Exco Resources Inc. (NYSE: XCO) has released a financial update to the public. Exco’s year-end net reserves came to 1.3 trillion cu ft equivalent, which equates to 110% production replacement.
Operational cash flow came to $137 million for fourth quarter 2011 and $554 million for the year. The company spent $168 million on exploration and development in 2011.

The company indicated that in response to very weak natural gas prices, it planned to significantly reduce its drilling activities during 2012. Exco will operate an average of nine rigs in the Haynesville shale and three in the Marcellus shale during 2012 compared to 22 rigs in the Haynesville shale and four in the Marcellus shale during 2011.

In the Marcellus shale, the 2011 program was a combination of appraisal and development wells in Northeast Pennsylvania, which includes Sullivan and Lycoming Counties and our Central Area which includes mainly Armstrong, Jefferson and Westmoreland counties. In Pennsylvania, Exco operates 56 gross wells (19.4 net) which currently produce 91 Mmcf per day (23.6 Mmcf per day net). During 2012, our development capital will be primarily focused in Northeast Pennsylvania, particularly where the company has realized strong results, significant acreage, and market access that is either existing or currently under construction.

Exco’s drilling program in the Haynesville shale play is concentrated in two core areas - DeSoto Parish, Louisiana and the Shelby Area, which includes Shelby, San Augustine and Nacogdoches Counties, in East Texas. Through December 31, 2011, it had spud 333 operated horizontal wells and produced more than 583.4 Bcf of gross natural gas to sales. Throughout most of 2011, it operated 22 horizontal drilling rigs in the play, but the company ended 2011 with 18 operated horizontal drilling rigs in the Haynesville shale. It drilled and completed 170 gross operated Haynesville shale wells (67.6 net) during 2011 in the region and realized a 100% success rate of which 31 gross (10.9 net) were drilled and completed in the fourth quarter and deferred the completion of 4 gross (0.6 net) wells. As of December 31, 2011, it averaged a gross operated daily shale gas production rate of approximately 1.2 Bcf per day with approximately 296 gross per day curtailed. Including non-operated volumes, Exco exited 2011 with net Haynesville production of 406 Mmcf per day.

In its core DeSoto Parish Haynesville position as of December 31, 2011, the average gross EUR for proved developed wells was 6.9 Bcf and an average of 1.5 offsetting proved undeveloped locations for each producing well, having an average gross EUR of 6.6 Bcf. Exco currently estimates the gross proved EUR per 640-acre unit has increased by 8% from 48.8 Bcf at year end 2010 to 52.8 Bcf at year end 2011. In Northeast Pennsylvania, the average gross EUR from proved developed additions during 2011 was 6.2 Bcf. The company had an average of 0.4 offsetting proved undeveloped locations for each producing well, having an average gross EUR of 7.3 Bcf.