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EXCO Reserves Climb as Company Shops Itself

Dallas-based EXCO Resources Inc. on Thursday credited drilling success in the Haynesville Shale for "a significant increase" in proved reserves. The company also said it is shopping for offers that would compete with a buyout proposal it received from its CEO late last year.

Proved developed reserves grew by 28% from 2009 to 822 Bcfe while proved undeveloped reserves increased 114% to 677 Bcfe last year, the company said.

"Our proved reserves at Dec. 31, 2010 are estimated at 1.5 Tcfe with a pre-tax [present value 10% (PV10)]...of $1.4 billion, calculated pursuant to [Securities and Exchange Commission] pricing rules, which are based on the simple average of the first-of-the-month reference natural gas and oil prices for the prior 12-month period, adjusted for energy content, quality and basis differentials," the company said.

The 2010 reference price was $4.38/MMBtu for gas and $79.43/bbl for oil, which resulted in an adjusted price of $4.37MMBtu for natural gas and $75.83/bbl for oil, EXCO said.

"At year end 2010 our proved reserves were 55% proved developed and 97% natural gas," the company said. "Based on our estimated full-year 2010 production of 112 Bcfe, our reserve life equates to 13.4 years. Using the five-year futures strip price at Dec. 31, 2010 averaging $5.23/MMBtu for natural gas and $93.09/bbl for oil...our estimated proved reserves would have been 1.6 Tcfe with a pre-tax PV10 of $2.1 billion."

EXCO estimated total net resource potential to be 11.3 Tcfe as of the end of last year. The figures do not include any effects from the company's Marcellus Shale acquisition from Chief Oil & Gas LLC, which was announced in December (see Shale Daily, Dec. 23, 2010).

"We have also entered into a definitive agreement with a private company for the purchase of additional Marcellus Shale properties with associated shallow production primarily in Jefferson and Clarion counties in Pennsylvania for $95 million, which is expected to close in the first quarter of 2011," EXCO said. "BG Group plc has the right to participate for 50% of these acquisitions. The total resource potential, including proved reserves, attributable to these acquisitions is approximately 3.4 Tcfe, of which 1.7 Tcfe would be net to EXCO if BG Group elects to participate in these acquisitions."

EXCO said it has about 76,000 net acres prospective for the Haynesville and Bossier shales. Pro forma for the closing of the two Marcellus acquisitions and assuming BG Group elects to participate, the company will hold about 152,000 net acres prospective for the Marcellus, it said. The acreage position across both plays would result in a total shale drilling inventory of 9,300 gross potential locations.

The company also said Thursday it will consider competing offers to one made last year by CEO Douglas H. Miller for the buyout of the company.

In October EXCO received a proposal from Miller to buy all outstanding common shares for $20.50/share (see Shale Daily, Nov. 8, 2010; Nov. 2, 2010). The company and Miller are in a standstill and confidentiality agreement. Miller is prohibited from acquiring additional shares and from entering agreements that would prevent shareholders from accepting a competing offer for the company. EXCO also adopted a shareholder rights plan with a one-year term.

"After carefully reviewing Mr. Miller's unsolicited proposal and other relevant factors with the assistance of our financial and legal advisers, the special committee [of the EXCO board] determined it is in the best interests of shareholders to commence a comprehensive and independent review of strategic alternatives to maximize shareholder value," said director and special committee member Vincent Cebula.

"We intend to conduct a thorough process in which all interested parties will have an opportunity to participate on a level playing field. To that end, we believe it is in the best interests of EXCO shareholders to adopt a shareholder rights plan and require potential bidders to sign confidentiality and standstill agreements."

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