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EXCO CEO: 'A Lot of a Little Is Still a Lot'

During the first quarter predominantly shale gas-focused EXCO Resources Inc. produced more and sold it for less. The company had planned to do the former and is making the best of the latter, said CEO Doug Miller, who told financial analysts Wednesday that "it's hard to put lipstick on this pig."

While EXCO's average commodity sales price per Mcfe slipped by 20% from the year-ago quarter, revenues were up thanks to a 55% increase in production.

"We continue to increase our daily production, averaging 408 MMcfe/d in the first quarter of 2011, a 17% increase over the fourth quarter of 2010," Miller said. "We have added nearly 200 MMcfe/d of net production through the drillbit since the beginning of 2010, effectively replacing the production sold in our 2009-2010 divestiture program."

EXCO is overwhelmingly focused on the Haynesville/Bossier Shale but does have some oil assets, where Miller said the company's rates of return are 60-100%, compared to natural gas returns of 20-30%. EXCO is "happy with" its gas profits, he said. "A lot of a little is still a lot."

And EXCO is prepared for prices to go lower, if they must.

"The world, especially the world of New York and the analysts, still believes gas is going down," Miller said. "We are mixed on that. We have a plan if gas does go down and we're ready. We're hedged, and we have plenty of liquidity to take advantage of that. The short position continues to be higher than even the storage position and so obviously there's a lot of people rooting for it to go down."

Net income in the first quarter was 10 cents/share compared to 54 cents/share in the year-ago quarter. Adjusted net earnings were 13 cents/share compared to 15 cents/share in the year-ago quarter. Oil and gas production was 408 MMcfe/d compared to 350 MMcfe/d in the fourth quarter of 2010 and 264 MMcfe/d in the year-ago quarter.

EXCO continues to enjoy "very strong" results in the Haynesville as it begins to "gain real traction" in the Marcellus Shale, the company said. EXCO also is active in the Permian Basin.

As of May 1 EXCO Haynesville/Bossier operated production was 1,041 MMcf/d gross (333 MMcf/d net). "Our development program in DeSoto Parish, LA, is focused on manufacturing on 80-acre spacing. Our program in San Augustine and Nacogdoches counties, TX (the Shelby Trough) is focused on delineation and testing of our acreage," the company said. "During 2011 we plan to drill 233 gross (65.2 net) wells in the Haynesville/Bossier Shale play in East Texas/North Louisiana. Of these 233 wells, 163 gross wells are operated by us."

In the Marcellus Shale EXCO spudded eight new operated wells and drilled and completed five gross (two net) operated wells during the first quarter. "We plan to drill 64 gross (23.6 net) operated wells in the Marcellus Shale play in our Appalachia region during 2011. Of the 64 wells, 57 gross (20.5 net) will be development wells and seven gross (3.1 net) will be appraisal wells," the company said.

In the Permian Basin the company drilled and completed 18 gross (16.9 net) wells in its Canyon Sand field during the first quarter with 95% drilling success as one of the wells was a dry hole. "We continue to run two operated rigs in the Canyon Sand field and plan to spend $48 million to drill 72 gross (69.8 net) wells in 2011," EXCO said. "Oil production at Sugg Ranch has increased by 40% in the first quarter of 2011 as compared to the first quarter of 2010, and economics for this drilling activity typically have rates of return in excess of 60%."

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