EXCO Resources, Inc. Files Voluntary Petitions for Chapter 11 Reorganization to Facilitate Financial Restructuring

Company to Explore Strategic Alternatives to Maximize Value

Operations to Continue as Usual During Restructuring Process

January 15, 2018 10:48 PM Eastern Standard Time

DALLAS--(BUSINESS WIRE)--EXCO Resources, Inc. (NYSE: XCO.BC) (OTC Pink: XCOO) ("EXCO" or the "Company") today announced that in order to facilitate a restructuring of its balance sheet, the Company and certain of its subsidiaries have filed voluntary petitions for a court-supervised reorganization under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (“the Court”). EXCO intends to operate in the ordinary course of business during the restructuring process.

EXCO continues to engage in constructive discussions with its creditor constituencies regarding the terms of a financial restructuring plan. In conjunction with this process, EXCO will explore potential strategic alternatives to maximize value for the benefit of its stakeholders, including the marketing of the Company’s assets, which may result in a sale of certain or substantially all of its assets under Section 363 of the Bankruptcy Code or as part of the plan of reorganization.

EXCO has received a commitment of $250 million in debtor-in-possession (“DIP”) financing from certain of its existing lenders including Fairfax Financial Holdings Limited and its affiliates; Bluescape Resources Company LLC and its affiliates, including Cove Key Management; and JPMorgan Chase Bank, N.A., and certain of its affiliates. The DIP financing, which is subject to court approval, is expected to refinance the Company’s existing Reserve-Based Credit Agreement and support the Company’s day-to-day operations during the restructuring process. The Company intends to pay vendors in full for all goods and services provided after the filing date.

Link to full article:  https://www.businesswire.com/news/home/20180115005695/en/EXCO-Resou...

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Hmmm, if memory serves, my O&G attorney considers anything other than a full payment of royalty insufficient and a breach of the lease agreement potentially leading to termination of the lease.  The GHS members who have been through bankruptcies with their operators have never reported partial payments but perhaps they just didn't notice.

Skip:

Royalty is generally treated as a covenant and not as a condition; the lessor owes the royalty, but timely payment of royalties is not fatal to the lease.  It may leave the lessor subject to penalties and trigger breach provisions, but not fatal.  Unlike, it should be noted, a rental - if one fails to pay a rental, the lease terminates.

In any event, BK suspends the usual enforcement of such terms and subjects all contracts to the BK court.  Without such protections in bankruptcy, there would be no leverage available to the debtor when declaring bankruptcy or in applying for reorganization - the secured creditors would just pick up all their respective pieces and go home, to the extent that they can, leaving others less able to deal with the consequences to deal with the maw which remains.

Normally, royalty payments during BK can either (1) continue as usual, (2) be suspended until the terms of the BK can be worked out over some period and then resume, or choice (3) - payment plan as covered above until the company can (hopefully) successfully reemerge.  The first generally occurs during a "preplanned" bankruptcy - the larger secured creditors usually end up with an equity position in the reorganized company and/or assets, the smaller ones being paid or settled with, and then everyone goes on as usual - no hiccups in normal operations, including royalty payments.  Options 2 and 3 occur in cash- and/or asset-strapped bankruptcies - too many operations and obligations and not enough pledged assets and revenue with which to pay everyone.

Insofar as the lessor seeking termination of lease under these circumstances - rest assured that the leases will be declared in a list of assets and contracts (along with the wells and appurtenances), and thus subject to the jurisdiction of the bankruptcy court.  No court or BK trustee is ever, EVER, going to look upon a release or lease dissolution (especially on a producing property) as a preferred remedy.

Skip, why hope Tellurian doesn't buy them?

Because Tellurian has already acquired the former Samson Contour Haynesville Units and has been touting their business plan to have the lowest cost per mcf by way of a vertically integrated business plan.  They want to own as large a percentage as possible of the natural gas they use to export LNG.  They are projecting a cost of around $2.25/mcf.  With natural gas in the $3 range and some near future expectations of a 10 to 15% price increase, there is an obvious disconnect.  Will mineral lessors in those Tellurian operated units, and any other Haynesvville units they may acquire in the future, get paid a less than market rate price for their natural gas?  Either Tellurian gets its $2.25 gas and they don't, or mineral lessors get a market price and Tellurian's cost is significantly more than $2.25.  Since Tellurian's LNG facility will not be operational until 2023. the question of how they will have $2.25 gas is a puzzle.  Personally I would not want the exposure to a company producing my natural gas reserves that has a strong incentive to pay me the lowest price they can get away with.

Very well put together response. Thank you.

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