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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (55426)

6/7/2015 12:51:35 PM

From: E_K_S

1 Recommendation

Recommended By
Mattyice

Respond to of 78673

EXCO Resources Inc. (XCO) - Form 8K filed 3/31/2015 - Energy Strategic Advisory Services service agreement

As I looked into more of the recent filings and disclosures in hopes of determining the risk/reward for buying common shares and/or their distressed debt, I see that Wilbur Ross finally hired his new CEO.

This is a critical component for Wilbur since XCO like many of the other E&P companies is leverage w/ debt while producing assets are generating less cash flow and non producing assets are losing value due to low oil/NG prices. The criteria for the new CEO is (1) Oil & Gas developing experience, (2) a vested interest by partner in owning common shares and (3) some future incentive for a big payoff if/when a recovery is made and Wilbur can see a gain on his long term investment.

Two new events have occurred since their common stock 'rights' offering (12/1/2014) to shareholders where Ross added shares to bring his total holding to 54mln shares to his holdings: (1) a new CEO (J. Wilder) & COB (H. Hickey) were hired and (2) a new $10mln investment by Energy Strategic Advisory Services a subsidiary of Bluescape Resources and commitment to buy $40mln of common shares.

EXCO Resources Enters Into A Services And Investment Agreement With A Subsidiary of Bluescape Resources Company LLC To Drive Performance Improvements And Names C. John Wilder As Executive Chairman And Harold L. Hickey As CEO.

From the Form 8K - incentive through warrants to Energy Strategic Advisory Services

As additional performance incentives under the Agreement, EXCO has issued to ESAS warrants in four tranches (the “Warrants”) to purchase an aggregate of 80,000,000 shares of Common Shares (the “Warrant Shares”). The table below lists the number of Warrant Shares awarded at each exercise price and the term of the Warrants.


Number of Warrants Granted	Exercise Price		Term
15,000,000	$	2.75		49 months
20,000,000	$	4.00		60 months
20,000,000	$	7.00		72 months
25,000,000	$	10.00		72 months

Exercisability of the Warrants is subject to EXCO’s Common Share price achieving certain performance hurdles as compared to the Peer Group. If the Agreement is not terminated before March 31, 2019, and EXCO’s performance rank is in the bottom half of the Peer Group, then the Warrants will be forfeited and void. The number of exercisable shares under the Warrants increases linearly from 32,000,000 to 80,000,000 as EXCO’s performance rank increases from the 50th to 75th percentile, as compared to the Peer Group. If EXCO’s performance rank is in the 75th percentile or above, then all 80,000,000 Warrant Shares will be exercisable.

Prior to March 31, 2019, (a) if EXCO terminates the Agreement for any reason other than an ESAS Forfeiture Event (as defined below), or ESAS terminates the Agreement for an EXCO Forfeiture Event (as defined below), then 100% of the Warrants will fully vest and become exercisable and (b) if ESAS terminates the Agreement for any reason other than an EXCO Forfeiture Event, or EXCO terminates the Agreement for an ESAS Forfeiture Event, then one hundred percent (100%) of the Warrants will be cancelled and forfeited. The Warrants automatically terminate and become void and of no force or effect if the Closing does not occur.

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J. Wilder is the executive chairman of Bluescape Resources and share undeveloped acreage in the same area as XCO.

Bluescape Resources® is a private, independent oil and gas investment and operating company. Bluescape has created two investment vehicles focused on two unique oil and gas investment opportunities. The Bluescape team of experienced energy professionals has an extensive record of capitalizing on opportunities that others miss. Bluescape has built a distinct execution model and has made strategic investments in multiple basins. Bluescape is constantly evaluating additional opportunities to create value through thoughtful new energy investments.

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Bottom line, Wilbur Ross & new investment partner Bluescape Resources may/could provide a good backstop for the common shareholders if/when company recovers. There is a big pay day for both investors; Ross & Bluescape (but stock may/could get diluted if/when warrants are exercised).

The key date to watch for is November 15, 2015. I will be watching the Senior Debt pricing for a Buy. If this service agreement is terminated, there is a good chance of a debt default event. $750mln of their Senior debt mature 9/18/2018 Senior Debit .

The Agreement will remain in effect for four years after Closing, unless the Agreement is terminated or extended by prior mutual written consent of EXCO and ESAS. Prior to Closing, the Agreement may be terminated (i) upon written notice by one party if Closing shall not have occurred by November 30, 2015,

The XCO Senior Debt value proposition may reveal it's self by November 2015.

EKS