2010-04-21-2010-04-21-2010-05-14

Acquired company with 29,200 acres in E. TX targeting Haynesville/Bossier shales, gaining 12 MMcfg/d.

Exco Resources Inc., Dallas, (NYSE: XCO) and Haynesville-shale joint-venture partner BG Group Plc (London: BG), a U.K.-based international energy company, have jointly closed their acquisition of Roger Jarvis' privately held Common Resources LLC, Houston, for approximately $441.6 million in cash.

Common Resources holds approximately 29,200 net acres prospective for the Haynesville and Bossier shales in Shelby, San Augustine and Nacogdoches counties in Texas. Gross production is 39 million cubic feet per day (12 million net) from seven producing wells. Exco has identified more than 1,000 additional gross drilling locations.

Common Resources assets in the South Texas Eagle Ford shale are excluded from the acquisition. Common intended to sell or distribute its Eagle Ford assets to a third party prior to closing.

Exco chief executive Doug Miller says, "These assets have the potential to become a second major focus area for Exco outside of our core DeSoto Parish (Louisiana) position. The geology and results look very similar to those in DeSoto, and the Bossier could be just as productive. The position is large enough to provide a capital-efficient entry into this area of the play, and the acreage is very contiguous."

Common's last three Haynesville wells had initial production rates of 16.7- to 21.2 MMcf per day. Common has drilled and completed one Bossier well which had an IP rate of 11.3 MMcf per day.

Exco and BG Group each acquired 50% of Common and will develop the assets under their existing joint venture in which BG Group will fund 75% of Exco's 50% of Haynesville and Bossier drilling and completion costs.

Exco financed itd $223-million portion of the acquisition price with borrowings under its credit agreement.

Common Resources was formed in 2007 with a $500-million line-of-equity commitment from New York-based private-equity firm Pine Brook Road Partners ($125 million) and Houston-based private-equity firm EnCap Investments LP ($375 million). The management team consisted of Jarvis, chairman and chief executive, Elliot Pew, president and chief operating officer, and Robert Snell, chief financial officer.

Jarvis founded Gulf of Mexico-focused E&P company Spinnaker Exploration Co. with private-equity backing from Warburg Pincus. Spinnaker was sold for $2.6 billion in 2005 to Norsk Hydro, now Statoil.

The effective date is Feb. 1, 2010.

KeyBanc Capital Markets Inc. analyst Jack Aydin says Exco and BG are paying $15,274 per acre and $37,167 per flowing Mcfe of net production. "While the per-acre price may be a little on the high side, it is quite hard to get such contiguous and derisked acreage on the cheap," he says. "During the peak in 2008, several Haynesville shale transactions went for more than $20,000 per acre, and at that time there was no value assigned to the Bossier shale."

Analysts at Tudor, Pickering, Holt & Co. Securities establish similar metrics at $15,000 per acre and $37,000 per Mcf per day. The analysts predict Common's Eagle Ford acreage could fetch $400 million, or $10,000 per acre, when sold.