EXCO buys Geo-Vest

Carlos "Scooter" Griffin (at right), President of Kilgore-based Geo-Vest, shakes hands with Hal Hickey, chief financial executive of EXCO Resources, Inc., after signing closing documents for a $252-million transaction in which EXCO purchased Geo-Vest. Kilgore-based energy company Geo-Vest of Texas became part of EXCO Resources yesterday in a deal valued at $252 million at a signing ceremony.

Carlos "Scooter" Griffin Jr., president of Geo-Vest, said the sale of producing oil and natural gas properties is in the best interest of East Texas residents and taxing entities. He said the vast resources of Dallas-based EXCO Resources means leases and production of Geo-Vest will continue well into the future.

"This is going to be a big economic benefit to the whole area," Griffin said. "Mainly benefiting will be taxing entities like the cities of Longview and Kilgore, area school districts, counties and Kilgore College."

Papers transferring Geo-Vest to EXCO were signed before a standing room-only crowd of family, investors, community leaders and EXCO officials at East Texas Oil Museum.

Griffin said while the sale would result in more exploration and more benefit to the company, it also could mean lower property taxes.

"I call it the tax train - and it's going to provide a lot of tax relief to property owners and homeowners," he said.

EXCO plans to spend $20 million this year to drill on property acquired in the deal, according to Hal Hickey, chief operations officer for EXCO.

Hickey said EXCO estimates the deal includes more than 500 additional drilling locations in the Cotton Valley and Travis Peak formations, of which 92 are proven.

The transaction includes oil and natural gas production properties, acreage and other assets in Gregg, Rusk, and Upshur Counties. The deal is subject to customary post-closing purchase price adjustments, according to EXCO.

EXCO's average working interest in the properties is approximately 94 percent with an average net revenue interest of 72 percent. EXCO's estimate of net proved reserves acquired is 109 Bcfe and estimated total net reserves (proved, probable and possible) exceed 370 Bcfe exclusive of Bossier/Haynesville shale potential, discussed below, all based on NYMEX strip pricing at the contract effective date of March 1.

The assets include producing properties with more than 15 Mmcfe per day of net production from 83 producing wells and approximately 11,000 gross acres. Also included in the assets is a 50 mile gathering system with compressors, a dehydration unit and a refrigeration plant. EXCO estimates that there are more than 500 additional drilling locations in the Cotton Valley and Travis Peak formations, of which 92 are proved. EXCO will operate the field and estimates a capital budget of $20 million to drill 9 wells during the remainder of 2008. The current primary productive formations in the field are the Upper Cotton Valley, Pettet and Travis Peak. A majority of the acquired leasehold covers rights to all depths, including the Bossier/Haynesville shale. In prior years, two vertical wells were drilled into the Bossier/Haynesville shale on this acreage and logged pay potential in these horizons. Recent industry activity in the vicinity of the acquired acreage has confirmed the presence of shale potential. EXCO plans to drill at least one vertical well in 2008 to further delineate potential of the Bossier/Haynesville, and EXCO estimates that there could be more than 100 potential shale locations across the acquired acreage.

The acquisition of these properties will be financed with a $300 million Senior Unsecured Term Loan due December 15, at our unrestricted subsidiary, EXCO Operating Company, LP, formerly known as EXCO Partners Operating Partnership, LP.

EXCO Resources, Inc. is a publicly-traded oil and gas acquisition, exploitation, development and production company headquartered in Dallas with principal operations in Texas, Louisiana, Oklahoma, Ohio, Pennsylvania, and West Virginia.

EXCO says it is a "top 25 oil and gas company" with more than 800 employees and market value of $3.8 billion.

The company has holdings in Appalachia, Kansas, Oklahoma, Wyoming, North Louisiana, the Permian Basin and East Texas. About 90 percent of its production is focused on natural gas.

The transaction includes about 11,000 acres of producing oil and natural gas properties and other assets, Hickey said.

EXCO's estimate of net proven reserves acquired is 109 billion cubic feet, and estimated total net reserves exceed 370 billion cubic feet not including untested production potential of natural gas formation referred to as the Bossier/Haynesville shale play, Hickey said.

The assets include properties with more than 15 million cubic feet per day of net production from 83 wells. Also included is a 50-mile gathering system with compressors, a dehydration unit and a refrigeration plant.

"EXCO will operate the field and estimates a capital budget of $20 million to drill nine wells during the remainder of 2008," Hickey said. Company wide, EXCO plans to spend $923 million in four regions, he said, with more than half of that, $461 million, in East Texas and North Louisiana.

Of that, about $335 million will be spent to drill 159 wells and begin other projects, Hickey said. In 2007, EXCO bought the New Waskom Gas Gathering System for $56 million. That deal included 230 miles of pipeline in East Texas.

EXCO went public with a $680 million stock offering in 2006 and has a market capitalization of about $3.8 billion, he said.

A majority of the acquired leasehold covers rights to all depths, including the Bossier/Haynesville shale, Hickey said.

Griffin said Geo-Vest had drilled two wells in the Haynesville shale to a depth of about 12,000 feet and a cost of between $4 million and $5 million each.

Those wells were among the main reason Geo-Vest captured the attention of EXCO executives, Griffin said.

Hickey said recent industry activity near the acquired acreage has confirmed the presence of Haynesville shale potential.

EXCO plans to drill at least one vertical well in 2008 to further determine potential of the Bossier/Haynesville shale. The company estimates more than 100 potential shale locations could exist across the acquired acreage.

The company has engaged Goldman, Sachs & Co. to explore possible joint venture opportunities with various interested parties to enhance exploitation and development of its East Texas/North Louisiana and Appalachia operating areas.

EXCO's reserves in East Texas/North Louisiana include over 2.7 Tcfe (Trillion cubic feet equivilient) of proved, probable and possible (3P) reserves, of which 1.1 Tcfe is proved. EXCO's East Texas/North Louisiana interests also include 292,000 net acres, 255 Mmcfe/d of net production, and over 3,000 undrilled Cotton Valley, Hosston and other conventional locations. EXCO's acreage includes over 115,000 net acres which are prospective for the Bossier/Haynesville shale. Based on 80-acre spacing, this shale acreage could contain over 1,400 drilling locations with substantial unbooked reserve potential.

EXCO's 3P reserves in Appalachia exceed 1.1 Tcfe of reserves of which 0.6 Tcfe is proved. EXCO's Appalachia region includes 1.1 million net acres, 60 Mmcfe/d of shallow production, over 8,100 shallow drilling locations and nearly 400,000 net acres of Marcellus shale potential of which 117,000 net acres are also prospective for the Huron shale. Based on 80-acre spacing, the shale acreage could contain 6,400 drilling locations with substantial unbooked potential.

EXCO also has substantial midstream assets in East Texas/North Louisiana which currently gather and transport in excess of 500 Mmcf/d of natural gas.

The possible joint venture transactions could include a sale of up to 50% of EXCO's reserves, production, acreage and other interests in either or both areas, with a joint development program to be conducted with the potential partner or partners. A separate joint venture is contemplated for the East Texas/North Louisiana midstream assets. EXCO anticipates using cash proceeds from any such transaction to reduce debt, help fund the exploitation and development of its shale potential and for other general corporate purposes.

There is no assurance that this joint venture process will result in EXCO changing its current business plan, pursuing a particular joint venture or other transaction or completing any such transaction. EXCO does not expect to update the market with any further information on the joint venture process unless and until its Board of Directors has approved a specific transaction or otherwise deems disclosure appropriate.