XCO » Topics » Our business strategy

This excerpt taken from the XCO 10-K filed Feb 26, 2009.

Our business strategy

Historically, we have used acquisitions and vertical drilling as our vehicle for growth. As a result of our acquisition strategy, we have accumulated a large inventory of low risk drilling locations and acreage holdings with significant shale resource potential. This shale potential has allowed us to shift our focus to define the extent of and develop this shale resource primarily through horizontal drilling. We will continue to develop certain vertical drilling opportunities in East Texas/North Louisiana, Appalachia and West Texas as economic conditions permit. Any future acquisitions are likely to be focused on supplementing our shale resource holdings in the East Texas/North Louisiana and Appalachian areas.

We plan to achieve reserve, production and cash flow growth by executing our strategy as highlighted below:

 

   

Develop our shale resource plays

In our East Texas/North Louisiana areas, we have significant holdings in the Haynesville/Bossier shale resource play currently aggregating approximately 92,000 net acres. In December 2008, we completed our first horizontal well in the Haynesville shale with an initial production rate of 22.9 Mmcf per day of natural gas. Our second horizontal well, in Desoto Parish, Louisiana, had an initial production rate of 24.2 Mmcf per day. As of December 31, 2008, we had four horizontal wells drilling, two EXCO and two non-operated. We expect all four wells to be completed during the first quarter of 2009. We also have significant acreage holdings in the Marcellus and Huron shale resource plays in Appalachia where our current position is approximately 395,000 acres, a significant amount of which is held by production. Prior to our recent emphasis on horizontal drilling in the shales, we drilled numerous vertical tests in the Haynesville/Bossier and Marcellus shales to evaluate drilling locations and obtain scientific knowledge of these plays.

 

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Table of Contents
Index to Financial Statements
   

Expand our midstream assets

We own a portfolio of midstream assets in our East Texas/North Louisiana operating area. These assets enhance our ability to control the delivery of our production to markets. In addition to our existing assets, we are building an intrastate pipeline in DeSoto Parish, Louisiana and expanding our gathering systems in East Texas/North Louisiana and Appalachia to ensure that our production from these areas can be transported to markets. These expansions also provide an opportunity to transport third party gas and generate gathering and transportation fee income within the Haynesville/Bossier shale resource play.

 

   

Exploit our multi-year development inventory

We have a multi-year inventory of drilling locations and exploitation projects. This inventory consists of step-out drilling, infill drilling, exploratory drilling, workovers and recompletions. In 2008, we drilled 475 wells and completed 467 wells resulting in a 98.3% drilling success rate. We have identified over 11,000 drilling locations and exploitation projects across our properties.

 

   

Maintain financial flexibility

We employ the use of debt and equity, along with a comprehensive derivative financial instrument program, to support our business strategy. This approach enhances our ability to execute our business plan over the entire commodity price cycle, protect our returns on investments and manage our capital structure.

 

   

Actively manage our portfolio and associated costs

We periodically review our properties to identify cost savings opportunities and divestiture candidates. We actively seek to dispose of properties with higher operating costs, properties that are not within our core geographic operating areas and properties that are not strategic. We also seek to opportunistically divest properties in areas in which acquisitions and investment economics no longer meet our objectives.

 

   

Seek acquisitions that meet our strategic and financial objectives in our core operating areas

We maintain a disciplined acquisition process to seek and acquire properties in our core operating areas that have established production histories and value enhancement potential through development drilling and exploitation projects. Examples of this strategy include our 2007 acquisitions from Anadarko Petroleum Corporation, or Anadarko, in the Vernon and Ansley Fields located in Jackson Parish, Louisiana, or the Vernon Acquisition, multiple fields primarily in Oklahoma, Texas and Louisiana, or the Southern Gas Acquisition, our 2008 acquisitions from EOG Resources, Inc. located primarily in EXCO’s central Pennsylvania operating area, or the Appalachian Acquisition, and producing oil and natural gas properties, acreage and other assets in Gregg, Rusk and Upshur counties of Texas, or the Danville Acquisition.

 

   

Identify and exploit upside opportunities on our acquired properties

Our acquisitions have led to additional reserve opportunities above those identified at the date of acquisition. In our East Texas/North Louisiana area, we plan to drill additional horizontal wells, implement down spacing of vertical wells, and recomplete and restimulate existing wells to enhance our production and reserve position. In Appalachia, our focus will be directed toward unconventional drilling and exploitation of the Marcellus and Huron shale resource plays. We continue to exploit our Permian assets, which have resulted in larger oil production than originally expected and are also evaluating horizontal drilling opportunities.

 

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Table of Contents
Index to Financial Statements
This excerpt taken from the XCO 10-K filed Feb 29, 2008.

Our business strategy

        We plan to achieve reserve, production, and cash flow growth by executing our strategy as highlighted below:

    Exploit our multi-year development inventory

      We have a multi-year inventory of development drilling locations and exploitation projects. This inventory consists of step-out drilling, infill drilling, workovers, and recompletions. From January 1, 2007 to December 31, 2007, we drilled 506 wells and completed 495 wells resulting in a 98% drilling success rate. We have identified over 10,000 drilling locations and exploitation projects across our properties.

    Seek acquisitions that meet our strategic and financial objectives

      We maintain a disciplined acquisition process to seek and acquire properties that have established production histories and value enhancement potential through development drilling and exploitation projects. Examples of this strategy include our acquisitions of North Coast Energy, Inc., or North Coast, in the Appalachian Basin, TXOK Acquisition, Inc., or TXOK, in the East Texas and the Mid-Continent areas and Winchester Energy Company, Ltd., or Winchester, in the East Texas and North Louisiana areas, our 2007 acquisitions from Anadarko Petroleum Corporation, or Anadarko, in the Vernon and Ansley Fields located in Jackson Parish, Louisiana, or the Vernon Acquisition, and multiple fields primarily in Oklahoma, Texas and Louisiana, or the Southern Gas Acquisition.

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    Identify and exploit upside opportunities on our acquired properties

      Our acquisitions often lead to upside above that identified at the date of acquisition. We have significant acreage holdings in the Marcellus shale resource play in Appalachia and are leasing additional acreage to add to our current position which exceeds 350,000 net acres, drilling both vertical and horizontal wells to confirm the opportunity and high grade our focus area, and adding appropriate staff to support our efforts. In our East Texas/North Louisiana area, we plan to drill horizontal wells, implement down spacing of vertical wells, and recomplete and restimulate existing wells to enhance our production and reserve position. In our Rockies area we hold more than 132,000 net acres primarily in the Wind River, Powder River and Big Horn Basins. We are drilling wells in this area to evaluate our position and plan additional development.

    Actively manage our portfolio and associated costs

      We periodically review our properties to identify cost savings opportunities and divestiture candidates. We actively seek to dispose of properties with higher operating costs and properties that are not within our core geographic operating areas. We also seek to opportunistically divest properties in areas in which acquisitions and investment economics no longer meet our objectives, most notably the sale of our Canadian subsidiary for $443.4 million in February 2005, the sale of our Wattenberg Field operations in Colorado for $130.9 million in January 2007, the sale of a portion of the oil and natural gas properties and related assets in multiple fields primarily located in South Texas and South Louisiana acquired in the Southern Gas Acquisition, or the Gulf Coast Sale, on May 8, 2007 for $235.5 million in cash and 750,000 shares of unregistered restricted Crimson common stock and the sale of our properties in the Cement Field on July 13, 2007 for $99.7 million.

    Maintain financial flexibility

      We employ the use of debt and equity along with a comprehensive derivative financial instrument program to support our acquisition strategy. This approach enhances our ability to execute our business plan over the entire commodity price cycle, protect our returns on investments, and manage our capital structure.

This excerpt taken from the XCO 10-K filed Mar 19, 2007.

Our business strategy

We plan to achieve reserve, production, and cash flow growth by executing our strategy as highlighted below:

·       Exploit our multi-year, development inventory

We have a multi-year inventory of development drilling locations and exploitation projects. This inventory consists of step-out drilling, infill drilling, workovers, and recompletions. From January 1, 2004 to December 31, 2006, we drilled 584 wells and completed 572 wells resulting in a 98% drilling

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success rate. We have identified over 6,225 drilling locations and exploitation projects across our properties.

·       Seek acquisitions that meet our strategic and financial objectives

We maintain a disciplined acquisition process to seek and acquire properties that have established production histories and value enhancement potential through development drilling and exploitation projects. Our acquisitions of North Coast Energy, Inc., or North Coast, in the Appalachian Basin, TXOK Acquisition, Inc., or TXOK, in the East Texas and the Mid-Continent areas and Winchester Energy Company, Ltd., or Winchester, in the East Texas and North Louisiana areas and our pending acquisitions from Anadarko are examples of this strategy.

·       Actively manage our portfolio and associated costs

We review our properties to identify cost savings opportunities and divestiture candidates. We actively seek to dispose of properties with higher operating costs and properties that are not within our core geographic operating areas. We also seek to opportunistically divest properties in areas in which acquisitions and investment economics no longer meet our objectives, most notably evidenced by the sale of our Canadian operations for $443.4 million in February 2005 and the sale of our Wattenberg Field operations in Colorado for $131.9 million in January 2007.

·       Maintain financial flexibility

We employ the use of debt and equity along with a comprehensive derivative financial instrument program to support our acquisition strategy. This approach enhances our ability to execute our business plan over the entire commodity price cycle, protect our returns on investment, and manage our capital structure.

This excerpt taken from the XCO 10-K filed Dec 7, 2006.

Our business strategy

        We plan to achieve reserve, production, and cash flow growth by executing our strategy as highlighted below:

    Exploit our multi-year, development inventory

    We have a multi-year inventory of development drilling locations and exploitation projects. This inventory consists of step-out drilling, infill drilling, workovers, and recompletions. From

1


      January 1, 2003 to December 31, 2005, we have drilled 226 wells and completed 217 wells resulting in a 96% drilling success rate. We have identified over 2,000 drilling locations and exploitation projects across our properties on a pro forma basis.

    Seek acquisitions that meet our strategic and financial objectives

    We maintain a disciplined acquisition process to seek and acquire properties that have established production histories and value enhancement potential through development drilling and exploitation projects. Our January 2004 acquisition of North Coast in the Appalachian Basin and the acquisition of TXOK in the East Texas and the Mid-Continent areas are examples of this strategy.

    Actively manage our portfolio and associated costs

    We regularly review our properties to identify cost savings opportunities and divestiture candidates. We actively seek to dispose of properties with higher operating costs and properties that are not within our core geographic operating areas. We also seek to opportunistically divest properties in areas in which acquisitions and investment economics no longer meet our objectives, most notably evidenced by the sale of our Canadian operations for $443.3 million in February 2005.

    Maintain financial flexibility

    We employ the use of debt along with a comprehensive commodity price risk management program to support our acquisition strategy. This approach enhances our ability to execute our business plan over the entire commodity price cycle, protect our returns on investment, and manage our capital structure.

This excerpt taken from the XCO 10-K filed Mar 31, 2006.

Our business strategy

        We plan to achieve reserve, production, and cash flow growth by executing our strategy as highlighted below:

    Exploit our multi-year, development inventory

    We have a multi-year inventory of development drilling locations and exploitation projects. This inventory consists of step-out drilling, infill drilling, workovers, and recompletions. From

1


      January 1, 2003 to December 31, 2005, we have drilled 226 wells and completed 217 wells resulting in a 96% drilling success rate. We have identified over 2,000 drilling locations and exploitation projects across our properties on a pro forma basis.

    Seek acquisitions that meet our strategic and financial objectives

    We maintain a disciplined acquisition process to seek and acquire properties that have established production histories and value enhancement potential through development drilling and exploitation projects. Our January 2004 acquisition of North Coast in the Appalachian Basin and the acquisition of TXOK in the East Texas and the Mid-Continent areas are examples of this strategy.

    Actively manage our portfolio and associated costs

    We regularly review our properties to identify cost savings opportunities and divestiture candidates. We actively seek to dispose of properties with higher operating costs and properties that are not within our core geographic operating areas. We also seek to opportunistically divest properties in areas in which acquisitions and investment economics no longer meet our objectives, most notably evidenced by the sale of our Canadian operations for $443.3 million in February 2005.

    Maintain financial flexibility

    We employ the use of debt along with a comprehensive commodity price risk management program to support our acquisition strategy. This approach enhances our ability to execute our business plan over the entire commodity price cycle, protect our returns on investment, and manage our capital structure.

This excerpt taken from the XCO 10-K filed Mar 31, 2005.

Business Strategy

        We intend to become a leading independent oil and natural gas acquisition, exploitation and production company. We plan to achieve reserve, production and cash flow growth by focusing on our competitive strengths and executing our business strategy as highlighted below.

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        Quality asset base.    We own and plan to maintain a geographically diversified reserve base. Our primary areas of operations are onshore in Texas, Colorado, Ohio, Pennsylvania, West Virginia and, until February 10, 2005, Alberta, Canada. Our reserves in these areas are generally characterized by:

    established histories of production;

    long reserve lives;

    low finding and development expenditures;

    high drilling success rates; and

    a high concentration of natural gas.

        We seek to improve the overall quality of our asset base by exploiting our properties that have potential for value enhancement and growth, while disposing of marginal or non-strategic properties.

        Acquisition and exploitation of strategic assets.    We maintain a disciplined acquisition process to seek and acquire quality producing properties that have value enhancement potential through low-risk development drilling and exploitation projects, such as infill drilling, workovers, recompletions and secondary recovery projects. From time to time, we may also participate in drilling exploratory wells. From December 1997 to December 31, 2004, we completed 128 acquisitions for total consideration of approximately $664.2 million, of which $616.2 million was allocated to acquisition of Proved Reserves. We plan to focus our acquisition activities onshore in North America and target natural gas properties with established histories of production, low-risk drilling and exploitation opportunities and long reserve lives, such as the properties in the Appalachian Basin that were acquired in the North Coast acquisition. In addition, our extensive knowledge of our operating areas and our acquisition expertise position us to capitalize on and integrate strategic acquisition opportunities in our core areas. Due to industry trends of consolidation and asset rationalization, we believe we will continue to have opportunities to acquire oil and natural gas properties at attractive rates of return.

        Cost-focused operations.    At December 31, 2004, we operate properties that contain approximately 92%, or 94% pro forma for the sale of Addison, of our Proved Reserves. Having operating rights with respect to our properties permits us to manage our operating costs, capital expenditures and the timing of development and exploitation of our properties. Using our estimate of Proved Reserves at the time of the acquisitions, we acquired 657.8 Bcfe of Proved Reserves in 128 acquisitions between December 1997 and December 31, 2004. Between January 1, 2000 and December 31, 2004, we invested approximately $776.1 million in acquisition, development, exploitation and exploration activities, adding 840.9 Bcfe to our Proved Reserves. During the same period we drilled 261 developmental wells and 7 exploratory wells, achieving a drilling success rate of 93% and 86%, respectively. We expect further improvement of our corporate efficiencies through the development and operation of a larger asset base from acquisitions, the disposition of high operating cost properties and further development of and exploitation of our existing asset base.

        Experienced, incentivized management team.    With an average industry work experience in excess of 24 years, our management team has considerable experience in acquiring and operating oil and natural gas properties. Since our management team first purchased a significant ownership interest in EXCO in December 1997 and assumed its current position as our senior management, we have achieved substantial growth in our reserves, production and cash flow through a strategy of acquiring producing properties with development and exploitation potential. From December 31, 1997 to December 31, 2004, we increased our Proved Reserves from 4.7 Bcfe to 686.0 Bcfe. In addition, members of our management team and key employees own approximately 16% of the voting capital stock of our parent company, EXCO Holdings.

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        Comprehensive commodity price risk management program.    We employ a comprehensive commodity price risk management program which better enables us to execute our business plan over an entire commodity price cycle. In connection with the incurrence of debt related to our acquisition activities, our objective in entering into these commodity price risk management transactions is to manage price fluctuations and achieve more predictable cash flows. For example, in connection with the additional reserves that we acquired in the North Coast acquisition, we entered into additional commodity price risk management contracts during 2004.

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