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EXCO Resources Inc.

Q3 2010 Earnings Call

November 3, 2010 09:00 am ET

Executives

Doug Miller - Chairman and CEO

Doug Ramsey - VP, CFO and Treasurer

Harold Hickey - VP and COO

Steve Smith - President and CFO

Paul Rudnicki - VP of Financial Planning and Analysis

Marcia Simpson - VP of Engineering

Analysts

Neal Dingmann - Wunderlich Securities

Sachin Shah - Capstone Global

Peter Saperstone - Fidelity Investment

Chris Guo - Shenkman Capital

Brian Cho - First Capital Alliance

Jeff Dane - Brownstone

Drew Figdor - Tiedemann

Jeff Robertson - Barclays Capital

Mitch Norden - Diamondback Capital

Garry Schaumburg - Barclays Capital

Operator

At this time, I would like to welcome everyone to the EXCO’s Third Quarter 2010 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you, Mr. Doug Miller you may now begin your conference

Doug Miller

Thank you very much. But before we get started, I’m going to have Ramsey do our disclaimer. Please.

Doug Ramsey

I would like to remind everyone that you can go to www. EXCOresources.com and click on the Investor Relations tab on the left hand side of our home page to access today’s presentation slides.

The statements that may be made on this conference call regarding our future financial operating performance, structure, and results; business strategies; market prices; and future commodity price risk, management activities; plans and forecasts and other statements that are not historical facts are forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Please refer to pages 20 and 21 of the slide presentation for the complete text regarding our forward-looking statements.

In addition, please refer to our Web site for the earnings release, which contains additional information regarding our forward-looking statements and the preparation of our financial disclosures including reconciliations and other statements regarding non-GAAP financial numbers which will be discussed on today’s call. Doug?

Doug Miller

Okay, we are going to get through this on the third quarter. The main thing is we had a very busy third quarter. The team has done a spectacular job doing exactly what we have forecast from production, from a drilling standpoint. I think we’re targeting getting at the costs in the industry and we’ve gone up with drilling and fracking and so, Hal will get into that a little later on.

But, again spectacular quarter as far as doing what we’ve said we’re going to do. Our development plan, we will announce in November, we have a board meeting coming up here, we’ve been preparing for our capital budget meetings and as soon as that yet approved we will have that announcement out.

But, pretty much right on target is everybody would expect. I think the one thing that we have probably discussed more at board than we ever have before is what should be our rig activity versus may be going after some acquisitions.

Prices have come down and as everybody know, we are kind of expecting them to stay that way for a while and I think we’ve had some preliminary discussions with our partners and with a possibility of shutting some rigs down. And that discussion would probably be at the center of our Board meeting.

We’ll continue in our appraisal program up in the Marcellus. We’ve made some additional acquisitions up there, we have a rig or two run and Hal will get into that.

We did do a bond offering during the quarter, paid off a $445 million of bonds that we’ll do early next year and we redid our borrowing base and return a $1 billion.

And as many of you may or may not know, I did submit an offer for all the company stock on Monday. The Board is now working on setting up a special committee. Soon as that is done there will be a press release and I think they said here I have got to say there is no assurance that a definitive offer will be made and probably I have got lawyers all over this room. So they are probably not going to let me talk much about it.

With that I going to turn it over to Steve and we’ll get through that and get ready for questions.

Steve Smith

Lets refer to that the third quarter of 2010 review that was posted on the website page four on the corporate highlights. We had another good quarter, we had increased revenues, income, EBITDA from the second quarter. We were right on again, so we are in good shape there. We produced 320 million cubic feet of gas a day on average, which is significant 10% increase from the second quarter and if you adjust the second quarter with some of the sales of Appalachia production is 14% increase.

So we are very pleased with where we are at this point, the 320 is a 45% increase over the Q3 of 09 on a pro forma basis. Net income was right on top of guidance LOE, and we continue that to improve in the LOE side that we were a $0.75 an Mcf for the third quarter. That was 12% decrease from Q2. That’s an are that we continue to work on and overall our costs were down. We had a number of credits that came through on our severance taxes in Louisiana. So that tax rate was down.

So overall our realizations in the quarter were better than they where in the second quarter. So, it was just a good strong quarter. Lots of activity going on, lots of drilling that we’ve get in to it little bit.

On and page five is the production profile. This is an interesting chart we’re very proud of what we’d have done here. Since the third quarter of ‘09 something about in that neighborhood, we sold about 36% of our production and we’ve essentially replaced or will have replaced it by the end of the year.

We’re expecting the exit production amount of 400 million a day and which will put us back to where we were in the end of ’08, when we began our divestiture program and our joint venture programs. A big difference, however is our debt has gone from $3 billion back at that time down to around a $1 billion now or less. So, we’ve done a lot in terms of shoring up the balance sheet. We’ve done lot in terms of building up our production particularly with our Haynesville success. So its been a good run.

I am going to turn it over to Paul Rudnicki and let him get through some of the other financial issues and then we will get in to the operations. Paul.

Paul Rudnicki

Thanks Steve. We would pick up on slide seven, and discuss our very good financial positions. You can see on September 30th we had $151 million of cash and a totaled debt balance of a $1billion, including a $750 million of senior notes that were issued that Doug spoke about. Bank debt was $254 million.

That leaves us with a net debt position of 853 million. As we discussed on the borrowing base, the $1 billon borrowing base, when you include our cash, leaves us with unused borrowing plus cash of $882 million

The one thing I do want to highlight, one thing we all are viewing or actually was 50-50 owned joint venture with BG, is reviewing TGGT the midstream company. We will be evaluating our credit facility and looking to set that up by year end and which will position TGGT to self fund activities going forward.

Slide 8; Going over our derivatives position, there has been no changes to where we are We continue to have 34 Bcfs, that’s $7.70 for next year which equates to about to about to 25% of our production and we will continue to monitor and as prices react, whether weather will add to this position.

Slide 9; going into some detail on our third quarter actuals versus the guidance we had put out. As Steve has mentioned our production came in right on top of the midpoint of our guidance 320 million a day, oil differentials continue to do fare better. Our gas differential came in a little weaker. Part it was a mix of how be were sell gas recently, but the offset to that is the our gathering expenses have gone down and virtually washed itself out.

LOE was in line, little bit on the high end as we continue to purpose on workover activities in some of areas where we were not drilling.

We discussed we have gathering expense and as Steve has mentioned, our production tax rate came in about 2.3% of un-hedged revenues for the quarter and the result there is again as Steve mentioned is deep drilling credits in Louisiana were will finally at acceptable stage.

We had a little bit of noise in other income, not very material there, our DD&A rate came in right in the line of guidance, G&A again in the middle of guidance.

The one oddity for the quarter was our income tax rate on a pro forma basis the way we report our earnings on adjusted basis we apply 40% tax rate. We did actually have a cash benefit this quarter. So more than 100% of our book taxes would have been deferred because of the rebate. CapEx came in little bit on higher end as a result of some equipment purchases and a result of the stock price during the quarter our fully diluted share count was towards the lower end of guidance. All in our EBITDA came in right as we expected at about $116 million.

Moving over to Slide 10 as we look at fourth quarter guidance as some you had noticed we have lowered our guidance ensured the production for the fourth quarter. The reason for this is in October and early parts of November as we gone to pad drilling and full development of our DeSoto area we are actually completing eight wells in a section and that section was completely surrounded by other producing wells. So we had a audit to and we actually had to shut in a good chunk of our volumes for about four to six weeks.

As we look at it, we averaged about 17% shut in, when we usually are expecting about 7.5%. So, that’s the single biggest impact as just as we’ve shifted into the full development drilling we have had assurance for a short period of time.

And, the other part of that is, as we continue to shift in to this full development in the DeSoto we have add a few more days, added to some of our expectations on some of this pads. So again, we’re going to exit the year well, well in the middle of where we thought we’re going to be.

We’re just going to have a little bit lower during the quarter. But everything else, you can see reflected of the current, the current quarters, trends and virtually everything else is back inline to what we had expected.

On slide 11, getting into the CapEx. We continue to see our spending for the full year at right under $500 million. We do see a total investment in our midstream entities of $144 million for the year, which does include our first investment in our Appalachia midstream subsidiary that we owned with BG.

Again, we will close on $509 million of acquisitions for the full year. And we’ll expect to receive a total of $132 million from BG for the diverse [ph] in terms of the acquisition. And as Doug mentioned, we will be presenting our capital budgets to the Board here in the middle of November and we’ll be out with those results when the board approved our plan. Now, I will hand it over to Hal.

Harold Hickey

Thank you, Paul. I’ll pick up on slide 13 in your packet. Our operations strategy includes evaluating our existing acreage particularly in the Haynesville and the Marcellus areas and as we continue to prove up acreage we will add acreage in these core areas.

We are utilizing leading technology, we are participating in several industry consortia, our guys just led a meeting of meeting among 14 to 16 other operating companies and shared data about the best ways to drilling complete in the Haynesville in particular we are doing a good job with our water strategy, we were actively ensuring that we have good supply of water for all our operations across the Haynesville and the Marcellus and what we are doing within our strategy is minimizing operational impact on local communities

For example in Haynesville we started fracking with water that’s residue from a local paper plan is working very well and we are continuing to finish out that pipeline so we can use that water across our DeSoto area. In the Marcellus we have acquired and are using appropriate surface water access point and we are recycling our flow back water. We have actually started a very active completion program up there and water source strategy and the water use strategy is working very well.

We are very aggressively pursuing cost reduction initiatives and appropriate service agreements to ensure that we have assured service supply but we're doing it in an optimal way as far as cost go, managing a risk, managing our operations. We are continually improving our drilling performance, I will give you a couple of example to that in a few minutes.

And we optimizing our stimulation and flow-back techniques. I will give you some example of that as well.

And its very-very important to note, that where we aren’t getting our defined internal hurdle rate of 20% before tax rate of return, ROR, we are not drilling, we are only drilling in areas where we can realize the results we want in the Haynesville .

In the Marcellus we’re still in very much of an appraisal mode and so we're doing some tests up there. I’ll talk about that later as well.

Slide 14, to take some of our quarterly operating results and then some of our full year development forecast, we continue to have very strong results in the Haynesville . We’ve got about 25 rigs running on an operated basis at quarter end in addition to that we had about eight other rigs running. That’s the pretty good average for us about eight and its all that in the Haynesville area.

Production as Steve and Paul noted was about 320 million a day on an equivalent basis. We completed 37 wells in the quarter the bulk of those of course are in East Texas, North Louisiana. We forecasting some 54 completions in the fourth quarter, you will see a big pick up in the Appalachia area where we are going from none in the third quarter to the nine in the fourth quarter. And overall we are forecasting that we’ll complete some 150 wells during full year 2010.

Now East Texas, North Louisiana, we’re very much in a development mode DeSoto and I think overall about 20 of 21 rigs that we are running are actually drilling a multiple well pad. So, we’re doing a combination of development and appraisal and we’re also doing some effort to hold acreage in Shelby and you might recall from the last quarterly call by the end of ‘11 all of our acreage that we want to hold in Shelby will be HBP

Our initial Shelby results are very encouraging, we’ve had a couple of completions over 20 million a day and there is actually a well that been drilled and completed in of that position to one of our wells that we’ve recently drilled in waiting completion on that we have 25% working interest in. That's the one which was completed by a third party and well actually operated over 35 million in a day and it is holding very well So we are very excited by the results from our operated well also.

Our appraisals are definitely continuing in Appalachia, we have got a great start working with our new long-term agreement service provider for a our fracture stimulations and we competed 41 stages during the third quarter initial three-well pad as up-to-date we are finishing up 48 stage completion again three well pad in the same general area of Central Pennsylvania and about two operated we’re currently run above 8 to 2010 with three operator we accepted.

In the Permian, we continue with our two rig program and actual of the money reproduce in nearly 1700 barrels of oil per day just from that area.

On slide 15 you can see the average in our core DeSoto shale and this is from 73 well we’ve completed these are all operated, we are averaging about 21.5 or 22 million a day these. The 73 wells like I said are core DeSoto, we had at end of the third quarter we had about 87 total Haynesville wells on line. The other were of course Shelby North Caddo parish and other areas that we've been testing. Shelby of course we’ll continue to drill. Those others we’ve stopped our drilling.

But you can see that we had some pretty consistent performance and what we want to start showing you is a 36, 60, 90 etcetera production performance over time.

The one thing I don’t have on the slide that I want to talk about for just a second, you recall back in May we’ve completed our first four well pad on a 80 acre space and called it the leap pad. There was a picture that in the last quarterly report and those wells are holding up very well as-well. I will give you some statistics on those. They averaged nearly 23 million a day IP, the 30 day average is about 15.3 million a day, the 60 day averaged about 13 and 90 day averaged over 12.

So those 80 acre tests are performing very consistently with the other wells that we have been drilling in the area. So we are encouraged by that and in turn, we're continuing to drill on our development program with spacing and multi well pads.

Okay, Slide 16 talks a little bit how we are focused on costs. Second half of above nine our drilling costs exceeded $10 million per well on a gross basis. Q1 to Q3 it was in the $9.7 million range. Q4 we are actually seeing $9.2 million per well coming in drill and complete. And we got a 2011 target of less than $9 million.. Half of our rigs have less that a year remaining on their contract terms. So like Doug talked about we do have some flexibility with regard our rig cap.

And ass far as cost goes we are very actively working on both the drilling and completion side. We're looking at bit selection. We recently had some performance on an intermediate section hole that was outstanding, it might have been industry first, for us it was certainly a first when we drilled with the single bit some 86,000 feet of hole .That’s going to help us as far as rig time and efficiencies. We recently had one of our best rig time release since we started drilling here, it was actually in 28 days and we are very focused on reducing our non-productive rig time.

On completions we continue to turn a lot of knobs. We are looking at our [prop] and type. You might remember that we were more than 80, 20 intermediate strength [prop], 20% sand, 80% intermediate stream. We are testing that we were down to 50/50. That will save us about $0.5 million a well. We’re looking at tweaks to our completion horsepower, our spacing, managing our equipment. So, we really feel confident, we’ll be bringing those costs down in the immediate future.

And, I’ll talk a little bit on Slide 17, about our Shelby area. You will recall this is our second focused area if you will in the Hayneville region. We’ve acquired this acreage back in mid-summer.

And we did this through a series of two acquisitions, it’s in Shelby and Augustine and Nacogdoches County, Texas. We’ve got 13 operated Haynesville Shale wells we want to sell now. Those, three of those we’ve built and completed. 10 of those we acquired through acquisitions.

If large acreage blocks, very contiguous acreage, our current focus is a combination of a valuation, in HBP we’ve got five rigs running, most of these were on four well pads.

We recently drilled in case very successfully, a very technically challenging hot pressure, hot temperature well with a total measured depth of 19,844 feet, and a 14,057 feet total vertical depth section and then the last what I wanted to make on this slide, I mentioned it earlier is that, we have a non-op interest of about 25% and offset non-op well, we’re participating in that, that held up very well and the well that we just talk about that was technically challenging, is offset to this 35 million a day well we will complete later this month. So, hopefully we’ll have some good news from that.

The last part, I’m going to talk about is on slide 19. It’s talking about our 50% equity company TGGT Midstream. In a very strategic piece of business for us is that, it allowed us to book our wells up and go to sales very quickly.

And we’ve got throughput capacity there of 1.2 Bcf a day and we have had some really good increases an throughput and you can see that as depicted on the green bars on the right side, in slide 19 and you can see that our margin has grown dramatically and we had about a $0.15 or $0.16 EBITDA margin now. This is improved as we worked through remediation costs and as we have increased our rate, particularly as we flow gas to our system looks like I skipped a slide.

I am going to go back to slide 18 which is our Central Pennsylvania area, Marcellus activity slide. As you all know we completed our joint venture with BG back in June we implemented a team BG and EXCO personnel worked through a 100 based study and come up with development plans their recommendations are being evaluated We are honoring them.

And what we are doing is going forward with the combination of an appraisal and development program. We will have at least one rig just evaluating just our acreage position across the play. We will have one rig that’s going drill some development wells in Central Pennsylvania and frankly in some other areas as we see our rock evaluations continue to evolve.

Overall for the year, we will spud 17 gross horizontal wells. We will exit the year with three operated rigs running. We've had some really-really dramatic drilling success there were originally [assaying] our rig release to spud times of 25 to 28 days and these are coming in very consisting recently between 13 to 15 days. So we had thought we might contract some an average higher number of rigs next year that’s going to be under evaluation as our efficiencies have increased.

I have talked about our completion activity here we have got nearly a 100 frac stages completed now, we will be flowing those back during the fourth quarter and we continued to solidify our land positions. Doug?

Doug Miller

In conclusion I think everybody can see that team has been working well. The last two year we’ve been really working hard and getting our balance sheet in shape and defining the areas you are going to see this company go forward.

The Haynesville and the Marcellus is where we are focused. Everybody is doing a great job there. We continue to look at a smaller acquisition in both areas. The partnership with BG is intact. We just had a meeting yesterday on the Marcellus everybody is on board and we are marching. So we are just doing what we told you, we are going to do.

With that do we have any questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Neal Dingmann with Wunderlich Securities.

Neal Dingmann - Wunderlich Securities

Good morning guys, great colors. Doug you’ve mentioned, looking at acquisitions, both Marcellus obviously and Haynesville just wondering just wondering number one how comparative that environment is out there and then number two, just how often you’ve been presented with deals these days?

Doug Miller

We’re seeing a lot of deals, its very competitive. Private market is probably a lot harder than the public market is right now. We’ve just bid on one month ago that was in one of our neighborhood and we got outbid by almost a 100%. I would say, we’re looking at may be five or six deals in the Haynesville and maybe 30 deals up in the Marcellus, very competitive.

Now, let me tell you something. We're concentrated out of the 6 million acre broad Haynesville, we're concentrated on 5 to 600,000 acres and that's pretty tough to buy.

Neal Dingmann - Wunderlich Securities

Got you and then on the rigs, you kind of laid up the rig plan, and you thoughts on go forward basis just to have rig on a spot basis or would you wants some rigs in as you go into next year? What’s your thoughts on that?

Doug Miller

We have rigs lot in but one of the things I said in the last conference call, we're going to be at 22 rigs here in the week or two are in the Haynesville and we can go to the 11 rigs by August 1st. so that’s certainly will be talking to BG about gas prices and costs determine that. Right we’re right on the edge $3.50 - $4 gas and $9 to $9.5 million cost is right on 20%, I’d say cost up and gas down we will be trying to shut start rigs down.

Neal Dingmann - Wunderlich Securities

And then last question maybe for Harold, just wondering, the slide that you show sort of that the decline rate on that DeSoto Parish well. Wondered of it is it too early to know like on that Nacogdoches or some wells on that area, how they stand up for that?

Harold Hickey

Yeah, its too early, we don’t have any kind of bid on line that we’ve completed and operated as much as 90 days in which we are early in that.

Neal Dingmann - Wunderlich Securities

Got you.

Doug Miller

Yeah, two colors over there in Nacogdoches that looks very similar early than that.

Marcia Simpson

Harold, we have some very good, wells down there.

Doug Miller

I’d say it is just early, I think quarter by quarter we’ll try to give the IPs the 30’s the 60’s like we told you. But right now it’s real early but I say early it look’s very similar.

Operator

Your next question comes of the line of Sachin Shah with Capstone Global.

Sachin Shah - Capstone Global

Hi, good morning. I just wanted to find out, I missed the beginning of the call. So is there a kind of timing on the strategically alternative for the company, that’s the first part?

And the second part is, you guys put out net asset valuation, NAV, somewhere back in July, can I have any update on that valuation on the low/high case?

Doug Miller

Well we haven’t sent out an update Paul is always working on that. So I always blame it I am him. The biggest problem with that, as you go across that I think it showed anywhere from 25 to 35, prices are down 10 to 20% so we ran PDP at a PB10 and everything else we're using a 20% discount. So most all those assets will be down because of gas price and probably the pipeline would be slightly up because of volume increases. But I’d say if there were 25 to 35 that’s probably 20 to 25 now.

Sachin Shah - Capstone Global

Okay, that’s still below, the offer price is 20.50 that what I am trying to out is…?

Doug Miller

Well I mean, I really can’t hear the lawyers are going ape, I can’t really talk about it but what I said early in my conversation was I had put an offering, I can’t talk about it and the Board is in the process of picking a special committee and all that will be put out in the press as they are chosen.

Operator

Your next question comes from the line of Peter Saperstone with Fidelity Investment.

Peter Saperstone - Fidelity Investment

Hi, Doug. Actually it’s the same question as the last caller. And you probably hadn’t answered it I guess. But, because your slide in July did have, as you stated, had a low cash, and high cash is 25 and 37. So, it seems to me I think you just said, 20 to 25 as a low and high case based on the changing gas prices. It seems like a big-big drops off in the high case. But either way, I’m just surprised at the bit of 20, 50 versus your low and high cash both back in July and whatever it might be in today?

Doug Miller

Yes. I wouldn’t say that 20. 50 you know, stock was trading to 13 to 15. If nobody wants to own the stock and I do, why do I have to pay 35.

Peter Saperstone - Fidelity Investment

And just looking at the slide, from…?

Doug Miller

I get it, I get it. We went out all summer, talking to everybody we could talk to. See, if we get help it, nobody cared a bit. So, I figured it was time to buy.

Operator

And your next question comes from the line of [Chris Guo with Shenkman Capital].

Chris Guo - Shenkman Capital

Doug, can you just talk about the timeline events kind of leading up to the recent taking private offers. Kind of how long does that process take, I guess to kind a come up with something?

Doug Miller

But, the lawyers are shaking my head. We’ve done this two other times, one was Coda, one as EXCO. And to go through the whole process which is taking a committee and allotment committee to shop it around and getting the a hard offers and everything. I’d say a minimum six month or could take a year. That’s what I said last time.

Chris Guo - Shenkman Capital

And actually I was even talking about the process for you in kind of coming out with an MBO offer, how long does that process take, in leading up to the letter of last Friday I guess.

Doug Miller

It will be in the proxy I’d say. Okay they just me I have to say it would be in the proxy.

Chris Guo - Shenkman Capital

Okay. And just I mean overall do you think its fair just kind of to bond holders to propose, its obviously pretty significant change in the structure that company so quickly after obviously the bond deal closed less than 60 days ago. I just wanted to hear your thoughts on that as well?

Doug Miller

Who said I was the proposer of the change to the capital structure?

Chris Guo - Shenkman Capital

It was the change to the way the company is formed obviously, taking a private potentially leveraging,.

Doug Miller

You are making some assumption that you shouldn’t be making.

Chris Guo - Shenkman Capital

I was just saying that in the letter it stated but there could be third party there as well as part of the offer, so I am just going by that.

Doug Miller

Okay, could be no offer either. I mean there is a lot of “could be’s” in that statement. Sorry, I understand I saw that in there and why don’t you wait and see the structure before you spank me.

Operator

Your next question comes from a line of Brian Cho with First Capital Alliance.

Brian Cho - First Capital Alliance

Hi Doug, I appreciate you directly attempt to answer these questions concerning the possible takeover of the company. With the unique structure of management and basically a non-independent Board and I understand there four independent Board members. How could we be so sure that we’re going to be protected as shareholders in this process? Thank you very much.

Doug Miller

Okay. I think the main thing you need is, I am a large shareholder, everybody in this room is a large shareholder, Boone Pickens is a larger shareholder. And Ares and Oaktree are large shareholder. If there is a higher bid, trust me they will take again, I have done this twice two other times the special committee will shop it around, our employees will put on date rooms for them and if there is a higher bid out there we welcome them and we will take it.

Operator

Your next question comes from the line of Jeff Dane with Brownstone.

Jeff Dane - Brownstone

My question sort of been an answered, I just wanted to, since your comment sort of reputational standpoint in terms of the bond deal, because it is almost 60 days after the deal was done and obviously if it changes significantly, it doesn’t look so great but I think you sort of answer that, but do you have any other comments?

Doug Miller

Thanks, I did answer that. If you like me to do it again I will be happy to.

Jeff Dane - Brownstone

Sure.

Doug Miller

I always am looking at ideas and entertain, there was no contemplation to go private when we did the deal trust me on that. The bankers went through due diligence. The stock underperformed and I just thought there was an opportunity, with gas prices going down. I am betting on our assets and our management team. I am really not making a bet on gas price, it is the easier way to do on that. I am betting on these assets and this team by buying this thing. And if there is a higher bidder out there, tell them to come on.

Operator

And your next question comes from the line Drew Figdor with Tiedemann.

Drew Figdor - Tiedemann

I guess, I just wanted to know given the CapEx requirements of the business, what's the maximum leverage you can put on it, and just from the proposals point of view, have you had discussions on financing? Is the financing something you already believe is in place to do the offer that you proposed? If can just sort of fill in the blanks on the financing?

Doug Miller

The answer is no. I have not had any discussions on any debt financing, if that’s the question. I’ve had only discussions on equity financing and we have almost a billion dollars of liquidity today and I would expect that if I out a deal together I would maintain that.

Drew Figdor - Tiedemann

You would maintain the liquidity, okay?

Doug Miller

A billion dollars.

Drew Figdor - Tiedemann

Right. Okay. And so how do I ask this, how do you know whether you can, if you haven't had the discussions, I mean you've offered a reasonable price. I guess my question is do you know whether you can get it done? If you haven't had any discussions?

Doug Miller

I wouldn’t bet against it. I have done this twice before. I mean, I talked to you few people. I’ve got a good indications of interest as soon as they pick the special committee, I am going to do, go fast and put a firm bid on the table. If there is no firm bid on the table, I’d bet I would get it done.

Drew Figdor - Tiedemann

Okay. And do you have a thought process on how long you think it will take?

Doug Miller

Well if you tell me how long the lawyer will take I will tell you how long I’ll take.

Drew Figdor - Tiedemann

Okay. Well, let's assume the lawyers are done.

Doug Miller

I will be there 30 days after the lawyers let me sign a CA.

Drew Figdor - Tiedemann

Thirty days after the lawyers let you sign the confidentiality agreement?

Doug Miller

I probably should have not said that, right.

Steve Smith

We have already discussed it we have answered that question two or three times this is a six month minimum process.

Doug Miller

And thinking about it is, after I put in an offer than the special committee has to take this and probably go out and shop it some more so. Once my offer gets firm, that does not stop cold the dealer. It continues.

Drew Figdor - Tiedemann

Right, so, the comment in the background, was this is a six month minimum process. That does I don't think made sense, as far as your offer getting firm, that would be…?

Doug Miller

If my offer gets firm in the next 30 to 60 days and then the special committee goes and shops it for another 30 to 60 days, it’s starts matching up.

Drew Figdor - Tiedemann

Okay, so, you believe you can get your offer firm within 30 to 60 days from here.

Operator

Your next question comes from the line of Sachin Shah with Capstone Global

Sachin Shah - Capstone Global

Thanks for taking my question again. Good morning. So, just to clarify, you already have obviously shareholders interested in participating in the equity, taking the Company private. Have you received any other additional interest from shareholders or parties to help, kind of facilitate this process going forward?

Doug Miller

Yes. As you know, the last couple of days, guys threatened to sue me and guys calling and saying they might be interested. Somebody is saying they might be interested, I never heard of them. I wouldn’t called that a real indication of interest. But, I have that ball.

Sachin Shah - Capstone Global

Okay. Just to clarify, I mean, Boone Pickens has stated in the past, his negative comments for gas assets. And so, is he willing to participate in this higher equity?

Doug Miller

That’s what he said and he is very interested in teaming up with us. If we can it done and like I told you earlier, this isn’t a bet on gas, I’m betting on the assets and the people. I’m also a believer that gas is going to be cheap for at least the next 12 to 18 months and I think its an opportunity to get private and be ready to go, make some acquisitions.

Sachin Shah - Capstone Global

Okay. And, as far as the approval process is concerned, any kind of timing on, if the deal would sign today, theoretically how long will the process take for regulatory approvals?

Doug Miller

I think, the special committee is going to be doing all that. I think its still have to go to a shareholder vote. So, I’m saying six months minimum.

Operator

(Operator Instructions) Your next question comes from the line of Jeff Robertson with Barclays Capital.

Jeff Robertson - Barclays Capital

Doug, back to your comments about acquisitions in the current market. Are you looking at acreage acquisitions in and around your core areas because you commented that the Hayneville was very extremely competitive where you like it. And can you share a view as to the availability of opportunities in the Marcellus versus a Haynesville and the attractive relative attractiveness of them?

Doug Miller

Yes. In the Haynesville on certain areas we are probably working on three or four deals that are right in our two cores, ranging from a few 100 acres to a few 1000 acres that’s about where we are looking at. Its down the detail and we have a group out in the field right now.

We are buying 50 acres at a time, a 100 acres at a time. Now which means there is not very many of them. Up in the Marcellus I will bet we have had 50 to 100 submissions of acreage, ranging from New York to Maryland to Virginia to all around the place and I would say we are probably evaluating of the 50 to 100, five of them right now because we are in areas that we are going to consider core.

A lot of deals flow up there, just because of it started out as 23 to 25 million acres and very little has been drilled up and there is couple of small guys that went out and kind of panicked, they are not going to drill any well. Its going to be a challenge to get acres held up there, its not helped by the shallow productions, but lot of deals.

Jeff Robertson - Barclays Capital

And its part of EXCO’s ability to look at those deals because much of your acreage is HBP and you can go still drill to earn or go drill on leases that may have a shorter time fuse versus what you all are dealing with, with your core positions?

Doug Miller

Yes I had say, right now we are 80% HBP. Quite frankly several of the deals we are looking at right now are in our core areas that have or some of them already have shallow productions, so we would be buying those with shallow production and HBP acreage. That’s something you really got to look at.

Like I have been saying for the last year and a half the driver on this play is going to be the Midstream and we had a meeting yesterday with BG and we spend half the meeting talking about how much money and how to develop the midstream assets. We won’t be really up and running, it doesn’t matter what gas price, we won’t be running fast up there for two or three years.

Jeff Robertson - Barclays Capital

Doug, just last question on the midstream aspect. Would that be in n Appalachian midstream company or would you have that under TGG take?

Doug Miller

Right now it’s a separate midstream company.

Operator

(Operator Instructions) Your next question comes from the line of [Mitch Norden] with Diamondback Capital.

Mitch Norden - Diamondback Capital

Yes good morning. You mentioned you are not making a bet on gas prices. So it is fair to assume that if gas prices went down another 10%, 15% you stand by the price that you’ve put out there for the company and just in terms of how financeable the bid is? How much equity are you putting in, in total?

Doug Miller

I came to how much equity I am putting in, I am putting in a significant amount of mine and I think the management group will be putting a significant amount of theirs. My bid stands and didn’t have any contingent on gas price.

Operator

Your next question comes from the line of Garry Schaumburg with Barclays Capital.

Garry Schaumburg - Barclays Capital

Haven't had enough from bond holders. Let me try to ask the question another way here. In terms of Coda, and the first EXCO's leverage on the last private, go-private transactions, can you give us some sense of what the leverage profile looked like in those transactions?

Doug Miller

I can’t remembered today the truth but I think Coda we went private, actually Enron was my co-equity investor on that one, and we did a bond deal right behind it, but it was a lot smaller and it was 98% oil. EXCO at the at the time when we went private on this one, we started in 2002 it literally took us a year doing that?

So it had some debt on it and we literally made two or three acquisitions. That's when we started out getting into the Appalachia. We made a couple of acquisitions and right behind that we did a bond deal. The bond deal we’ve just paid off. So we did right in the deal.

I’d say, I’ve remember the last time we did it. I got in an argument with one of my co-investors about not having enough equity in the deal. And I don’t want to start with too much leverage and I am going to. Investors say we got a put a lot of leverage on this, I am going to back off.

We need a lot of equity in this thing and we need a lot of availability because there is two or three ways this company can go that is drilling faster, make an acquisition or all of the above.

Garry Schaumburg - Barclays Capital

That's really helpful. And then I guess final one is, as a private company, what can you do different compared to a public company? Do you think you’d slow down drilling? Are there any things you could do differently?

Doug Miller

Yes but I would have this call that would be a no. I wouldn’t say the flexibility on drilling. We wouldn't be doing anything different today but I would say this. Other than having our BG partnership which is very important to us. If we didn’t have that partnership we would not be going at this stage. We would be slowing down drilling and tending towards acquisition right now. There is a lot of deals out and there is a lot of public companies out there that are trading below private equity market. I don’t want to point those out but I guarantee I can buy acreage in certain companies a lot cheaper that I am paying for the field right now.

Operator

There are no further questions at this time.

Doug Miller

Okay, thank you everybody I had a feeling this might turn out like this but again we are up and running and as far as the buyout everything would be in the press and we are going to do it right. Thanks again for tuning into the call.

Operator

This now concludes today conference call, you may now disconnect.

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