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EXCO Resources Inc. (NYSE:XCO)

Q1 2008 Earnings Call

May 7, 2008 2:00 pm ET

Executives

Douglas Miller - Chairman and Chief Executive Officer

Douglas Ramsey - Vice President and Chief Financial Officer

Stephen Smith - Vice Chairman and President

Paul Rudnicki - Vice President of Financial Planning and Analysis

Harold Hickey - Vice President and Chief Operating Officer

Analysts

Brian Singer - Goldmann Sachs

David Heikkinen - Tudor Pickering

Jack Aydin - Keybanc Capital

[Nafeez Sheriff] - Private Investor

Operator

Good afternoon. My name is Fredericka, and I will be your conference operator today. At this time, I would like to welcome everyone the Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be the question-and-answer session. (Operator Instructions). Thank you.

Mr. Miller, you may begin your conference.

Douglas Miller – Chairman and Chief Executive Officer

Thank you. I'd like to welcome everybody to EXCO Resources' first quarter conference call, earnings release. And with me today, I have -- we have nine guys here, so we are going to be prepared to answer and all questions. But before we get started, Ramsey has to read whatever we call that.

Douglas Ramsey - Vice President and Chief Financial Officer

Thanks. 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 homepage to access today’s presentation slides. The first page that will come up after you hit the Investor Relations tab has a presentation slides link. Just double-click on the link; it will launch the slide presentation that you can follow along with.

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 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934.

Please refer to pages 3 and 4 of the slide presentation for the complete text regarding our forward-looking statements.

In addition, please refer to our website 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?

Douglas Miller – Chairman and Chief Executive Officer

Thank you. As you can tell, we just had an all-time record in both production, EBITDA, earnings, and we are quite excited about our first quarter. I think most people know what our strategy has been over the last 30 years and that has been through acquired assets when prices are softer and really speed up the drilling as prices get better. We are now probably in a phase where we are going to be concentrating more on drilling, which we are I think allocated into that the meeting, we had 23 rigs running last week. We are actually looking for some more or so. That is not what the challenge is right now. We have all four areas kicking as good as we can get them. We have hired we are up to pushing 800 people right now. We have hired some AAA people over the last two years, technical people that are enabling us really to accelerate some of our drilling and most importantly we have three shale plays that we'll talk briefly about that were up in Appalachia and East Texas, all of which look exciting. We are going to be significant players in each one. We are staffing up and evaluating those three areas as we speak. Again, we will get into that a little. But most importantly, the technical people that we have brought in over the last two years are enabling us to accelerate both our development drilling in our four areas and participate in a significant manner in all three of these areas.

We will get into that in a second, but I think the bottom line on this is with oil prices higher and gas prices looking higher and Mr. Pickens, who is on our Board has gotten very bullish on the price and he is in agreement with us that we should accelerate drilling.

Now let me take a couple of things about drilling. Rig rates will be going up. Electricity rates will be going up, but most importantly and what we are buying in and I think you will start hearing this is there is a real shortage of steel and although we have got --we have plan to head on everything as we put more rigs to work. The tubing completion work on tubulars, prices have gone up and actually in some cases you can't even get it. So that’s a real scramble going on in the industry right now and so expect to see steel prices rise. I think we have gotten one price increase here in the last 30 days and we expect to lease two more over the next 90 days. So it's real problem I think that refocuses on these mini mills, scrap steel is being shipped to China because they are paying more than we are. So there is real shortage of scrap and so many of the mini mills that we are buying tubulars on are working 50% of the times, so there is real demand for that. And so as we put extra rigs to work that is one of things we are really having the focus on and we are doing that.

With that, I am going to leave it open for questions. We have a lot of exciting things and if I start talking, I will never quit. So I am going to turn over to financial review right now to Steve and Doug. Go ahead Steve Smith.

Stephen Smith - Vice Chairman and President

All right. Let's flip over to Page Six in the presentation that we posted up last night, which summarizes the real highlights of what we did in the first quarter.

Revenues were, as Doug said, at an all-time high, 320 million oil and gas revenues and were at about 330 I think it is all revenues together counting our midstream and other. Those revenues that's about 15% increase over the fourth quarter of '07 and a substantial of course increase over the first quarter of '07.

Net income was close to $30 million, $0.28 a share, which is over twice what it was last year and about even more than that and even twice what it was in the fourth quarter. Both adjusted EBITDA and cash flow from operations were substantially increase, both compared to our the first quarter of '07 and compared to fourth quarter of '07. So we are kind of where we hoped to be and getting into a real growth mode.

Our average daily production in 386 was of course substantially more than last year. We are expecting about year-over-year '08 versus '07 of more than 20% increase in average daily production. And if you compare the first quarter of '07 to the first quarter of '08 on strictly exclusive of acquisitions, we have had about an 11% increase. So things are increasing very nicely in the production area.

Pipeline and marketing income is up substantially year-over-year and quarter-over-quarter. We spent about 152 million in drilling in the first quarter compared to about 76, I think it was last year and that's a total capital of about 184 million. We will get into all of that in some more detail.

Next on Page 7, I have got just a couple of things to say here. Again we will get into all of this in detail in just a second. But in the shale plays, we continue to lease and add acreage and Hal will fill you in and kind of how much we have added, but it is substantial. The key note, the most important thing in terms of our acreage both in Appalachia and Marcellus and Huron and in the Haynesville as the amount of acreage that we have is held by shallower production and it’s about 82% on an overall portfolio basis. It's held by production in the shale plays, which is about 85% and 76% I think in East Texas and North Louisiana.

So that puts us in a very very good position in terms of being able to take our time, watch what's going on, but you have still develop in a serious but careful way. We have made real strides in reducing our drilling base in our main areas and that's going to help us a great deal to offset some of these increases in drilling rates, which we are seeing everyday in all of the main areas where we produce.

The next page on Page 8 is our -- we'd like to show cash operating margin slide just to show you both the impact of our hedges and the kind of cash margin that we have to further our business and conduct our operations. Obviously the first quarter of '08 was off the charts, it was excellent $7.58. Even if you are taking the Cap G&A, you are nearly $7 net cash in the first quarter, so that's outstanding.

I am going to turn it over to Doug Ramsey and let him talk a little bit about our balance sheet and our debt situation and then Paul Rudnicki will get into the hedging and the guidance.

Douglas Ramsey - Vice President and Chief Financial Officer

Thanks Steve. On Slide 9, we have the liquidity and financial position as the end of the quarter and then we also rolled it forward to May 1 just to give you the current snapshot. End of the quarter, we had about just under $2.5 billion of total debt between the bank revolvers and the bonds and we fill the book at pretty even 2 billion in preferred and the common equity 925 million gives us a net debt to cap ratio of 46%. The borrowing base as some of you may recall was increased when we closed our Appalachia transaction on February 20. It went from 2.2 billion up to the 2.475 billion that is at now in the unused borrowing base at March 31 of 446.500 million.

Fast forward to May 1, we have spent some money on our CapEx program and some smaller transactions, so our bank debt has gone up to about 2.1 billion and we have got unused borrowing capacity of 365 million at this point, which using our rule of thumb translates into about $715 million worth of potential deals that we can do without sourcing outside capital.

With that, I will turn it over to Paul Rudnicki to cover the hedging program and also go over our guidance. Paul?

Paul Rudnicki - Vice President of Financial Planning and Analysis

All right, thanks Doug. On Slide 10 we have laid out our hedge position. We didn’t really add too many trades in the quarter other than some '09 gas and we will continue to be in the mid 70% range hedged for the next 24 months or so. And we are monitoring prices and looking at what they are doing. Just to give you a frame of reference on the gas side for 2009 before we walked in here, gas is trading at 10.85. 2010 it was trading at 10.03 and 2011 was 9.65, 12 was 9.44 and 13 was 9.25, as long as you see the run up in prices not only the fronts by all the way through the strip.

On slide 11, we have updated our guidance to reflect the first quarter actuals and a couple of minor points to point out. We have begun to break out our gathering expenses as an expense item verus a deduct to revenues. So we've raised our gas differential slightly and added a gathering expense per Mcfe line. One other thing to point out as is more clearly reflected on Page 12, when we go through the quarterly guidance, we have also added a fully diluted shares outstanding point to look at. And the only thing to point out here is as our stock price has moved up recently, the options that we have issued are a little bit more dilutive and we are just highlighting that to reflect the best probably what's going to show up if prices stay, if our stock price stays where it is. Not an issuance of any new stock, it's just the difference in the option calculation.

Again, we are now guiding towards about $182 million EBIDTA, which with the capital program we've got laid out it's well within.

With that, I will hand it over to Hal.

Harold Hickey - Vice President and Chief Operating Officer

Thank you, Paul. Good afternoon. If you will look with me on Slide 14, what I am going to do is go through our four key areas and I am going to spend a few minutes emphasizing our activity in the shale's particularly in East Texas, North Louisiana first and then in Appalachia.

Like Steve said, we are very excited about our production rates at this point. We have had good growth, in fact 11% organic growth like Steve mentioned quarter-on-quarter when you adjust for acquisitions, so we are getting better and better results from our drilling programs.

Vernon Field remains our largest field in the portfolio. Production at Vernon has been relatively flat at approximately 130 million cubic feet equivalent per day for several months now. Huge accomplishment for the team as that was a very large rapid decline that that team has arrested. And they have done that through both the drilling and working on the base. Recent drilling activity, we completed six wells in the quarter, averaged IP of about 6.5 million a day, 4.4 million a day net to our interest.

We have one of our best completions, in fact the best completion to-date since EXCO made the acquisition about a year and a half ago. Net IP at 10.3 million a day gross. And with these efforts, we are continuing to expand the field limits both to the south and to the west. We brought a number of drilling locations and in fact we are planning on adding a fourth rig and increasing our drilling activity at Vernon in 2008. So we plan to drill wells and the 24 wells we had originally budgeted, we'll now drill 31 wells in Vernon in 2008.

We have also got our teams looking at a seismic data as we are evaluating an additional 65,000 net prospective acres in the Vernon area of Jackson Parish, Louisiana. And Vernon Field property is about 35,000 acres, so we think we've got some good upside both in Cotton Valley, Hosston and Pettet and potentially deeper zones as well.

Holly/Caspiana is a key field in Northwest Louisiana, it's operated out of our Shreveport operating area. It's traditionally been a Cotton Valley Field. Of course we have completed a lots of wells there since we acquired it a couple of years ago. We've even completed 12 wells there in the first quarter and IP's are inching back up. Our initial production rates are now exceeding 1 million a day as we worked on improving our completion procedures and selecting appropriate well locations and also seeing encouraging results from initial 20 acre test there.

We are also expanding the field limits in Holly/Caspiana and we are drilling everyday with four to five rigs. But overall, like Steve said, we have seen some really good results over the last year as our rigs spud. The release dates are down 20 to 30%. Our drilling and completion costs have come down 10%, but we are feeling pressure on drilling rig rates particularly in East Texas, North Louisiana. Those rates are coming back up. We are also seeing a lot of pressure just like what Doug said on our OCTG products and on our fuel cost. So some of these drilling completion costs we expect to keep ramping back up somewhat, but we are able to get rigs, we are able to implement our program, we are able to get steel and we are moving forward.

Now let's talk about the Haynesville shale. We are very excited about our position there. We have more than 100,000 net acres in the play with Deep Rights. We are actively acquiring additional acreage. In the last couple of weeks, we have acquired some 6 to 8,000 acres. But what's really important there is like Steve said earlier, more than 75,000 acres of our 100,000 net acres, about 76% in fact is held by production. So we can prudently develop this thing. We have drilled a couple of vertical valuation wells with very exciting and encouraging results. We have seen results that are very comparable to those announced by others and we are moving forward with our plans to add an additional rig in mid '08 and start drilling a horizontal program. We believe there is at least two to five TCF of potential reserves and we've got a good team in place evaluating this using both science from our internal staff and through some consultants.

Also, in other areas in the Cotton Valley, we have been planning to drill eight Cotton Valley horizontal wells during the year. We may reduce that somewhat and allocate some of those rigs and resources over to the Haynesville, standby on that, but we do have some very exciting results since some acreage that we released in the Cotton Valley area across North Louisiana and East Texas. One well in fact on some new released acreage had initial rate of over 400 barrels of oil a day and over million cubic feet of natural gas a day and we are drilling some additional wells in that area.

Midstream is a very good business for us. We've completed the acquisition in the first quarter of additional 230 mile gathering system that lays right on top of our assets and is very synergistic with our existing or previously held Midstream assets. We've increased our throughput there. We've got nearly 535 to 540 million a day flowing through our Midstream system and we are continuing the expansion of our TGG pipeline, which is an interstate pipeline in the East Texas. The first phase of that pipeline is actually on this week and as we continue that expansion it will be completed by late summer and we think will add some incremental 100 million a day in volumes as a result of that expansion.

Slide 16, let me start taking about Appalachia and some of the first quarter results. That's a combination of working on the base and an acquisition of EOG assets. We set a monthly production record in Appalachia. We have actually been up around 60 million a day. We achieved 100% drilling success rate. We only drilled 17 wells in the quarter, but we have really ramped up our activity in the last few weeks. We had one rig drilling there on March 31, which increased the rig count to seven at this point. Five of those were drilling unconventional wells, two of them are drilling in a shale opportunities. One of them is a horizontal shale well and the second is a vertical shale well.

I mentioned the EOG acquisition before, so let's move on to Slide 17.

In the Marcellus shale, we hold 382,000 or more net acres. We think that about 243, 245,000 in the fairway of play find it. We've negotiated and got commitments to lease an additional 33,000 net acres that’s in the fairway, so our total holdings are up over 415,000 acres on a net basis and in the fairway I think we've got over 275,000 net acres.

You saw on a previous announcement that we have allocated an additional $150 million above what our original budget was for the Marcellus. A substantial amount of that is going to be on leasing activity and we are well well down the road in meeting our targets there.

The first is a four 2008 Marcellus horizontal test is actually at a core point today. We are very encouraged with where we are and when we have -- when it's appropriate time, we will release results on that effort. But it's very encouraging. We are continuing with our plans. We have drilled the four wells this year and may be more. We have also spud the first of 10 2008 vertical Marcellus wells. We continue to believe there are 6 to 10 TCF of potential reserves in the Marcellus shale that we hold.

Huron. We have about 76% of our 120,000 net acres in Huron shale in West Virginia that's held by production, not a strong point for us. Moving forward with our plans on drilling some horizontal wells in Huron and we believe that this area holds at least 1 to 2 TCF of potential reserves.

So, shale summary. Good people, good position, lot of HBP acreage, we are leasing, we are drilling, we are getting data, we are very encouraged.

Slide 18, in the Permian area, we continue to see good results in our Canyon Sand field that we sometimes refer to a Sugg Ranch to 25 wells there in the first quarter with 3 rigs, we plan to keep those 3 rigs throughout the year, drill about a 100 wells there. We are continuing to see good production growth. We negotiated a joint venture that added approximately 11,000 contiguous net acres to this holding in the Permian area of West Texas. We are shooting 3-D that's new and we are evaluating some 3D that we already held, both in this area and in some areas of the Permian to identify additional opportunities.

Rockies, we are still on target to drill 8 wells and there's been probably $11 million on drilling. The Mid-Continent remains in the 63 to 65 million a day production rate. We are going to spend about $48 million there in drilling activity there this year. We drilled and completed six wells there in the quarter and we completed a small acquisition in the Mocane Laverne area, adding about 1.8 million a day of production and approximately 12.5 Bcfe of proved reserves.

Slide 19 is the last slide I am going to talk about today. Our development budget as it now stands totals $800 million, includes $150 million for the Marcellus shale leasing and drilling. We actually have a Board of Directors meeting next week. We are going to make some additional proposals to the Board on asking for some incremental dollars for funding in the Haynesville shale and some other activities that we have planned and after the results of the proposal for the Board meeting we will evaluate where the increases for the budget are. We are still on target to drill about 700 wells this year and we had a really good start to our capital program. We spent about $184 million in the first quarter and about $150 million of that we will spend on drilling and other development activity.

With that, I will turn this meeting back over to Mr. Miller.

Douglas Miller – Chairman and Chief Executive Officer

I think one of the couple of things, I think -- all three areas, we are expecting some as far as the shale plays, we expect some activity. I don’t think we are prepared to sit here and talk about locations or results right now and the main reason is there is plenty of hub-ub going on out there, but we are also leasing. We are evaluating right now and the more we talk the higher leases in each area, the leases are just going crazy. So we are out there trying to compete and get as much as we can , but again I can't emphasize enough that the HBP is going to allow us in all three areas to develop this thing properly. Now keep in mind, with just the acreage we have on 80 acres, if we throw a lot of rigs at those things, yesterday we had a meeting there is 25 years of drilling. And it's pretty hard to get to a five-year term lease when you have 25 years of drilling. So HBP, I can't emphasize enough is the appropriate way to play these things.

Another misconception is that we are going to be doing equity offering. I can't - we are not underlying - we are not anticipating doing any equity offerings at present. We are drilling as we always have said we will. We are drilling within our EBITDA. We continue to think that’s the proper strategy. Now that is going to mitigate your 30% growth rates, but we have delivered 50% a year for the last five years under our strategy. So we think the way we are doing is right. We are going to continue doing that and we continue to monitor the capital markets. Equity is not on the table. I see the debt markets are starting to get slightly better.

However, we are not even considering the debt margin. There is a lot of rumors going around about us either selling assets or doing joint ventures. We had been approached as you might guess in each one of the shale plays, would we sale, would we farm out, would we allow somebody drill, we've had a lot of discussion and a lot of meetings with potential joint ventures. We continue to have that discussion. We have not made a deal. We are going to meet with the Board next week and kind of go over all of our options. But we are going forward. We have had meetings last two days on three-year plans on how we would come up with the capital and how we would create a drilling and our science. We are moving forward ourselves and to further notice that’s our plan.

With that, I am going to turn it over and ask for any questions and if we can answer them we will answer them.

Fred, are you there?

Question-and-Answer Session

Operator

Yes sir. (Operator Instructions). Our first question comes from Brian Singer with Goldmann Sachs.

Brian Singer

Thank you. Good afternoon.

Douglas Miller

Hey Brian.

Brian Singer

Hey Doug. Actually I just want to pick up on the comments that you just made, it seems like especially considering that you have a lot held by production acreage that you have a lot of options in terms of trying to get value reflected for Marcellus or Haynesville, you could accelerate drilling, you could farm out Marcellus strategic stake or you could just wait and let others determine what the right techniques for development are before going ahead on your own. How do you think about and manage what the best way is to get the value you see in the Marcellus and Haynesville reflected?

Douglas Miller

Well, I think the main one is we have people and staff and we have been hiring some other people. We are trying to evaluate the acreage ourselves. We think that we can drill a vertical wells to make sure that we are right – there are a lot of vertical wells that have been drilled down through the Marcellus over the years. That logs are available over 400 wells. So we have done a study on that to determine the thickness. We have got engineers and geologists have been spending a lot time. So we think with the data that’s out there and the technology available and keep in mind, Schlumberger and Halliburton and [FracTech] have already been up there working for people. And Patterson has four rigs up there, one of which we have right now that had drilled some wells for some other people. So and we have people available that know what they are doing. So we are going to slowly drill four horizontal wells this year. The first one is starting its sidewalk boring today. We are going to drill another six vertical wells in different areas where our concentration of acreage is. We are going to take this slow and easy.

The thing about is we think this is – it’s a slightly more exciting than I thought it was from some of the initial tests and I think we are in an area where you don't have to release results for five years. However, there has been a lot of stuff leaking out. But there is a lot of pipeline issues, there is drilling rig issues, there is service issues, there is water issues on the fracing, so there is a lot of things. I think this is something if we take it slow and easy and manage our people and our services, we are trying to lease space in Pittsburgh to put our Marcellus team in. There is no available space to lease. So there is a mini boom going on in Pittsburgh. So I don't know if Hillary is going to get in on that one (inaudible). There is a commercial real estate boom going on because of all of the oil and gas companies are trying to lease. So the bottom line on these things is we are going to go slow and the right schedule, but we have a slow in '08, medium aggressive in '09 and very aggressive in '10 plan in place and we are going to be presenting that to the Board next week. That answer, Brian.

Brian Singer

Yeah, it does. And when you go to the Board or I guess when you think about accelerating capital beyond 800 million, I guess I would assume just based on what you said that we would expect the incremental pick up in production to be a little more in 2009 versus 2008. Is that fair?

Douglas Miller

Yes. I think maybe the extra rigs that we are talking about putting in place in both the Cotton Valley and Vernon may get some accelerated production. I expect for '08.

Harold Hickey

And Haynesville, particularly.

Douglas Miller

And I think we are probably going to start our Haynesville rig, Brian, on maybe second half of the year and I kind of expect some production there. Keep in mind we got a pipeline. That’s something that can happen immediately. The technology is there and the pipeline is there and the people are there and the rigs are there. So we have a rig coming in for our first horizontal well. I think John Jacobi got that when is it coming?

John Jacobi

June 15th is the first one.

Douglas Miller

June 15th. Okay. So now let me tell you something. I don't think there are any available 15,000 or 2000 horse power rigs in the State of Texas right now. They are all heading for East Texas and North Louisiana. So I know they are tough to get from Patterson or unit or some these guys, they are getting -- we are happy with what's getting ready to happen over there. So I expect a little bit of production in '08 off of these things, ramping up in '09 and then we are going to put the accelerator down.

Brian Singer

That’s great. I have to just ask since you made the comment about your strategy delivering 50% growth, which I know a lot of that's based on acquisitions. If you see anything out there that you could end up leading to 50% growth?

Doug Miller

Well, that’s just been my - I kind of at home because we have delivered 37.5% per year growth rates for the last 30 years. I kind of mentally work on '09 and '10 and if we did 750 million of EBITDA last year, I am looking at increasing that by 50%. And so that means '09, I got to figure where to get to 1.5 and so I am mentally working on that and it don’t come through cutting expenses. It comes through small acquisitions and accelerated drilling.

Brian Singer

Thank you.

Douglas Miller

Now let me - there aren't many acquisitions out there right now. We have looked at probably 10 this year and we are passing more than we have ever before. There is a lot of anticipation that both in East Texas and in Appalachia, everything is a Marcellus and everything is a Haynesville potential and that is not the case. So we are actually turning down deals without even evaluate them if they are not in the right areas right now.

Brian Singer

Thanks a lot.

Douglas Miller

Okay.

Operator

We have a question from David Heikkinen with Tudor Pickering.

Stacy Nieuwoudt

Good afternoon guys. It's actually Stacy Nieuwoudt with Tudor Pickering. Given your indication that you are going to increase capital for the Haynesville, can you kind of walk us through what you think that magnitude of increase will be and how much of that will go for drilling versus leasehold?

Douglas Miller

Hal, can you handle that one I think, go ahead?

Harold Hickey

We are talking about in the order of 80 to $100 million and we think about half of that we would allocate toward leasing and then bulk of the remainder would be for our drilling activity.

Douglas Ramsey

These wells are going to be drilled with 1,500 to 2,000 horse out left to time on those 40 days, 60 days, 45 days. So with one rig, you are not going to be able to drill that many. So if we spend 100 million, it will be at least half in acreage.

Harold Hickey

Let me clarify that of that drilling activity, while there is going to be some horizontal drilling of course, there is also some increased dollars for…

Douglas Ramsey

Verticals.

Douglas Miller

Veritcal wells and we have drilled two vertical wells in the Holly/Caspiana area and that’s an extra 3,000, 4,000, $5,000 and we are doing quarrying and run the science on those.

Stacy Nieuwoudt

That’s helpful. And then your stock is fairly weak today, given your nice earnings release, what do you think the market is missing on your story?

Harold Hickey

I don’t know. Just add management I guess.

Douglas Miller

I don’t really know. I think we have had a pretty good run up. We have a pretty good short position out there and I think we will just see what happens. What we are going to do is keep grinding away. The thing about it is about 87% of our stock is held by 25 guys that know us real well that enjoy owning it and there is a lot of trading in and out of it and we just don’t get distracted by that. Everybody here owns a bunch of stock and we don’t trade it.

Stacy Nieuwoudt

Thanks guys. I will turn it back over.

Douglas Miller

Thanks.

Operator

Thank you. We now have a question from the line of Jack Aydin with Keybanc Capital.

Jack Aydin

Hey guys.

Douglas Miller

Hey Jack.

Jack Aydin

Question, when you talk about a little bit of growth of 11%, could you give us a base what base you were using?

Paul Rudnicki

Hey Jack, it's Paul Rudnicki.

Jack Aydin

Hi Paul.

Paul Rudnicki

What we are doing is we kind of take our reported first quarter production of last year of 192 million a day. We back off the little bit of - I mean, there was like three days of Vernon that we had in there, that was about 3 million a day. And then we sold some assets that produced about 13 million a day in the first quarter of '07. So our base '07 production rate was about 175 million a day. In this year, we reported 186 million a day and 191 million of that was from Vernon acquisition, the Southern Gas acquisition, a little bit of the EOG Appalachia acquisition this year, and a little bit of the incremental Sugg Ranch that we bought in late last year. So on a comparable basis, our production is about 195 million a day that equates to 175 million a day that was here last year. So that base production grew 19 million a day in the first quarter or 11% year-over-year, which really reflects kind of the plan that we had in place on when we bought Vernon, which was to take that front-end high cash flow and put into our other areas, mainly the Holly/Caspiana field and accelerate production there and it's reflecting the numbers.

Jack Aydin

Okay. Doug, you are running you said -- at the end of the quarter you were running 400.6 million a day and you maintained your production target for the year. Is that -- to put it slightly little bit, are you sandbagging us little bit on the growth?

Douglas Miller

Yeah.

Jack Aydin

Okay, good. All right. I got that one out. Haynesville, what kind of cost do you think the horizontal well will cost you to drill in…?

Harold Hickey

I think we are using internally 5 to 6 million today. The thing about it is we are going to have to look into that as we get closer to drill because rigs are going to cost slightly more than they did a month ago and tubulars we are just going to have to put that. But use 5 to 6 million with potential for another 500,000 upside.

Paul Rudnicki

But that 5 to 6, Jack, includes a lot of science on the first few. Obviously once we get line out, they will come down.

Douglas Miller

It will come down.

Paul Rudnicki

Come down, yeah.

Jack Aydin

What kind of a ladder are you talking, 3,000, 4,000 feet, what kind of ladder are you talking about?

Harold Hickey

I think the anticipation is 2,500 to 3,500 right now.

Jack Aydin

Okay.

Harold Hickey

Pretty much.

Jack Aydin

Thanks.

Representative

Okay, thanks Jack.

Jack Aydin

Thank you.

Operator

We now have a question from a private investor by the name of [Nafeez Sheriff]. Your line is open. Nafeez, maybe your phone is on mute. Okay, we seem to have no response from Nafeez. (Operator Instructions). At this time, there are no questions.

Douglas Miller

Okay, Fred. Thank you very much. I think in conclusion, we appreciate everybody being on the call. We have been quite excited about what has happened and we have a lot of happy shareholders this quarter. We have a lot of happy working employees. There is a buzz of activity going on around here. I think a lot of you guys have come in here and met with a bunch of our people, so there is a lot of activity, there is a lot of buzz going around here in the three shale plays we have just added to it, but I think that continue to expect good solid growth out of us and some exciting things in the future. Again, thanks for tuning in. Bye.

Operator

Thank you. This concludes today's earnings release conference call. You may now disconnect.

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Source: EXCO Resources Inc. Q1 2008 Earnings Call Transcript
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