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Exco Cutting Capex 69%, Directing Funds to Handful of Haynesville Wells

Exco Resources Inc. became the latest operator to make moves to preserve liquidity on Wednesday, slashing its capital expenditures (capex) budget for 2016 by more than two-thirds and announcing plans to spud and complete just a handful of wells in the Haynesville and Bossier shales.

The Dallas-based company also said its lenders had completed their spring redetermination, which resulted in its borrowing base being reduced from $375 million to $325 million, a 13.3% decline.

"Exco appreciates our bank group's continued support of the company as we execute on our strategic plan under the current commodity price macro environment," CEO Harold Hickey said. "We remain focused on improving our capital structure and providing structural liquidity.

"We have significantly reduced the principal amounts outstanding under our 2018 and 2022 senior unsecured notes to $144 million and $183 million, respectively. As we work through this cycle, we have focused on preserving liquidity and minimizing capital expenditures, as evidenced by our 2016 [capex] program."

That program now totals $85 million, a 69.3% reduction from $277 million in 2015. The company said it would also defer "a significant amount" of its drilling inventory "until commodity prices improve."

Under the slimmer capex program, Exco plans to devote $66 million for drilling and completion costs to drill seven gross (six net) wells and complete 15 gross (9.6 net) wells, all of which would target the Haynesville and Bossier. The company plans to drill one gross (0.3 net) well in East Texas, and six (5.7 net) wells in North Louisiana. Meanwhile, Exco plans to complete nine gross (3.9 net) wells in East Texas and six (5.7 net) wells in North Louisiana. Broken down by area, about $42 million would be directed to North Louisiana and $24 million to East Texas.

By comparison, Exco last year drilled 37 gross (17.8 net) wells and turned 68 gross (29.2 net) operated horizontal wells to sales.

The remaining capex budget is to include $5 million for field operations and nonoperated well costs, $4 million for land and $10 million for capitalized costs, which includes $6 million for capitalized interest and $4 million for capitalized general and administrative expenses.

Exco announced its operating and financial results for 4Q2015 and the full-year 2015 on March 1. It reported a net loss of $9 million (minus 3 cents/share) for the quarter and a net loss of $51 million (minus 19 cents) for the year. Liquidity totaled $334.4 million at the end of 2015.

Last November, Exco said it planned to perform nearly all of its 2016 drilling activity during the first half of the year (see Shale DailyNov. 25, 2015). It also shut down its drilling program in the Eagle Ford Shale and the Appalachian Basin.

According to Exco's March 210-K filing with the U.S. Securities and Exchange Commission, the company currently holds 83,800 net acres in East Texas and North Louisiana prospective to the Haynesville and Bossier shales. It also has 65,800 net acres in the Eagle Ford and about 137,400 net acres in the Appalachian Basin, prospective for the Marcellus Shale.

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