Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure

Commitments and contingencies

The following table presents our future minimum obligations under our commercial commitments as of December 31, 2018. The commitments do not include those of our equity method investments.



(in thousands)	Drilling contracts		Operating leases and other		Other fixed commitments		Total
2019	$	3,661	$	1,635	$	17	$	5,313
2020	—		1,595		12		1,607
2021	—		1,193		2		1,195
2022	—		1,173		—		1,173
2023	—		—		—		—
Thereafter	—		—		—		—
Total	$	3,661	$	5,596	$	31	$	9,288

We lease our offices and certain equipment. Our rental expenses were approximately $2.4 million and $2.3 million for the years ended December 31, 2018 and 2017, respectively. We have also entered into drilling rig contracts primarily to develop our assets in the East Texas and North Louisiana regions. The actual drilling costs under these contracts will be incurred by working interest owners in the development of the related properties. These contracts are short-term in nature and are dependent on our planned drilling program.

In the ordinary course of business, we are periodically a party to lawsuits. From time to time, oil and natural gas producers, including EXCO, have been named in various lawsuits alleging underpayment of royalties and the allocation of production costs in connection with oil and natural gas sold. We have reserved our estimated exposure and do not believe it was material to our current, or future, financial position or results of operations.

We believe that we have properly reflected any potential exposure in our financial position when determined to be both probable and estimable.

Shell natural gas sales contract litigation

As of September 30, 2018, we had withheld $28.5 million in revenues owed to Shell as a result of a dispute regarding the failure of Shell Energy North America (US) LP ("Shell Energy"), a subsidiary of Shell, to pay us for the sale of natural gas. We entered into a settlement agreement with Shell on September 17, 2018 that was approved by the Court on October 1, 2018 ("Shell Settlement Agreement"). Under the terms of the settlement agreement:

•

EXCO will pay a total of $22.5 million to Shell, including $9.0 million within 15 days following the approval of the settlement agreement by the Court, $9.0 million within 45 days following the approval of the Court, and the remaining $4.5 million on or before the effective date of the plan of reorganization. Per the terms of the Shell Settlement Agreement, we paid Shell $18.0 million during the fourth quarter of 2018. Upon payment in full of the remaining amount, Shell shall release EXCO from any further liability related to the withheld revenues;

•

EXCO will commence the completion of four wells that were previously drilled in North Louisiana no later than November 15, 2018, and subsequently commence the completion of three additional wells that were previously drilled in North Louisiana. Per the terms of the Shell Settlement Agreement, we commenced completion on each of these wells during the fourth quarter of 2018 and first quarter of 2019;


•	EXCO shall assume the joint development agreement with Shell for the East Texas/ North Louisiana joint venture as part of the bankruptcy proceedings and any defaults occurring thereunder are deemed to be satisfied; and


•	Shell shall not challenge EXCO’s right to serve as operator under the joint development agreement for the East Texas/ North Louisiana joint venture for the remaining term through January 1, 2020, subject to certain exceptions.

The settlement agreement does not prevent us from asserting any claim, cross-claim, defense, or other cause of action against Shell Energy, nor does the settlement agreement prevent Shell Energy from asserting any claim, cross-claim, defense, or other cause of action against us. Furthermore, the settlement agreement provides that it shall not affect any proof of claim that Shell Energy filed in the Chapter 11 Cases. As of December 31, 2017, we had a receivable of approximately $33.4 million related to the sales of natural gas to Shell Energy in East Texas and North Louisiana for the months of November and December 2017. Shell Energy is withholding payment as a means to satisfy their demands of reasonable assurance of performance under a natural gas sales agreement. We believe the request for adequate assurance was unreasonable and unjustified under the terms of the agreement and these amounts have been improperly withheld by Shell Energy. On March 7, 2018, the Court approved the rejection of the aforementioned natural gas sales agreement with Shell Energy and we recorded a liability of $41.5 million in “Liabilities subject to compromise” related to our current estimate of the allowed claim. The receivable for sales of oil and natural gas to Shell Energy in November and December 2017 and the estimate of the allowed claim for the rejection of the natural gas sales agreement with Shell Energy were presented as a net amount of $8.1 million in "Liabilities subject to compromise" as of December 31, 2018. See further discussion regarding this dispute with Shell Energy in "Item 3. Legal proceedings".

EXCO RESOURCES INC 10-K