EXCO Resources, Inc. Reports First Quarter 2016 Results

EXCO Resources, Inc. (NYSE: XCO) (“EXCO” or the "Company") today announced operating and financial results for the first quarter 2016.

• Drilled 5 gross (4.6 net) and turned-to-sales 8 gross (3.6 net) operated horizontal wells in the first quarter 2016. Reduced costs by approximately 20% for wells turned-to-sales in 2016 compared to 2015.
• Produced 295 Mmcfe per day, or 27 Bcfe, for the first quarter 2016, in line with the mid-point of guidance. Production decreased 24 Mmcfe per day, or 8%, from the fourth quarter 2015, primarily due to normal production declines and timing of wells turned-to-sales.
• Adjusted EBITDA, a non-GAAP measure, was $19 million for the first quarter 2016, 62% below adjusted EBITDA for the fourth quarter 2015, primarily due to lower cash receipts on derivative contracts, commodity prices and production. This was partially offset by decreases in lease operating expenses and general and administrative costs.
• Adjusted net loss, a non-GAAP measure, was $20 million, or $0.07 per diluted share, and GAAP net loss was $130 million, or $0.47 per diluted share, for the first quarter 2016. The GAAP net loss was primarily due to the $135 million impairment of oil and natural gas properties pursuant to the ceiling test in accordance with full cost accounting.
• Cost saving initiatives resulted in lease operating expenses below the low-end of guidance and general and administrative costs at the low-end of guidance. These initiatives resulted in 25% lower lease operating expenses and 27% lower general and administrative expenses (excluding equity-based compensation and severance costs) from the fourth quarter 2015.
• Liquidity was $256 million at March 31, 2016. EXCO continued to execute transactions to enhance its capital structure, including additional repurchases of $54 million of senior unsecured notes with $8 million in cash during the quarter.
• Capital budget for 2016 was reduced to $85 million to preserve liquidity and capital resources, representing a reduction of $192 million, or 69%, compared to 2015.

Strategic plan update

EXCO's strategic plan continues to focus on the following three core objectives: 1) restructuring the balance sheet to enhance its capital structure and extend structural liquidity, 2) transforming EXCO into the lowest cost producer, and 3) optimizing and repositioning its portfolio. The three core objectives and the Company's recent progress are detailed below:

1. Restructuring the balance sheet to enhance its capital structure and extend structural liquidity - The Company is focused on improving its capital structure and providing structural liquidity. During the first quarter 2016, the lenders under EXCO’s credit agreement ("Credit Agreement") completed their regular semi-annual redetermination, which resulted in a borrowing base of $325 million, a 13% decline from the previous $375 million borrowing base. Over the same period, forward 12-month natural gas strip prices declined by approximately 23%. As of March 31, 2016, EXCO had $256 million in liquidity. During the first quarter 2016, EXCO completed additional transactions focused on reducing its indebtedness including the repurchase of $14 million and $40 million in principal amount of senior unsecured notes due 2018 ("2018 Notes") and senior unsecured notes due 2022 ("2022 Notes"), respectively, with $8 million in cash. These repurchases resulted in an estimated reduction in interest expense of approximately $4 million per year. Since the third quarter 2015, EXCO has reduced the aggregate principal amount of outstanding senior unsecured notes by $924 million, or 74%. The Company continues to evaluate additional initiatives to accomplish this objective, including the repurchase, refinancing or restructuring of existing indebtedness, and the issuance of additional indebtedness or equity.
2. Transforming EXCO into the lowest cost producer - EXCO continues to exercise fiscal discipline to transform itself into the lowest cost producer. The Company has implemented several initiatives to reduce its lease operating costs and general and administrative expenses, including significant reductions in its workforce. For the first quarter 2016, lease operating expenses decreased by 25% and general and administrative expenses (excluding equity-based compensation and severance costs) decreased by 27% from the fourth quarter 2015. The reductions in lease operating expenses included the renegotiation of saltwater disposal contracts, modifications to chemical programs and less workover activity. In April 2016, EXCO modified the schedule for certain employees in the Appalachia region that reduced work hours by 20% compared to the first quarter 2016. Since the fourth quarter 2015, the Company has reduced its general and administrative employees by approximately 20%. The Company expects its lease operating expenses and general and administrative expenses to continue to decrease in 2016 as it realizes a full year of cost savings from the reductions in force and other initiatives.
3. Optimizing and repositioning the portfolio - The Company continues to execute its disciplined capital allocation program to ensure the highest and best uses of capital. EXCO has reduced its total 2016 capital budget to $85 million, a reduction of $192 million, or 69%, as compared to 2015 capital expenditures of $277 million. While the Company's portfolio contains a significant number of economic development opportunities in the current commodity price environment, it has deferred development to preserve its liquidity and capital resources. In addition, the Company is evaluating the divestiture of certain non-core assets to generate capital that can be redeployed to projects with higher rates of return.

North Louisiana

Highlights:

• Produced 151 Mmcfe per day, a decrease of 23 Mmcfe per day, or 13%, from the fourth quarter 2015 and a decrease of 56 Mmcfe per day, or 27%, from the first quarter 2015.
• Drilled 5 gross (4.6 net) operated Haynesville shale wells during the first quarter 2016.

EXCO’s decrease in production compared to the fourth quarter 2015 was primarily the result of normal production declines. EXCO operated an average of two drilling rigs to drill 5 gross (4.6 net) Haynesville shale wells in the first quarter 2016, which are planned to be turned-to-sales in the second and third quarters 2016. The Company also plans to drill and complete an additional 1 gross (0.9 net) well in 2016. The first three wells drilled in 2016 featured completion methods that included the use of approximately 2,700 lbs of proppant per lateral foot and average lateral lengths of approximately 4,300 feet. The average drilling time for these wells was 25 days, including a well drilled in 23 days, which is the best drilling performance in the Company's history of drilling over 400 wells in the North Louisiana region. The cost of these wells is expected to be approximately $6.0 million. The remaining three wells in the 2016 capital budget will also feature enhanced completion methods, such as increased amounts of proppant and cross-unit laterals of approximately 7,500 feet. These wells are expected to have an average cost of $8.0 million per well. The Company is targeting rates of return(*) in excess of 35% in this region during 2016. The additional volumes from these wells turned-to-sales are expected to increase production in this region in the second and third quarters 2016.

The Company has implemented several initiatives to enhance and manage its base production in the region including a full field compression program in the Holly area that began in late 2015 and has already demonstrated sustained performance improvements.

East Texas

Highlights:

• Produced 63 Mmcfe per day, consistent with the fourth quarter 2015 and an increase of 18 Mmcfe per day, or 40%, from the first quarter 2015.
• Turned-to-sales 8 gross (3.6 net) wells in the Haynesville and Bossier shales.

EXCO’s production was consistent with the fourth quarter 2015 primarily due to natural production declines offset by additional wells that were turned-to-sales late in the first quarter 2016. The wells turned-to-sales included 5 gross (2.2 net) wells in the Haynesville shale and 3 gross (1.4 net) wells in the Bossier shale. These wells utilized 2,100 to 2,800 lbs of proppant per lateral foot and have yielded strong results. The average cost for the Haynesville and Bossier shale wells turned-to-sales during the first quarter 2016 was approximately $9.4 million. The average drilling and completion costs for these wells represent a decrease of approximately 20% compared to wells drilled by EXCO in this region during 2015.

EXCO recently completed its second Haynesville shale well since 2012 in Nacogdoches County, Texas. The well has performed above expectations with an initial production rate of 13.2 Mmcfe per day on a 17/64th restricted choke with a flowing tubing pressure of 9,469 psi. The continued strong results of both wells show further upside of the predominantly undeveloped southern area of the Company's East Texas position that includes over 100 undeveloped prospective gross locations. The Company plans to drill and complete an additional 1 gross (0.3 net) well in this area during 2016.

South Texas

Highlights:

• Produced 6.5 Mboe per day, a decrease of 0.8 Mboe per day, or 11%, from the fourth quarter 2015 and an increase of 0.5 Mboe per day, or 8%, from the first quarter 2015.

EXCO’s decrease in production compared to the fourth quarter 2015 was primarily due to normal production declines as EXCO suspended drilling in this area in the second half of 2015. The Company's acreage in the South Texas region is approximately 81% held-by-production, including 100% of its core area, which allows EXCO flexibility in the timing of development in this region.

Appalachia

Highlights:

• Produced 42 Mmcfe per day, an increase of 5 Mmcfe per day, or 14%, from the fourth quarter 2015 and a decrease of 9 Mmcfe per day, or 18%, from the first quarter 2015.

EXCO’s increase in production compared to the fourth quarter 2015 was primarily attributable to lower shut-in production from its Marcellus shale wells due to improved regional market prices for natural gas. Shut-in production due to low regional market prices was approximately 8 Mmcfe per day during the first quarter 2016 compared to 11 Mmcfe per day during the fourth quarter 2015. The Company's position in the Marcellus shale requires low maintenance capital and is approximately 84% held-by-production allowing the opportunity for future development activities with minimal costs to hold the position.

EXCO continues to focus on reducing its operating costs in the Appalachia region, which has resulted in a decrease in lease operating expenses of 43% compared to the fourth quarter 2015. In April 2016, EXCO modified the schedule for certain employees that reduced work hours by 20% compared to the first quarter 2016.

EXCO’s decrease in adjusted EBITDA compared to the fourth quarter 2015 was primarily due to lower cash receipts on derivative contracts and lower revenues as a result of lower realized oil and natural gas prices and lower production. These decreases were partially offset by the implementation of cost reduction initiatives that reduced general and administrative expenses and oil and natural gas operating costs. Gathering and transportation expense increased due to taking natural gas in-kind from certain third-party operated wells in the North Louisiana region, which also resulted in improved natural gas price differentials. The benefit of taking natural gas in-kind attributed to natural gas price differentials below the low-end of guidance. The GAAP net loss in each of the quarters presented in the table above was primarily due to impairments of the Company’s oil and natural gas properties pursuant to the ceiling test in accordance with full cost accounting.

EXCO's increase in operating cash flows compared to the fourth quarter 2015 was primarily the result of favorable working capital conversions in the first quarter 2016, partially offset by lower revenues and lower cash receipts on derivative contracts. During the first quarter 2016, EXCO primarily used its cash flows from operations and borrowings under its Credit Agreement to fund its development. The Company's cash used in investing activities is expected to decline during the remainder of the year in connection with its reduced development program. EXCO's financing activities in the first quarter 2016 included repurchases of the 2018 Notes and 2022 Notes and payments on the $400 million second lien term loan ("Exchange Term Loan").

On March 29, 2016, lenders under the Credit Agreement completed their regular semi-annual redetermination resulting in a reduction in EXCO's borrowing base from $375 million to $325 million primarily due to depressed oil and natural gas prices. There were no additional modifications to the Credit Agreement in connection with the redetermination process. The next scheduled redetermination is set to occur on or about September 1, 2016.

As of March 31, 2016, approximately 57% of the remaining 2016 forecasted natural gas production and 63% of the remaining 2016 forecasted oil production has been hedged. Since March 31, 2016, EXCO entered into additional fixed price swaps covering 7,300 Bbtu of natural gas at an average price of $2.74 per Mmbtu for 2017.

The following financial statements are attached.

EXCO will host a conference call on Wednesday, May 4, 2016 at 9:00 a.m. (Central time) to discuss the contents of this release and respond to questions. Please call (800) 309-5788 if you wish to participate, and ask for the EXCO conference call ID#24918642. The conference call will also be webcast on EXCO’s website at www.excoresources.com under the Investor Relations tab. Presentation materials related to this release will be posted on EXCO’s website prior to the conference call. A digital recording will be available starting two hours after the completion of the conference call until May 11, 2016. Please call (800) 585-8367 and enter conference ID#24918642 to hear the recording. A digital recording of the conference call will also be available on EXCO’s website.

Additional information about EXCO Resources, Inc. may be obtained by contacting Chris Peracchi, EXCO’s Vice President of Finance and Investor Relations, and Treasurer, at EXCO’s headquarters, 12377 Merit Drive, Suite 1700, Dallas, TX 75251, telephone number (214) 368-2084, or by visiting EXCO’s website at www.excoresources.com. EXCO’s SEC filings and press releases can be found under the Investor Relations tab.

This press release contains statements that are forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among others, statements regarding estimates, expectations and production forecasts for 2016, estimates of costs and expenses for 2016, and EXCO’s drilling program. It is important to communicate expectations of future performance to investors. However, events may occur in the future that EXCO is unable to accurately predict, or over which EXCO has no control. Users of the financial statements are cautioned not to place undue reliance on a forward-looking statement. Any number of factors could cause actual results to differ materially from those in EXCO's forward-looking statements, including, but not limited to, the volatility of oil and natural gas prices, future capital requirements and the availability of capital and financing, uncertainties about reserve estimates, the outcome of future drilling activity, environmental risks and regulatory changes. Declines in oil or natural gas prices may have a material adverse effect on EXCO's financial condition, liquidity, results of operations, ability to fund operations and the amount of oil or natural gas that can be produced economically. Historically, oil and natural gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. EXCO undertakes no obligation to publicly update or revise any forward-looking statements.When considering EXCO's forward-looking statements, investors are urged to read the cautionary statements and the risk factors included in EXCO's Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission ("SEC") on March 2, 2016 and its other periodic filings with the SEC.