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Haynesville Drives Record Net Production Volumes for EXCO

EXCO Resources Inc. saw record net production volumes during 3Q2011, helped in large part by strong results in the Haynesville/Bossier shale play in Louisiana and Texas and growing momentum in the Marcellus Shale, where it is seeking additional acreage.

Meanwhile, CEO Doug Miller predicted that the decision by BG Group plc -- its joint venture (JV) partner in the Marcellus and the Haynesville -- to participate in liquefied natural gas (LNG) exports would have little effect on EXCO (see Shale Daily, Oct. 27).

"We had probably our best quarter in the history of the company," Miller told financial analysts during a conference call Wednesday to discuss the Dallas-based company's 3Q2011 results. "Our operating guys had a spectacular quarter."

EXCO saw record net production volumes of 540 MMcfe/d during 3Q2011, a 69% increase over the 320 MMcfe/d produced during the quarter one year earlier. The company also exceeded 1.2 Bcfe/d of gross operated production in East Texas and North Louisiana.

"...East Texas is coming in slightly better than we thought," Miller said. "We're actually doing a spacing test in Bossier and Haynesville at the same time in a joint venture with another operator, so that could be quite exciting and could come on early next year."

EXCO reported operated shale production in the Haynesville exceeded 1.2 Bcf/d gross. The company, which has 264 operated wells in the play, added that net production totaled 419 MMcf/d as of Oct. 16, a figure that includes production from 144 wells not operated by EXCO.

The company completed 50 gross wells (19.7 net) in the Haynesville during 3Q2011 and saw well costs decline, thanks to improved cycle times and completion optimization efforts. In the Holly focus area in North Louisiana, the use of a modified proppant mix and optimized cluster spacing helped bring the average well cost down to $9.6 million per well during 3Q2011. EXCO said Holly's average initial production (IP) rate was 19 MMcf/d during 3Q2011.

Meanwhile, the average well cost $12.90 million during the same quarter in the Shelby focus area in East Texas because of a deeper target and longer laterals. But Shelby's average IP rate was more than 28 MMcf/d during 3Q2011, realizing encouraging results from the Bossier formation.

Cycle times were reduced 20% and 25% in the Holly and Shelby areas, respectively, from the end of 2010.

EXCO predicted that about 45 MMcf/d of production would be curtailed in 4Q2011 due to the May 28 incident at the TGGT Holdings LLC amine treating facility near Coushatta, LA, that killed one EXCO employee (see Daily GPI, June 7). Curtailed volume totaled 44 MMcf/d during 3Q2011. Full treating capacity is expected to be restored in early 2012, the company said.

In the Marcellus, EXCO said it was producing about 100 MMcf/d gross (24 MMcf/d net), a volume the company said it expects to double by mid-2012. EXCO added that it has 54 operated and four nonoperated horizontal wells flowing to sales. The company holds 847,000 gross acres (379,000 net) in the play, with the potential to add approximately 140,000 additional net acres.

EXCO said it completed 11 gross wells (four net) during 3Q2011 in its central and northeastern focus areas, which lay entirely in the Pennsylvania portion of the Marcellus. The company said three of its four rigs are in the Northeast area, where six wells had an average IP rate of 6.4 MMcf/d. In the central area, five wells had an average IP rate of 5 MMcf/d.

Miller said the company was eyeing additional acreage in the Marcellus and indicated that between 20 and 40 land deals were under consideration.

"One of the things we're trying to do is identify the areas where want to focus," Miller said. "We think Lycoming [County] is what we call an 'A' area. We have two or three areas that look like they could be 'B' and maybe 'A' areas. We wish we were where Cabot [Oil & Gas Corp.] is, where there is an 'A++' area. That's all taken.

"On all shale across North America, I think where we are in the Haynesville and where we are up in the Northeast part are the two top areas, with the exception of where Cabot is. I don't think there's any question we would love to find another area. We're looking, [but] we can't find anything that's any better."

COO Hal Hickey concurred, saying "Our development focus is going to be in the Lycoming County area for the foreseeable future. We think we got an 'A' in Lycoming." He added that areas of Clearfield, Armstrong and Jefferson counties in Pennsylvania also "look encouraging."

The company also completed 18 gross wells (17.5 net) in the Permian Basin.

BG Gulf Coast LNG LLC, a subsidiary of BG, has signed a 20-year contract to buy 3.5 million metric tons per year of LNG from Cheniere Energy Partners LP's Sabine Pass Liquefaction LLC for $8.2 billion. Sabine Pass is planning to develop the ability to produce 9 million metric tons per year in the first phase of its project in Cameron Parish, LA.

"As you know, they made more than $2 billion last year," Miller said. "They are the main player. With the advent of all of these shales, I believe you'll see BG have more than one facility here because they have the relationships with China and India and Japan. We don't have the access over there [at Sabine Pass], so sharing that would probably be a long shot. But I think maybe us getting a small premium for being able to sell gas into that plant is something that's [possible]. We haven't discussed it yet, but they're going to need a lot of gas.

"We're a partner and we get along great. [But] we're not big enough to put up $5 billion to participate in the plant. I think there will be opportunities, and I'm sure we'll have the discussions. But I don't see us making $10/Mcf because we're their partner."

Pressed on the LNG issue again, Miller added, "Let me tell you, that is an expensive man's game. We talk to them a lot. We have not pushed to become a partner. I don't know if they'd let us if they could."

According to EXCO, approximately $80 million of carry remained available in the Marcellus from BG at the end of 3Q2011.

EXCO reported revenue of $240.2 million in 3Q2011, a 38% increase over the $174.1 million earned for the quarter one year earlier. Meanwhile, direct operating costs fell 5% to $21.1 million and cash flow increased 40% to about $151 million (70 cents/share) in 3Q2011. Adjusted net income declined 4% to $33.1 million in 3Q2011 (15 cents/share) versus $34.4 million (16 cents/share) posted in 3Q2010.

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