Wednesday, October 31, 2012

EXCO's Third Quarter Conference Call

On the EXCO Resources third quarter conference call yesterday, management noted that Hurricane Sandy was not particularly kind EXCO's operations in the Marcellus Shale region.  EXCO only operates one rig there now, but here is CEO Douglas Miller's quote on the impact of the storm:
"A little report from our operations, that thing hit Pennsylvania pretty hard. Our rig is still working this morning. All frac fleets are shut down. All of our flowback wells have been shut and all people are present and accounted for and on the job. So we made it through pretty well. But I would expect a lot of rigs and a lot of frac fleets for a while are going to be slowed down just because moving around -- a lot of water, a lot of wind and a lot of dangerous trees around. So I think it's going to slow down operations up there for a while."
I've only seen a few other reports from producers, all of which downplay the damage from the storm.

Here are some Haynesville highlights from the EXCO call:
  • Haynesville production is around 1 Bcf/day of gross production.  Production is declining since drilling has subsided, but management would not quantify this.  
  • EXCO has been choking back wells to avoid selling gas too cheap.  Management seems to have found religion with the lower choke approach and expects it to be good for overall well performance and EUR (which might help enhance reserve figures).
  • EXCO has reduced rig count company-wide from 28 to seven.  Of the remaining seven rigs, five are in the Haynesville.  If gas prices continue to languish, the company might drop to five rigs company-wide.  $4.50 or $5.00 seems to be the threshold at which they would look at adding a few rigs, but don't expect much.  The company is in hunker down mode and is looking at outside deals rather than increased drilling.
  • As of September 30, EXCO still has 29 Haynesville wells waiting on completion. The company has been running one frac crew in the Haynesville but is adding another very soon to take advantage of increasing prices.  The second crew will be temporary to work through backlog while prices are higher in the winter.
  • They are seeing lots of deal flow from private owners, especially in the Haynesville.  People are scared of the tax situation next year and are trying to rush sales before year end.  EXCO is looking hard at two or three in the Haynesville.
  • The 2012 company-wide capital budget is $470, and Haynesville represents 60%, or $281 million of that total.
  • Haynesville drilling/completion costs are down.  They were $9.5 million/well in Q4 2011 and are down to $8.2 million in Q3 2012.  Management expects them to drop to $8.0 million by year end.  The company says it is making 30% returns in the Holly field, which is solid in this price environment and is helped by lower drilling costs (and I assume higher prices, although management was silent on that component). 
  • With the recent increase in gas prices, EXCO has put on some hedges:
    • 2013:  110.0 MMcf/day at $3.94
    • 2013:  65.7 Bcf of swaps at $4.22/MMcf average
    • 2014:  80.0 MMcf/day at $4.23
    • 2015:  22.5 MMcf/day at $4.38

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