a 4% per annum interest rate.
E. PRO FORMA ADJUSTMENTS FOR THE CENTRAL PROPERTIES
The accompanying unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1999, and the nine months ended
September 30, 2000, have been prepared as if EXCO's share of the acquisition of
the Central Properties had been consummated on January 1, 1999, and reflect the
following adjustments:
(17) To adjust depreciation, depletion and amortization of the oil
and gas properties to reflect the effect of the acquisition of
the Central Properties using the full cost method of
accounting on total pro forma proved oil and natural gas
reserves.
(18) To reduce general and administrative expenses as a result of
the reimbursement of COPAS overhead charges and increase
general and administrative expenses resulting from the
addition of a satellite office and employees.
(19) To adjust interest expense on the borrowings of $39.4 million
based on a 7.0% per annum interest rate.
(20) To record a decrease in interest income on invested cash of
$5.5 million, based on a 4% per annum interest rate.
F. PRO FORMA ADJUSTMENTS FOR INCOME TAXES
The accompanying unaudited Pro Forma Combined Statements of Operations
for the year ended December 31, 1999, and the nine months ended September 30,
2000, reflect the following adjustments:
(21) To adjust the provision for income taxes for the change in
financial taxable income resulting from the disposition of
EXCO's share of the Jackson Parish Properties and the
inclusion of the historical results of operations of Rio
Grande, Inc., the Seward/Meade County Properties, the
Natchitoches Parish Properties, the Val Verde County
Properties, EXCO's share of the Pecos County Properties, and
the Central Properties and adjustments (1), (2), (3), (5),
(6), (7), (8), (9), (10), (11), (12), (13), (14), (15), (16),
(17), (18), (19), and (20).
32
<PAGE> 34
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
G. 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 as of September 30, 2000. All
reserves are located in the United States. 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)(1) GAS (Mcf) Bcfe(2)
------------- --------- -------
(In thousands)
<S> <C> <C> <C>
Proved reserves................................................... 12,840 91,818 168.9
====== ====== =====
Proved developed reserves......................................... 8,625 66,156 117.9
====== ====== =====
</TABLE>
----------
(1) Oil includes both oil and natural gas liquids.
(2) Bcfe - Billion cubic feet equivalent calculated by converting 1 Bbl of oil
to 6 Mcf of natural gas. A Bbl is one stock tank barrel, or 42 U.S. gallons
liquid volume, of oil or other liquid hydrocarbons. An Mcf is one thousand
cubic feet of natural gas.
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.
Under the Standardized Measure, future cash flows are estimated by
applying period-end prices, adjusted for fixed and determinable escalations, to
the estimated future production of period-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.
33
<PAGE> 35
EXCO RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The pro forma Standardized Measure of discounted future net cash flows
relating to EXCO's proved oil and natural gas reserves at September 30, 2000,
follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows .................................................. $761,189
Future production costs .............................................. 251,231
Future development costs ............................................. 37,448
Future income taxes .................................................. 125,041
--------
Future net cash flows ................................................ 347,469
Discount of future net cash flows at 10% per annum ................... 175,987
--------
Pro forma Standardized Measure of discounted future net cash flows ... $171,482
========
Pro forma Standardized Measure of discounted future net cash flows
before income taxes ............................................... $234,439
========
</TABLE>
The future cash flows shown above include amounts attributable to
non-producing reserves requiring approximately $37.5 million of future
development costs. If these reserves are not developed, the Standardized Measure
of discounted future net cash flows as of September 30, 2000, 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 (including NGLs) and natural gas at
September 30, 2000, used in the calculation of the Standardized Measure were
$28.37 per Bbl and $4.32 per Mcf, respectively.
34
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
EXCO Resources, Inc.:
We have audited the accompanying statements of revenues and direct operating
expenses for the oil and natural gas properties of Central Resources, Inc.
acquired by EXCO Resources, Inc. (the "Central Properties") for each of the
three years in the period ended December 31, 1999. These statements are the
responsibility of Central Resources, Inc.'s management. Our responsibility is to
express an opinion on these statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements of 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 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 financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses were
prepared in connection with the purchase of the Central Properties and, as
described in Note 1, exclude general and administrative expenses, depreciation,
depletion and amortization, interest and income taxes and are not intended to be
a complete presentation of revenues and expenses of the Central Properties.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating expenses for the Central Properties
for the three years ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
October 27, 2000.
35
<PAGE> 37
CENTRAL PROPERTIES
STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -----------------
1997 1998 1999 2000
------- ------- ------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Oil and natural gas revenues .......................... $27,868 $16,081 $18,474 $17,755
Direct operating expenses ............................. 11,593 10,765 10,416 7,147
------- ------- ------- -------
Revenues in excess of direct operating expenses ....... $16,275 $ 5,316 $ 8,058 $10,608
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE> 38
CENTRAL PROPERTIES
NOTES TO STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On September 22, 2000, EXCO Resources, Inc. (EXCO) completed the
acquisition of certain oil and natural gas properties located in various
counties in West, South, North, and Central Texas; Southeast and Northwest New
Mexico; Southern Louisiana; Northeastern Colorado; Western Nebraska; Clarke,
Jones, and Perry Counties in Mississippi; Beaver and Cleveland Counties in
Oklahoma; Meade County in Kansas; and Campbell, Converse, and Niobrara Counties
in Wyoming (the Central Properties) from Central Resources, Inc. (the Seller).
The properties consist of 1,890 producing oil and natural gas wells. Under terms
of the acquisition, effective October 1, 2000, EXCO expects to become operator
of 217 of the wells. As of June 1, 2000, estimated total proved reserves net to
EXCO's interest included 8.3 million barrels (Bbl) of oil and natural gas
liquids and 37.3 billion cubic feet (Bcf) of natural gas. Production for August
2000, net to EXCO's interest was approximately 1,440 Bbls of oil per day and 5.2
million cubic feet (Mmcf) of natural gas per day.
The purchase price consisted of $48.0 million cash ($44.9 million after
contractual adjustments) and warrants to purchase 200,000 shares of EXCO common
stock at $11.00 per share. The entire purchase price will be allocated to the
oil and gas properties acquired as there were no other assets or liabilities
assumed. The cash consideration was paid from existing working capital and
borrowings of $39.4 million under EXCO's amended and restated credit agreement.
The effective date of the acquisition was June 1, 2000. The purchase price was
determined through arms-length negotiations between the parties taking into
account reserve estimates and other items customarily considered in acquisitions
of this type.
The accompanying statements present the interest acquired by EXCO in
the revenues and direct operating expenses of the Central Properties. 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 three years in the period ended December 31, 1999,
is not practicable because the Central Properties were not accounted for as a
separate entity by the Seller, and therefore, such statements are not available.
The revenues and direct operating expenses for the periods presented may not be
representative of future operations.
Revenues in the accompanying Statements of Revenues and Direct
Operating Expenses are recognized using the sales method. Direct operating
expenses are recognized on an accrual basis.
37
<PAGE> 39
CENTRAL PROPERTIES
NOTES TO STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
2. SUPPLEMENTAL OIL AND NATURAL GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
RESERVE QUANTITY INFORMATION
The following tables present EXCO's estimate of its share of the proved
oil and natural gas reserves of the Central Properties, all of which are located
in the United States, as of December 31, 1996, 1997, 1998 and 1999. 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.
The estimated proved net recoverable reserves shown below include only
those quantities that we expect to be commercially recoverable at prices and
costs in effect at the dates indicated under existing regulatory practices and
with conventional equipment and operating methods. Proved developed reserves
represent only those reserves that we may recover through existing wells. Proved
undeveloped reserves include those reserves that we may recover from new wells
on undrilled acreage or from existing wells on which we must make a relatively
major expenditure for recompletion or secondary recovery operations.
ESTIMATED QUANTITIES OF TOTAL PROVED RESERVES
<TABLE>
<CAPTION>
OIL (Bbls) GAS (Mcf) Bcfe(1)
---------- --------- -------
(In thousands)
<S> <C> <C> <C>
December 31, 1996 ................................ 16,830 37,333 138.3
Revisions of previous estimates and
new discoveries and extensions ........ 12,459 27,179 101.9
Production .............................. (1,027) (3,495) (9.6)
------- ------- -----
December 31, 1997 ................................ 28,262 61,017 230.6
Revisions of previous estimates and
new discoveries and extensions ........ (8,596) (1,535) (53.1)
Production .............................. (847) (3,010) (8.1)
------- ------- -----
December 31, 1998 ................................ 18,819 56,472 169.4
Revisions of previous estimates and
new discoveries and extensions ........ (9,680) (16,431) (74.5)
Production .............................. (753) (2,739) (7.3)
------- ------- -----
DECEMBER 31, 1999 ................................ 8,386 37,302 87.6
======= ======= =====
</TABLE>
----------
(1) Bcfe - Billion cubic feet equivalent calculated by converting 1 Bbl of oil
to 6 Mcf of natural gas. A Bbl is one stock tank barrel, or 42 U.S. gallons
liquid volume, of oil or other liquid hydrocarbons. An Mcf is one thousand
cubic feet of natural gas.
38
<PAGE> 40
CENTRAL PROPERTIES
NOTES TO STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
ESTIMATED QUANTITIES OF PROVED DEVELOPED RESERVES
<TABLE>
<CAPTION>
OIL (Bbls) GAS (Mcf) Bcfe(1)
---------- --------- -------
(In thousands)
<S> <C> <C> <C>
December 31, 1997 ....... 6,819 21,331 62.2
December 31, 1998 ....... 3,655 17,764 39.7
DECEMBER 31, 1999 ....... 3,545 13,769 35.0
</TABLE>
----------
(1) Bcfe - Billion cubic feet equivalent calculated by converting 1 Bbl of oil
to 6 Mcf of natural gas. A Bbl is one stock tank barrel, or 42 U.S. gallons
liquid volume, of 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 Total 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 Central 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.
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 Central
Properties are not a separate tax paying entity. Accordingly, the Standardized
Measure for the Central 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 total proved oil and natural gas reserves of EXCO's share of the Central
Properties at December 31, 1997, 1998 and 1999, follows:
39
<PAGE> 41
CENTRAL PROPERTIES
NOTES TO STATEMENTS OF REVENUES
AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1998 1999
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Future cash inflows ........................................ $ 555,145 $ 281,334 $ 269,029
Future production costs .................................... (211,745) (122,215) (109,135)
Future development costs ................................... (57,578) (55,708) (31,519)
--------- --------- ---------
Future net cash flows ...................................... 285,822 103,411 128,375
Discount of future net cash flows at 10% per annum ......... (170,014) (64,287) (67,678)
--------- --------- ---------
Discounted future net cash flows before income taxes ....... $ 115,808 $ 39,124 $ 60,697
========= ========= =========
</TABLE>
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 oil and natural gas may
differ materially from the amounts estimated.
The weighted average prices of oil and natural gas at December 31,
1997, 1998 and 1999, used in the calculation of the Standardized Measure were
$15.93, $10.63 and $23.10 per Bbl and $1.70, $1.44 and $2.03 per Mcf,
respectively.
CHANGES IN STANDARDIZED MEASURE
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Sales and transfers of oil and natural gas produced, net of production costs .... $(18,063) $ (6,323) $ (9,110)
Net changes in prices and production costs ...................................... (69,218) (52,044) 53,955
Revisions of previous quantity estimates and extensions and
discoveries, net of future development and production costs ................... 78,503 (20,215) (51,443)
Accretion of discount before income taxes ....................................... 16,287 11,581 3,912
Net change in income taxes ...................................................... (54,572) (9,683) 24,259
-------- -------- --------
Net change ...................................................................... $(47,063) $(76,684) $ 21,573
======== ======== ========
</TABLE>
40
<PAGE> 42
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
No. Description of Exhibit
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.
41
<PAGE> 43
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.
42
<PAGE> 44
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. 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.
10.21 Second Amendment to Credit Agreement among EXCO Resources, Inc.,
as borrower, Bank of America, N.A. (successor by merger to
NationsBank, N.A., successor by merger to NationsBank of Texas,
N.A.), as agent, and Bank of America , N.A. (successor by merger
to NationsBank, N.A., successor by merger to NationsBank of
Texas, N.A.), as the sole bank, dated February 11, 2000 and
incorporated by reference herein.
43
<PAGE> 45
10.22 Purchase, Sale and Exchange Agreement between EXCO Resources,
Inc., as seller, and Anadarko Petroleum Corporation, as buyer,
dated December 17, 1999, filed as an Exhibit to EXCO's Form 8-K
filed January 18, 2000 and incorporated by reference herein.
10.23 Amendment to Purchase, Sale and Exchange Agreement dated as of
December 17, 1999, between EXCO Resources, Inc., as seller, and
Anadarko Petroleum Corporation, as buyer, dated December 31,
1999, filed as an Exhibit to EXCO's Form 8-K filed January 18,
2000 and incorporated by reference herein.
10.24 Purchase and Sale Agreement between Western Gas Resources, Inc.,
as seller, and EXCO Resources, Inc., as buyer, dated November 16,
1999, filed as an Exhibit to EXCO's Form 8-K filed January 18,
2000 and incorporated by reference herein.
10.25 Amendment No. 1 to Purchase and Sale Agreement between Western
Gas Resources, Inc., as seller, and EXCO Resources, Inc., as
buyer, dated December 21, 1999, filed as an Exhibit to this Form
8-K filed January 18, 2000 and incorporated by reference herein.
10.26 Purchase and Sale Agreement between Nebraska Public Gas Authority
as seller, and Humphrey-Hill, L.P., as buyer, dated February 22,
2000, filed as an Exhibit to EXCO's Form 10-Q for the quarter
ended March 31, 2000 and incorporated by reference herein.
10.27 Credit Agreement among Humphrey-Hill, L.P., as borrower, Bank of
America, N.A., as administrative agent, and financial
institutions listed on Schedule I, dated March 24, 2000, filed as
an Exhibit to EXCO's Form 10-Q for the quarter ended March 31,
2000 and incorporated by reference herein.
10.28 Amended and Restated Agreement of Limited Partnership of
Humphrey-Hill, L.P., dated March 24, 2000, filed as an Exhibit to
EXCO's Form 10-Q for the quarter ended March 31, 2000 and
incorporated by reference herein.
10.29 Amendment to Amended and Restated Agreement of Limited
Partnership of Humphrey-Hill, L.P., dated April 14, 2000, filed
as an Exhibit to EXCO's Form 10-Q for the quarter ended March 31,
2000 and incorporated by reference herein.
10.30 First Amendment to Credit Agreement among Pecos-Gomez, L.P., as
borrower, and Bank of America, N.A., as agent and sole bank,
dated June 30, 2000 (filed herewith).
10.31 Purchase and Sale Agreement between Central Resources, Inc., as
seller, and EXCO Resources, Inc., as buyer, dated August 31,
2000, filed as an Exhibit to
44
<PAGE> 46
EXCO's Form 8-K filed October 2, 2000 and incorporated by
reference herein.
10.32 Amended and Restated Credit Agreement among EXCO Resources, Inc.,
as borrower, Bank of America, N.A., as administrative agent, Bank
One, Texas, N.A., as syndication agent and the financial
institutions listed on Schedule I, dated September 22, 2000,
filed as an Exhibit to EXCO's Form 8-K filed October 2, 2000 and
incorporated by reference herein.
10.33 Warrant Agreement including Exhibit 3, the Form of Registration
Rights Agreement among EXCO Resources, Inc., as issuer , and
Central Resources, Inc., as registered holder, dated September
22, 2000, as Exhibit E to the Purchase and Sale Agreement between
Central Resources, Inc., as seller, and EXCO Resources, Inc., as
buyer, dated August 31, 2000, filed as an Exhibit to EXCO's Form
8-K filed October 2, 2000 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 Independent Public Accountants, Arthur Andersen LLP
(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. filed as an Exhibit to Rio Grande, Inc.'s Form
8-K dated November 12, 1998 and incorporated by reference herein.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated September 22, 2000 filed October
2, 2000 pursuant to Item 2 reporting the acquisition of the
Central Properties and containing Financial Statements to be
filed by amendment no later than December 6, 2000.
45
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
EXCO RESOURCES, INC.
(Registrant)
Date: November 14, 2000 By: /s/ J. DOUGLAS RAMSEY
------------------------------------------
J. Douglas Ramsey
Vice President and Chief Financial Officer
46
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<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>
47
<PAGE> 49
<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.
</TABLE>
48
<PAGE> 50
<TABLE>
<S> <C>
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. 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.
10.21 Second Amendment to Credit Agreement among EXCO Resources, Inc.,
as borrower, Bank of America, N.A. (successor by merger to
NationsBank, N.A., successor by merger to NationsBank of Texas,
N.A.), as agent, and Bank of America , N.A. (successor by merger
to NationsBank, N.A., successor by merger to NationsBank of
Texas, N.A.), as the sole bank, dated February 11, 2000 and
incorporated by reference herein.
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C>
10.22 Purchase, Sale and Exchange Agreement between EXCO Resources,
Inc., as seller, and Anadarko Petroleum Corporation, as buyer,
dated December 17, 1999, filed as an Exhibit to EXCO's Form 8-K
filed January 18, 2000 and incorporated by reference herein.
10.23 Amendment to Purchase, Sale and Exchange Agreement dated as of
December 17, 1999, between EXCO Resources, Inc., as seller, and
Anadarko Petroleum Corporation, as buyer, dated December 31,
1999, filed as an Exhibit to EXCO's Form 8-K filed January 18,
2000 and incorporated by reference herein.
10.24 Purchase and Sale Agreement between Western Gas Resources, Inc.,
as seller, and EXCO Resources, Inc., as buyer, dated November 16,
1999, filed as an Exhibit to EXCO's Form 8-K filed January 18,
2000 and incorporated by reference herein.
10.25 Amendment No. 1 to Purchase and Sale Agreement between Western
Gas Resources, Inc., as seller, and EXCO Resources, Inc., as
buyer, dated December 21, 1999, filed as an Exhibit to this Form
8-K filed January 18, 2000 and incorporated by reference herein.
10.26 Purchase and Sale Agreement between Nebraska Public Gas Authority
as seller, and Humphrey-Hill, L.P., as buyer, dated February 22,
2000, filed as an Exhibit to EXCO's Form 10-Q for the quarter
ended March 31, 2000 and incorporated by reference herein.
10.27 Credit Agreement among Humphrey-Hill, L.P., as borrower, Bank of
America, N.A., as administrative agent, and financial
institutions listed on Schedule I, dated March 24, 2000, filed as
an Exhibit to EXCO's Form 10-Q for the quarter ended March 31,
2000 and incorporated by reference herein.
10.28 Amended and Restated Agreement of Limited Partnership of
Humphrey-Hill, L.P., dated March 24, 2000, filed as an Exhibit to
EXCO's Form 10-Q for the quarter ended March 31, 2000 and
incorporated by reference herein.
10.29 Amendment to Amended and Restated Agreement of Limited
Partnership of Humphrey-Hill, L.P., dated April 14, 2000, filed
as an Exhibit to EXCO's Form 10-Q for the quarter ended March 31,
2000 and incorporated by reference herein.
10.30 First Amendment to Credit Agreement among Pecos-Gomez, L.P., as
borrower, and Bank of America, N.A., as agent and sole bank,
dated June 30, 2000 (filed herewith).
10.31 Purchase and Sale Agreement between Central Resources, Inc., as
seller, and EXCO Resources, Inc., as buyer, dated August 31,
2000, filed as an Exhibit to
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EXCO's Form 8-K filed October 2, 2000 and incorporated by
reference herein.
10.32 Amended and Restated Credit Agreement among EXCO Resources, Inc.,
as borrower, Bank of America, N.A., as administrative agent, Bank
One, Texas, N.A., as syndication agent and the financial
institutions listed on Schedule I, dated September 22, 2000,
filed as an Exhibit to EXCO's Form 8-K filed October 2, 2000 and
incorporated by reference herein.
10.33 Warrant Agreement including Exhibit 3, the Form of Registration
Rights Agreement among EXCO Resources, Inc., as issuer , and
Central Resources, Inc., as registered holder, dated September
22, 2000, as Exhibit E to the Purchase and Sale Agreement between
Central Resources, Inc., as seller, and EXCO Resources, Inc., as
buyer, dated August 31, 2000, filed as an Exhibit to EXCO's Form
8-K filed October 2, 2000 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 Independent Public Accountants, Arthur Andersen LLP
(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. filed as an Exhibit to Rio Grande, Inc.'s Form
8-K dated November 12, 1998 and incorporated by reference herein.
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