EXCO Plans to Increase Rig Count, Complete 49 Wells in the Marcellus Shale in 2011

EXCOThe quarterly reports from public companies continue to roll in, which sometimes makes for interesting reading. EXCO Resources, Inc. has just issued their quarterly report and includes the following operational update on their drilling activities in the Marcellus Shale. Of particular note is EXCO’s statement about IP, or “initial production”. IP for oil and gas wells is that initial burst of activity which is not sustainable through the life of the well. Usually a well produces the most right at the start—according to EXCO IP is a 24-hour period during the first few days a well goes online. But as EXCO points out below, their Marcellus wells sometimes don’t hit peak performance until a month or two after they have come online.

We are implementing a development program within our recently acquired acreage in northeast Pennsylvania. We are also implementing an appraisal program across much of our other acreage, primarily in central Pennsylvania. We spud seven new operated wells and drilled and completed 6 gross (2.7 net) operated wells during the second quarter 2011 in the Marcellus shale. The IP [initial production] rates of these wells ranged from 2 Mmcf per day to over 5 Mmcf per day from lateral lengths between 3,200 feet and 5,000 feet. In all of EXCO’s operating areas, we disclose IP as the peak 24-hour production rate during our first few days of flowback. However, in Appalachia, we have wells that realize peak production rates approximately one to two months after initial production, as the wells unload water, flowback is managed and tubing is installed. In certain areas, we have realized an average rate increase of 50-75% between the first seven days of production and the peak production rate. We continue to evaluate reservoir performance to optimize our development plans.

We plan to drill 49 gross (16.0 net) operated wells in the Marcellus shale play in our Appalachia region during 2011. Of the 49 wells, 42 gross (12.8 net) will be development wells and 7 gross (3.2 net) will be appraisal wells. This drilling will be within the Appalachia JV area, so our net drilling dollars are reduced by the effect of the carry we receive from BG Group. Approximately $98 million of the carry remains available to us from BG Group as of June 30, 2011. We expect that the remaining carry amount will be used by the end of 2011. We are currently drilling with three operated rigs and we plan to exit 2011 with 4-5 operated drilling rigs in Appalachia.*

The takeaway here: “Initial production” in the case of Marcellus Shale wells does not equal “peak production.”

*EXCO Resources Press Release/Business Wire (Aug 2, 2011) – EXCO Resources, Inc. Reports Second Quarter 2011 Results