Exco Resources Inc., Dallas, (NYSE: XCO) plans to acquire Winchester Energy Co. Ltd. and its affiliated entities from Progress Energy Inc., Raleigh, N.C., (NYSE: PGN) for $1.2 billion in cash.

The assets include producing and undeveloped gas properties with production of approximately 75 million cu. ft. equivalent per day from 588 wells, 89% operated with average working interest of 87% and average net revenue interest of 68%.

The properties are in the Cotton Valley, Hosston and Travis Peak trends in East Texas and North Louisiana. Proved reserves are approximately 400 billion cu. ft. equivalent, probable reserves are 300 billion and possible reserves are 30 billion.

The assets include approximately 775 drilling locations, 33% proved, and 106,000 net acres of leasehold, 63% held by production. The acquisition also includes six gathering systems with 300 miles of pipe and a 54-mile, 16-inch pipeline with throughput of 115 million cu. ft. per day.

Exco's offer for Winchester allocates $780 million to proved reserves, $150 million to the pipeline and gathering assets, and $270 million to probable and possible reserves and undeveloped acreage.

Pro forma, Exco's total proved reserves will be approximately 1.3 trillion cu. ft. equivalent, and total reserves will be approximately 2 trillion. Closing is expected Oct. 2.

The deal is being financed with a $750-million term loan facility and a new revolving credit facility. Exco will assume approximately 5.5 billion cu. ft. equivalent of additional existing hedges for the year from the seller at $9.33 per million cu. ft.

Exco chief executive Doug Miller says, "This acquisition is an important milestone in the execution of our overall acquire-and-exploit strategy. The production and future opportunities of the Winchester assets bring our East Texas/North Louisiana focus to a new level."

Exco plans an IPO of units representing a 50% limited partner interest in a master limited partnership subsidiary being formed to make the acquisition. The subsidiary will also own certain pre-existing Exco assets.

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