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EXCO Resources Revisits Anadarko's Garage Sale

EXCO Resources Inc. said Friday it will pay $860 million cash for Anadarko Petroleum Corp.'s interests in certain natural gas properties in the Mid-Continent, South Texas and Oklahoma. The sale, to be effective Jan. 1, 2007, represents the second package of properties EXCO has bought from Anadarko in as many months.

The acquisition includes assets in the Golden Trend, Watonga-Chickasha, Mocane-Laverne and Reydon areas in Oklahoma, and the Felicia, Speaks and Cage Ranch areas of South Texas. At year-end 2006, the 155 fields included in the latest sale were producing about 103 MMcfe/d net from 1,327 wells. About 69% of the properties are operated by Anadarko. Natural gas accounted for more than 80% of the 2006 production, according to Anadarko.

The production consists of approximately 50 MMcfe/d from 1,062 wells in the Mid-Continent area, and 53 MMcfe/d from approximately 265 wells in the South Texas area. Average acquired working interests and net revenue interests are 75% and 59% in the Mid-Continent, and 63% and 49% in South Texas, respectively.

"EXCO has long been a Mid-Continent oil and gas producer," EXCO CEO Douglas Miller said in a Friday press release. "The Oklahoma assets being acquired are a perfect fit with our existing assets and bring our overall Mid-Continent production to over 75 MMcfe/d. We continue to stress long reserve life and these assets being acquired have an overall reserve-to-production ratio of over 17 years. We will operate the Mid-Continent assets from our Tulsa office. The South Texas assets, while not in one of our focus areas, represent an outstanding package of properties in excellent trends. Our plans with respect to these assets will be formulated over the next few weeks."

Proved reserves currently identified in the latest transaction, based on New York Mercantile Exchange futures strip pricing, total more than 400 Bcfe and are 72% proved developed and 87% natural gas. EXCO has identified approximately 200 proved undeveloped drilling opportunities in the package, with 88% of the opportunities located in the Mid-Continent. The Mid-Continent assets contain approximately 76% of the total proved reserves in the transaction.

The reserves are located in multiple formations, including but not limited to the Big 4, Bromide, Springer, Morrow, Chester, Tonkawa, Redfork and Granite Wash in the Mid-Continent and the Frio, Vicksburg, Miocene, Yegua and Wilcox in South Texas. Approximately 91% of the estimated value of the Mid-Continent reserves are operated, while approximately 85% of the estimated value of the reserves in South Texas are operated. Net acreage included in the acquisition totals approximately 290,000 acres, more than 71% of which is located in the Mid-Continent.

A significant portion of estimated production for 2007, 2008 and 2009 has been hedged by Anadarko, and EXCO said it will assume the hedges.

Dallas-based EXCO is an independent whose production is more than 90% gas. Principal operations are in Texas, Colorado, Louisiana, Ohio, Oklahoma, Pennsylvania and West Virginia. In December EXCO agreed to pay $1.6 billion cash for Anadarko's Vernon and Ansley fields, located in Jackson Parish in North Louisiana. The acquisition was touted as a further articulation of the company's focus on East Texas-North Louisiana as well as Appalachia (see Daily GPI, Dec. 27, 2006).

EXCO recently acquired North Louisiana producer Winchester Energy and affiliated entities (see Daily GPI, July 25). In January EXCO completed the sale of producing properties and remaining undeveloped drilling locations in the Wattenberg Field area of the Denver-Julesburg Basin in Colorado. EXCO President Stephen F. Smith told NGI in December the main thing the company likes about its current focus areas is the long-life reserves.

At year-end 2005, Houston-based Anadarko had 2.4 boe of proved reserves. In August 2006, Anadarko acquired Kerr-McGee Corporation and Western Gas Resources, Inc. in separate transactions (see Daily GPI, Aug. 24, 2006; June 26, 2006). Since then Anadarko has been on a campaign to pare down acquisition debt, which so far has met with a good deal of success (see Daily GPI, Jan. 30; Dec. 13, 2006).

"In the six months since closing the acquisitions of Kerr-McGee and Western Gas Resources in August, we have announced property sales approaching $9 billion in after-tax proceeds," said Anadarko CFO Al Walker. "We have accomplished this in light of a highly volatile commodity market and are ahead of the schedule for asset dispositions we have previously communicated.

"We currently expect our pro-forma debt-to-capital ratio at the end of the first quarter, assuming all the transactions announced to date are closed, to be approximately 50-55%. During the balance of the first half of the year we expect to announce additional transactions and continue to believe we will accomplish our goals for balance sheet restoration during 2007."

The latest sale to EXCO is expected to close during the second quarter, subject to customary closing conditions and adjustments. Tristone Capital marketed the assets, while Lehman Brothers served as Anadarko's financial advisor. The acquisition will be financed with a new revolving credit facility and a bridge loan from EXCO's banking group. The financing for this acquisition will be consolidated with that for the acquisition of the Anadarko North Louisiana properties announced in December. EXCO is developing a deleveraging strategy and is considering alternatives. Due to this acquisition, EXCO now expects to finalize its financing plans in February 2007.

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