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Exco Still In the Market After Last Week's $1B Deal

Exco Resources Inc. is back in the acquisition game after having struck a $1 billion deal with Chesapeake Energy Corp. last week, CEO Douglas Miller said Monday. There are plenty of deals, and financing is available, he told analysts following the company.

"We're finally back," Miller said. "We need to be making acquisitions. We still are focused on our core areas, which are the Haynesville and the Marcellus, but we're trying to add two oil plays and those would be in the Eagle Ford and West Texas, so we will continue to look at deals."

Last week, Exco and Chesapeake struck a deal for Exco to acquire about 55,000 acres in the liquids-rich Eagle Ford and about 9,600 acres in the Haynesville (see Shale Daily, July 5). The deal gave Exco entry into the Eagle Ford and helped diversify its portfolio with some oil assets. Miller said he wants more of that, but dry gas is particularly attractive now.

"We still like gas," he said. "We're going to couple it with some oil. We think there's a lot of reasons to be buying gas instead of aggressively drilling for it. There's a lot of properties for sale. We're still looking at a lot of them, and we will continue." Miller added that he's bullish on gas demand growth but not necessarily commodity price appreciation.

Exco needs to pay down revolving debt following the Chesapeake transaction. The company's $400 million bridge loan for the deal should be dispatched within 90 days, Miller said.

"But there's a lot of partners that we have, including board members, who have indicated an interest in participating [in deals]," he said. "There's a lot of money out there and if we can make the right deal, there are structures available for us to continue complete acquisitions."

In West Texas, there are "two or three deals" in the $200-500 million range, Miler said. "We're looking at...four deals in the Haynesville/Cotton Valley area that are all in the $500 million to $1 billion range. We're looking at three or four deals up in the Marcellus that are ranging from $50 million to $250 million."

In the Eagle Ford, there's nothing on the company's radar right now, he said, but "a couple deals" in the Eaglebine could prove interesting. Exco is taking a pass on the Rockies and the Bakken, Miller said. The Utica is heating up, "and one particular area we're very interested in," he said.

"In the key areas, I'd say there's a $1 billion deal out there, we think. I don't have any idea how we would finance it. We'd have to get a joint venture partner on that one. But again, we're looking for deals that have at least 40%, hopefully 50% production coming with them. That eliminates about half the deals. There's a lot of acreage out there on the market. Unless it's right in our neighborhood, we're looking for at least 50% PDP [proved developed producing]."

From 2006-2012, Exco averaged roughly $800 million per year in gross production and midstream property acquisitions (expressed in nominal dollars), so the announced $1 billion purchase of Chesapeake's Eagle Ford and Haynesville properties was inline with the company's recent annual run rate. The Chesapeake buy also got the company active on the acquisition front again, after basically sitting on the sidelines in 2012.

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