Exco Resources Inc. spent the second quarter in cost-cutting mode, looking to improve liquidity and renegotiate its gathering and transportation contracts as it evaluates a possible return to activity in 2017.

Management told analysts during an earnings call Wednesday that the Dallas-based exploration and production (E&P) company’s current strategy centers around restructuring its balance sheet, lowering production costs and “optimizing and repositioning” its portfolio.

Exco said it reduced the principal amount on its total debt by $35 million during the quarter. Meanwhile, the company has now reduced its headcount by around 60% since the start of 2015 as operating costs continued to decline in 2Q2016.

As part of its cost-cutting, Exco plans to pursue “a consensual restructuring of its gathering and transportation contracts to reflect market rates and actual utilizations” that would “mutually benefit both parties. If the efforts are not successful, the company may seek alternatives to reject the contracts consistent with recent court decisions.”

“We remain focused on what we can control, including our balance sheet, organizational structure, cost, capital program, drilling and completion designs, and noncore asset sales,” CEO Harold Hickey said. “But Exco continues to face significant challenges, including our [gathering, marketing and transportation] costs, debt levels and commodity prices. We’re diligently working on these matters that we don’t control including the success and timing around the consensual restructuring of our gathering and transportation contracts, noting the significant negative impact these contracts have on our cash flow, borrowing base and liquidity.

“Until we reach resolution on these contracts, we must limit our capital expenditures as we continue executing our strategic improvement plan…”

Exco’s current contracts include “a significant amount of above-market rates and unused commitments,” he said. “We strongly believe our gathering and transportation providers will prefer a consensual solution, as opposed to having their non-competitive…contracts canceled, which would occur in a more formal restructuring.”

The E&P decreased its second quarter lease operating expenses by 11% sequentially on renegotiated saltwater disposal contracts, changes to its chemical programs and reduced workover activity. For example, last month, it reduced the work schedule for some of its Appalachia employees and divested its working interest in some conventional wells in Pennsylvania.

In South Texas, Exco also sold some noncore undeveloped acreage and its interests in four producing wells for $12 million. Also in South Texas, Exco said it settled litigation last month with a former joint venture (JV) partner over a participation agreement in the Eagle Ford Shale. The settlement released Exco from certain obligations, which Hickey said would provide the company “with additional flexibility in the development of our higher returning projects in this region and the elimination of the very complicated offer process.”

During the quarter, Exco drilled one gross (0.9 net) horizontal well and turned three gross (2.5 net) to sales all in its North Louisiana acreage, with average cost per well decreasing 22% year/year to $5.8 million. These lower well costs came despite an increase in proppant loading to 2,700 pounds/lateral foot, Hickey said.

Breakeven commodity prices needed to achieve a 25% rate of return in its core North Louisiana acreage in the Haynesville Shale now sit at $2.19/Mcf, Hickey said, with breakevens of $2.60/Mcf in the East Texas portion of the play and mid-$40s/bbl in the Eagle Ford.

Capital expenditures (capex) for the quarter totaled $19 million, compared with $75 million in the year-ago quarter. For the rest of 2016, Exco expects to drill one well in East Texas and evaluate possible drilling activity in South Texas after settling with its former JV partner. Management said Exco may evaluate a possible increase in development activity in 2017 contingent on market conditions and the success of its restructuring efforts.

Exco produced a total 27 Bcfe in 2Q2016, including 447,000 bbl of oil and 24.3 Bcf of natural gas. Average daily production totaled 296 MMcfe/d, including 146 MMcfe/d from North Louisiana, 76 MMcfe/d in East Texas, 32 MMcfe/d in South Texas and 43 MMcfe/d in Appalachia. Production in 2Q2015 averaged 361 MMcfe/d, including 231 MMcfe/d in North Louisiana, 40 MMcfe/d in East Texas, 43 MMcfe/d in South Texas and 47 MMcfe/d in Appalachia.

For the second quarter, Exco reported a net loss of $111 million (minus 40 cents/share), compared with a net loss of $454 million (minus $1.67) in the year-ago quarter.