EXCO Resources, Inc. Q1 2010 Earnings Call Transcript

EXCO Resources, Inc. Q1 2010 Earnings Call Transcript
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EXCO Resources, Inc. (XCO)

Q1 2010 Earnings Call Transcript

May 5, 2010 9:00 am ET

Executives

Doug Miller – Chairman and CEO

Justin Clarke – Assistant General Counsel and Chief Compliance Officer

Steve Smith – President

Paul Rudnicki – VP, Financial Planning & Analysis

Hal Hickey – VP & COO

Mike Chambers – VP, Operations & General Manager, East Texas/North Louisiana Division

Analysts

David Heikkinen – Tudor, Pickering, Holt

Brian Singer – Goldman Sachs

Leo Mariani – RBC

Neal Dingmann – Wunderlich Securities

Irene Haas – Canaccord

Kathryn O'Connor – Deutsche Bank

Ray Deacon – Pritchard Capital

Presentation

Operator

Compare to:
Previous Statements by XCO
» EXCO Resources, Inc. Q4 2009 Earnings Call Transcript
» EXCO Resources Q3 2009 Earnings Call Transcript
» EXCO Resources Q2 2009 Earnings Call Transcript

Good morning. My name is Andrea and I will be your conference operator today. At this time, I would like to welcome everyone to the EXCO Resources, Inc. first quarter 2010 earnings release conference call. (Operator Instructions) I would now like to turn the call over to our host, Mr. Doug Miller, Chairman of EXCO Resources, Inc. Please go ahead sir.

Doug Miller

Thank you, Andrea. Again, this is Doug Miller. I will act as Chairman today. I have a full group in here, counting two lawyers so I don't say anything stupid. But before I get started, one of our lawyers will read our preamble.

Justin Clarke

Thanks, Doug. As a reminder for everybody, you can go to excoresources.com and click on the Investor Relations tab to access today's presentation. As an additional reminder, the statements may be made on this call regarding our future financial performance, structure and results, business strategies, market prices and future derivative activities, any other plans and forecasts are indeed forward-looking statements. So we caution you not to put undue reliance on those statements.

Please refer to slides three and four in the slide presentation for a complete text of our forward-looking statements. We have also made available on the website reconciliations for certain non-GAAP financial measures that may be discussed on this call. I will turn it back over to you, Doug.

Doug Miller

Thanks, Justin. I will quickly go over a couple of bullet points here that I am sure won't answer everybody's question, but will – as it is the starter. And then from an operational standpoint, Hal will get into the detail.

We continue to march on our plan. We set out a little over a year-ago to de-leverage the Company and refocus the Company in areas that we think we can – our finding cost is cheaper and more specifically our operating costs. We have been very successful. We got out of most of our conventional. We still think today that conventional gas takes at least $6.50 NYMEX to make a reasonable return.

In certain areas of the Haynesville we are seeing right now that with costs up there is only very few areas in the Haynesville that make our 20% hurdle rate. And we'll get into that a little later.

We have drilled and completed 50 Haynesville wells to date. We'll get into that. Spectacular success, our operating team is doing a great job. You will see that we are going to move some of our rigs. We're about 100% HBP on our acreage now, so we have the flexibility to move around.

We will continue to drill in DeSoto Parish, which we consider our core, and one of the major core areas. Every well we've drilled in there has exceeded our expectations – our early expectations. We now kind of expect 20 million a day. But we will continue – from a science standpoint we will be checking different proppants. We will try to figure different ways to source and clean up frac water. And most importantly, I think this year we will figure out spacing. We will get into that a little later on. We are going to be completing four wells on a 320 [ph] to test 80 acre spacing, actually later this month I think. Isn't that right?

Unidentified Company Speaker

Yes.

Doug Miller

So everything is going great there. With cheap gas, and we do think gas could be cheaper a little while, has given us some opportunities. We have recently signed up a couple of deals. Most importantly was the Common in our joint venture with BG. It is a sizable deal with at least 2,000 potential locations.

We will later on this month, we will be creating a budget. I think early on we were talking about having as many as six rigs running down there. There is some drilling obligations that we have to do. It came in a really good area with some good science and good people. We were really impressed with the data they had, so it made it very easy for us and BG to have a competitive bid.

It should close later this month. It is something that we are looking forward to drilling. It's slightly deeper, so the costs are going to be slightly higher, but there is both Haynesville and Bossier potential in there. It comes with some production. It comes with two rigs already running. And we are monitoring those and cooperating with the company right now. It will be a real seamless takeover of that.

There are other opportunities down there. So one of the challenges – and we will be meeting with BG later on here in the next couple of weeks, it is putting our development plan together along with our pipeline scheme. I mean, there is going to be some additional capital needed for the pipeline.

We did this quarter drill our first Bossier test and completed it. What was it – around 9 million or 10 million a day?

Unidentified Company Speaker

11.

Doug Miller

Excuse me, 11 million a day. It looked – it is very successful, it’s in DeSoto. We will – we have a rig running out there. I think we are completing our second one right now. That rig will stay. We are very happy with the results.

Capital spending, we will – I think Paul will go over that later on. We are right on where we expected to be. We will continue because of our theory to be an aggressive driller, but most importantly, we will continue to drill inside of our EBITDA, and that will continue even with the Common acquisition.

Lastly before we get started, Marcellus, we have made up our mind as a company to do a joint venture. We did say that we would report to everybody. We had discussions with multiple people. We are in discussions right now.

There is no assurance that anything would be done, but I would expect we have picked a partner to negotiate with. Again, it is a fairly complicated area. The good news is we are 80% HBP up there. The bad news is, there is a lot of pipeline issues and I think we have picked a partner that understands pipeline issues. So it has been a key factor in the negotiations, making sure they understood the capital needs and the speed at which we can grow and be able to sell gas up there. So I would say, again, there are no assurances that we are going to sign a deal, but I would say over the next 30 to 60 days, if everything goes well, we should be announcing. And if we do sign a purchase agreement we will announce, and we will have an additional conference call and go over how we did it, what we did, and how we expect to exploit it.

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