EXCO Resources (XCO) Tops Q1 EPS by 5c; Updates on Strategic Plan

EXCO Resources (NYSE: XCO) reported Q1 EPS of ($0.07), $0.05 better than the analyst estimate of ($0.12).

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.

For earnings history and earnings-related data on EXCO Resources (XCO) click here.

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