Dallas-based onshore operator Exco Resources Inc., pressured for months by low oil prices, said Wednesday it will focus nearly all of its activity in the first half of 2016 on its natural gas portfolio in the Haynesville Shale.

The independent is “selectively developing” its asset base while deferring a “significant amount” of the drilling inventory until commodity prices improve. Exco in October already had said it would shut down its drilling program in the Eagle Ford Shale and divert most of its capital expenditures (capex) through the rest of this year to the Haynesville/Bossier play in East Texas (see Shale Daily, Oct. 30). It also plans almost no activity in Appalachia until prices improve.

Exco, which went into default earlier this year, completed a distressed exchange in October (see Shale Daily, Nov. 17).

Through next August, Exco’s drilling and completion (D&C) capex budget of $70 million would be used to drill nine wells (gross) and complete 18 wells in the Haynesville, a reduction of $101 million, or 59%, versus D&C capex through August 2015.

“Development during 2016 will be focused on natural gas drilling and completion activities in North Louisiana and East Texas where Exco is targeting 20-35% rates of return.”

Exco plans to evaluate its D&C program for the second half of 2016 based on where commodity prices are, as well as D&C costs and well performance. The development plans would be modified “based on returns as the company preserves its liquidity and capital resources in preparation for future growth.” The budget would be funded with cash flow from operations.

In North Louisiana, Exco plans to apply a modified well design that includes enhanced completion methods, including the use of more proppant in its fracturing operations, modified well spacing and longer laterals.

“These initiatives are expected to increase the Haynesville Shale wells’ rates of return,” the operator said. Exco is targeting a 30-35% rate of return (ROR) for the wells drilled in this region during 2016. Two rigs are set to be used in North Louisiana during the first half of next year. It plans to spud and turn to sales 5.5 net horizontal wells in the Holly area.

In the East Texas portion of the Haynesville, the focus is on completing 4.1 net wells in the Shelby area also using enhanced completion methods that include the use of more than 2,700 pounds of proppant/lateral foot on some wells.

“The increased use of proppant is expected to generate higher estimated ultimate recoveries (EUR) as a result of improved contact and conductivity with the reservoir,” the management team said.

The reason is simple. Exco generated stronger production this year based on the new well designs.

“The initial results for the average of the wells turned-to-sales in this region during 2015 have outperformed the proved reserve type curve based on an EUR of 1.5 Bcf per 1,000 lateral feet for Haynesville Shale and Bossier Shale wells. This represents a 15% increase from year-end 2014 EURs…”

Management said “there is the potential for additional upside in the EURs as more production history is established,” with a targeted ROR for wells in the region of 20-25%.

Most of Exco’s acreage (81%) in South Texas’ Eagle Ford is held by production (HBP), which allows more flexibility to time development.

“Given current natural gas prices,” no plans are in place to develop any of the Appalachian leasehold. One Marcellus Shale well (gross) is expected to be turned-to-sales in 1Q2016 when gathering lines are completed. The Marcellus leasehold “requires low maintenance capital,” and 82% of the acreage is HBP.

Exco’s ROR is based on New York Mercantile Exchange futures prices as of Oct. 30, including natural gas prices of $2.21/MMBtu for 2015, $2.57 for 2016, $2.84 for 2017, $2.95 for 2018, $3.04 for 2019, $3.15 for 2020 and $3.25 thereafter.