Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update
EXCO Drops $80MM on Development Activities in Q1 2014
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EXCO Resources, Inc. has reported first quarter operating and financial results for 2014.
- Adjusted EBITDA was $112 million for the first quarter 2014, which exceeded the high-end of our guidance.
- Production was 37 Bcfe, or 407 Mmcfe per day, for the first quarter 2014, which exceeded our mid-point guidance.
- Oil and natural gas operating costs and general and administrative costs for the first quarter 2014 were below the low-end of our guidance, reflecting continued fiscal discipline.
- Improved leverage position and reduced indebtedness under our credit agreement by $389 million with proceeds from the rights offering of our common stock, asset sales, and cash flows from operations during the first quarter 2014.
- Increased liquidity through $500 million offering of senior unsecured notes issued in April 2014.
- Drilled 36 gross (10.7 net) and completed 15 gross (3.1 net) operated horizontal shale wells in the first quarter 2014.
Jeff Benjamin, EXCO’s chairman, commented, "We have continued to execute on our strategic objectives including improving our liquidity and maintaining financial flexibility, demonstrating fiscal discipline, efficiently exploiting our current asset base and simplifying our corporate structure. Over the past six months, EXCO has reduced total debt under its credit agreement by approximately $630 million. In addition, the recent $500 million senior unsecured notes offering further enhanced our liquidity and added an eight year term to our capital structure. We are encouraged by the recent improvements in natural gas pricing as well as storage levels and general demand. With our improved balance sheet and continued emphasis on capital discipline, EXCO is well positioned for future growth."
Operations Activity and Outlook
We spent $80 million on development activities, drilling 36 gross (10.7 net) operated wells and completing 15 gross (3.1 net) operated horizontal shale wells in the first quarter 2014. We continuously evaluate modifications to our drilling schedule in order to maximize our returns in reaction to commodity prices and industry trends. Our actual capital expenditures for the first quarter 2014 are presented in the following table.
Updates on the company's individual E&P projects can be accessed below:
EXCO Running Eight Rigs Across Eagle Ford, Haynesville Plays
EXCO Details Marcellus Appraisal Well Results After Rough Winter
Financial Results
GAAP results were a net loss of $5 million, or $0.02 per diluted share, for the first quarter 2014 compared with a net loss of $123 million, or $0.57 per diluted share, for the fourth quarter 2013. Our GAAP results for the first quarter 2014 were positively impacted by higher realized prices; however, this was partially offset by losses on derivative financial instruments. The losses on derivative financial instruments were significantly impacted by unrealized losses due to rising commodity futures prices during the period. The recent improvements to our liquidity allow us more flexibility to retain upside optionality for rising prices in future periods. The net loss for the fourth quarter 2013 was primarily due to the non-cash impairment to our oil and natural gas properties.
Adjusted EBITDA for the first quarter 2014 was $112 million compared with $124 million for the fourth quarter 2013. During 2014, our development program will result in a decrease in our net production volumes while increasing our crude oil production compared to the prior year. This is consistent with our previously disclosed guidance for the first quarter 2014 and full year 2014. Adjusted EBITDA is a non-GAAP measure and is computed using earnings before interest, taxes, depletion, depreciation and amortization, and is further adjusted for gains from asset sales, unrealized gains or losses from derivative financial instruments, impairments of our oil and natural gas properties, other non-cash income and expenses, and other items impacting comparability.
Adjusted net income, a non-GAAP measure, was $0.05 per diluted share for the first quarter 2014 compared with $0.04 per diluted share for the fourth quarter 2013. The non-GAAP adjustments include gains from asset sales, unrealized gains or losses from derivative financial instruments, non-cash asset impairments and other items typically not included by securities analysts in published estimates.
Oil, natural gas and natural gas liquids ("NGL") production was 37 Bcfe, or 407 Mmcfe per day, for the first quarter 2014 compared with 41 Bcfe, or 446 Mmcfe per day, in the fourth quarter 2013. First quarter 2014 production from the East Texas/North Louisiana region was 280 Mmcfe per day compared with 311 Mmcfe per day in the fourth quarter 2013. The decrease in production was primarily the result of natural production declines, timing of wells turned-to-sales and higher downtime. The increase in downtime was the result of well maintenance, offset fracturing activities, and weather related issues. First quarter 2014 production from the South Texas region was 584 Mboe, or 6,500 Boe per day, compared with 656 Mboe, or 7,100 Boe per day, in the fourth quarter 2013. The decrease in production was primarily due to higher downtime as a result of wells shut-in for offset drilling and fracturing activities. Additionally, the decrease in production was a result of a lower working interest in the wells turned-to-sales during the quarter compared to our average working interest for producing wells in the region. The first quarter 2014 production in the Appalachia region was 61 Mmcfe per day compared with 66 Mmcfe per day in the fourth quarter 2013. The decrease in production was due to natural production declines and higher downtime due to freezing issues. Our proportionate share of production from the EXCO/HGI Partnership was 24 Mmcfe per day in the first quarter 2014 compared to 26 Mmcfe per day in the fourth quarter 2013.
Oil, natural gas and NGL revenues for the first quarter 2014 were $198 million compared with $180 million for the fourth quarter 2013. Our average sales price per Mcfe increased to $5.42 per Mcfe for the first quarter 2014 from $4.39 per Mcfe for the fourth quarter 2013. Our average sales price for natural gas during 2014 was positively impacted by higher demand due to lower than average temperatures during the winter season which resulted in significantly lower storage levels compared to historical averages. When the impacts of cash settlements from derivatives are considered, oil, natural gas and NGL revenues were $179 million, or $4.88 per Mcfe for the first quarter 2014, compared with $194 million, or $4.73 per Mcfe for the fourth quarter 2013.
Our direct operating costs were $19 million, or $0.51 per Mcfe, for the first quarter 2014 compared with $19 million, or $0.45 per Mcfe, for the fourth quarter 2013. The higher rate per Mcfe was primarily due to the decrease in production and higher costs associated with the oil production in the Eagle Ford shale compared to our natural gas production.
Cash flows from operations before changes in working capital and other operating items impacting comparability, a non-GAAP measure, were $94 million for the first quarter 2014 compared with $100 million for the fourth quarter 2013. During the first quarter 2014, we primarily used our cash flows from operations to fund our drilling and development program and repay indebtedness under our credit agreement ("EXCO Resources Credit Agreement").
Recent Developments
Rights Offering
The Company closed a rights offering and related private placement of our common stock on January 17, 2014 which resulted in the issuance of 54,574,734 shares for proceeds of $273 million. We used the proceeds to reduce indebtedness under our credit agreement including the remaining indebtedness related to the asset sale requirement as well as a portion of the indebtedness under the revolving commitment.
Permian Basin transaction
On March 24, 2014, we closed a purchase and sale agreement with a private party for the sale of our interest in certain non-operated assets in the Permian Basin including producing wells and undeveloped acreage for approximately $68 million, after final purchase price adjustments. The effective date of the transaction was January 1, 2014. Proceeds from the sale were used to reduce indebtedness under the EXCO Resources Credit Agreement.
2022 Notes
On April 16, 2014, we completed a public offering of $500 million in aggregate principal amount of senior notes due April 15, 2022 ("2022 Notes"). We received net proceeds of $490 million after offering fees and expenses. These notes bear interest at a rate of 8.5% per year, payable on April 15 and October 15 of each year, with payments commencing on October 15, 2014. We used the net proceeds to reduce indebtedness under the EXCO Resources Credit Agreement including the $298 million outstanding principal balance on the term loan and the remaining proceeds were used to reduce a portion of the indebtedness outstanding under the revolving commitment. As a result of this transaction, our unused availability under the EXCO Resources Credit Agreement was $684 million on a pro forma basis as of March 31, 2014. The improvement in our liquidity as a result of this offering enhances our financial flexibility and positions us for future growth.