EXCO Resources Reviews U.S. Shale Operations During 2Q

EXCO Resources has provided a review of its U.S. shale operations activity and outlook in its second quarter 2009 results.

Operations Activity and Outlook

We spent $85 million on development and exploitation activities, drilling and completing 22 gross (13.7 net) wells in the second quarter 2009, compared with 34 gross (27.9 net) wells during the first quarter 2009. We had an overall drilling success rate of 100% for the second quarter 2009. Our total capital expenditures, including leasing, midstream and corporate activities, were $124 million in the second quarter 2009. As commodity prices declined beginning in the third quarter 2008, we reduced our drilling activities. We currently have 8 drilling rigs operating across our portfolio, which we have reduced from 32 drilling rigs late in the third quarter 2008 in response to lower commodity prices. Although we expect our third and fourth quarter 2009 leasing, drilling and completion activities in East Texas and North Louisiana area to increase, our actual corporate expenditures for 2009 will remain at approximately $500 million as a result of the effects of the sale of 50% of our interest to BG Group combined with the impact of BG Group’s funding of 75% of our interest in deep projects. We will continue to focus our capital expenditures in areas that will provide strong returns in the current commodity price environment.

We are continuing with plans to sell certain non-strategic assets during 2009. We completed asset sales of approximately $56 million through June 2009 and expect cash proceeds from asset sales and joint ventures in excess of $1.3 billion in the third quarter 2009. Proceeds of all sales or joint ventures will be used to reduce debt and allow more capital to be focused on our shale development and other activities.

East Texas/North Louisiana

East Texas/North Louisiana is our largest division in terms of production and reserves, and our primary targets across this region include the Haynesville shale, the upper and lower Cotton Valley, Travis Peak, Pettet and Hosston formations. Currently, our emphasis is exploitation of our Haynesville shale play position. In East Texas/North Louisiana, we drilled and completed 19 gross (11.7 net) wells in the second quarter 2009.

Haynesville Shale

During the second quarter 2009, our horizontal Haynesville Shale development program yielded exceptional results with some of the highest production rates in the play. We also achieved significant improvements in operational efficiencies. We completed 7 gross (4.1 net) operated horizontal Haynesville wells during the second quarter 2009, and have 2 gross (0.9 net) currently in the completion phase and 6 gross (4.5 net) drilling. Our average initial production rates in DeSoto Parish were 24 Mmcf per day for wells completed during the second quarter, with a range of 21.2 – 26.4 Mmcf per day. We utilized four operated drilling rigs and one operated spudder rig in the quarter and expect to add three additional drilling rigs during the third quarter 2009.

We also participated in 3 gross (0.7 net) non-operated wells in DeSoto Parish, Louisiana with initial production rates ranging from 14.4 to 24.5 Mmcf per day and 1 gross (0.3 net) well in Caddo Parish, Louisiana with an initial production rate of 10.2 Mmcf per day. At the end of the second quarter, we had interests in 2 gross (0.1 net) non-operated horizontal Haynesville shale wells, 1 in the drilling phase and 1 in the completion phase.

We currently have 12 gross (8.4 net) operated horizontal wells and 6 gross (1.2 net) non-operated horizontal wells flowing to sales. Production from our Haynesville wells recently reached a combined gross rate of 174 Mmcf per day (72 Mmcf per day net).

Our DeSoto Parish area has yielded some of the highest production rates in the entire play. The EXCO operated average initial production in DeSoto Parish is 24 Mmcf per day, with all of our wells having initial production rates in excess of 21 Mmcf per day. This high level of performance over a broad area underscores the consistency and high quality of the shale reservoir on our acreage and also demonstrates the effectiveness of our target selection and completion design. Our initial wells were completed with 9-10 frac stages and our most recent wells have been completed with 12-14 frac stages to maximize reserves and production by providing more contact with the fractured shale reservoir.

Our drilling times are improving and considerable operational efficiencies have been made. Our initial wells took 70 - 75 days from spud to rig release and our last five wells have taken an average of 48 days from spud to rig release. Our lateral lengths are now typically 4,500 feet and are designed to maximize the length in the target interval. Our completion operations are initiated immediately following rig release, and our pipeline construction runs parallel to our drilling operations. All of our operated wells have flowed to sales immediately following completion operations due to close coordination with our midstream business. Our midstream activity is progressing as planned with construction of a 36-inch pipeline header system and associated treating facilities. The 36-inch header system is designed to flow both EXCO and third party gas. We have firm transportation of 370 Mmcf per day in the immediate area, including our new commitments on a recently announced third party pipeline project scheduled to be completed in late 2009. We are well positioned in the play and have considerable growth potential with over 4.5 Tcf of potential Haynesville shale reserves.

Cotton Valley

In the second quarter 2009, we drilled 7 gross (5.2 net) Cotton Valley wells. Of the 7 gross wells, 1 gross (1.0 net) was in our Vernon area and 6 gross (4.2 net) were in the Holly field area. With current natural gas prices at the lowest levels in several years, we have elected to suspend most of the operated Cotton Valley drilling.

Appalachia

In Appalachia, we hold in excess of 1.0 million net leasehold acres. Our major operating areas include Pennsylvania, Ohio, and West Virginia, where we historically drilled for the Clinton/Medina sandstone, stacked Devonian sandstone, Devonian shale, Berea shale and other productive horizons. Included as a subset of our extensive acreage position, we now control approximately 361,000 acres in the Marcellus shale fairway, with more than 215,000 acres located in the core area of the over pressured Marcellus. A significant percentage of this fairway acreage is held by production (HBP) by our shallow producing assets. Also as a subset of our acreage position, 130,000 acres (70% HBP) exist within the Huron Shale play of West Virginia. We believe our present leasehold position in the Marcellus and Huron Shale fairways contains between 7 to 12 TCF of potential reserves. Throughout 2009, our technical Marcellus activity is focused on integrating our 2008 Marcellus well results and seismic data, delineating our acreage blocks using our updated geological model and drilling and completing test wells to high grade for a 2010 development program.

Other

We drilled and completed 2 gross (1.5 net) wells in our Permian area Canyon Sand field during the second quarter 2009 resulting in a 100% success rate. One of these wells helped earn approximately 11,000 net contiguous acres under a joint venture. We continue to evaluate 3-D seismic over approximately 35,000 net acres adjacent to our Canyon Sand field and hold approximately 77,000 net acres in the area.

Our Mid-Continent division production averaged approximately 63 Mmcfe per day during the second quarter 2009. In the Mid-Continent, we drilled and completed 1 gross (0.5 net) wells during the second quarter 2009. Based on current commodity prices, we have suspended most operated drilling in these regions.