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    EXCO sets 2012 budget, reduces Haynesville activity

    Dallas-based EXCO Resources Inc. has estimated its 2012 capital budget around $710 million, including $585 million for development and completion activities. The budget is roughly 30% lower than the oil and gas company’s expected 2011 total budget of $1.1 billion million.

    Funding is expected to come from cash flow from operations, a $50 million draw on restricted cash, and borrowings under its credit agreement.

    In 2012, the company plans to run a total of 19 rigs, with 13 rigs in the Haynesville Shale and Bossier Shale, five rigs in the Marcellus Shale, and one rig in the Permian Basin.  

    While the Marcellus activity will increase (up from running two rigs to drill 16 net wells in 2011), the reduction in Haynesville and Bossier activity is significant, said Global Hunter Securities in a November 18 note to investors. “This is a significant reduction in Haynesville/Bossier activity, down from running an average of approximately 20 rigs to drill an expected 70.7 net wells in 2011, supporting our thesis that total Haynesville production could show declines next year,” noted the analysts.

    The shift from Haynesville to Marcellus also caught the attention of analysts at Stifel Nicolaus. “Although we had highlighted this name in our 3Q industry earnings preview note as having downside risk to 2012 estimates and the company had discussed letting go of some rigs in its 3Q earnings call, the capex reduction is greater than what we were expecting and there is a greater shift towards Marcellus vs. Haynesville than what we were anticipating. While the Marcellus is more economic, the wells are also less prolific, and therefore the combination of a greater than expected capex reduction, and a greater mix of Marcellus, results in downside risk to 2012 production guidance, when it is issued in February 2012 with 4Q results,” said the analysts in a November 18 note to investors. The firm is downgrading EXCO from Buy to Hold.

    Approximately $489 million will be allocated to East Texas, North Louisiana, including $460 million to spud 30.9 net operated wells and complete 38.6 net operated wells (and 0.6 net non-operated wells); $128 million to Appalachia, including $93 million to drill and complete 19.2 net wells; $38 million to the Permian spending $32 million to drill and complete 36.2 net wells. The company also plans to make $10 million in contributions to its equity investments.

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