**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|
| ** **                                             | ** ** | ** **                                                                                                    |
| **For the quarterly period ended March 31, 2008** |
| ** **                                             | ** ** | ** **                                                                                                    |
| **OR**                                                 |
| ** **                                             | ** ** | ** **                                                                                                    |
| **o**                                                  | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                to                **

 

**CommissionFile Number 0-9204**

 

**EXCO RESOURCES, INC.**(Exact name of registrant as specified in its charter)

 

| **Texas**                                                    | ** ** | **74-1492779**                            |
|--------------------------------------------------------------|------------|-------------------------------------------|
| (State of incorporation)                                     |       | (I.R.S. Employer Identification No.) |
|                                                         |       |                                      |
| **12377 Merit Drive  Suite 1700, LB 82  Dallas, Texas** | ** ** | **75251**                                 |
| (Address of principal executive offices)                     |       | (Zip Code)                                |

 

**(214) 368-2084**

(Registrant’s telephone number,including area code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

YES x   NO o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer o  (Do not check if a smaller reporting company) |   | Smaller reporting company o |
|--------------------------------|--------|--------------------------|--------|------------------------------------------------------------------------|--------|-----------------------------|

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES o   NO x

 

The number of shares of commonstock, par value $0.001 per share, outstanding as of May 5, 2008 was 105,154,824.

 

 

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**EXCORESOURCES, INC.**

 

**INDEX**

 
| **PART I.**  | ** ** | **FINANCIAL INFORMATION**                                                                                                           |
|-------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|
|              |       |                                                                                                                                |
| Item 1.           |       | Financial Statements (Unaudited)                                                                                                    |
|              |       | Condensed Consolidated Balance Sheets at December 31,  2007 and March 31, 2008                                       |
|              |       | Condensed Consolidated Statements of Operations for the  Three Months Ended March 31, 2007 and 2008                       |
|              |       | Condensed Consolidated Statements of Cash  Flows for the Three Months Ended March 31, 2007 and 2008                       |
|              |       | Condensed Consolidated Statements of  Changes in Shareholders’ Equity for the Three Months Ended March 31,  2007 and 2008 |
|              |       | Notes to Condensed Consolidated Financial  Statements                                                                               |
| Item 2.           |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                         |
| Item 3.           |       | Quantitative and Qualitative Disclosures  About Market Risk                                                                         |
| Item 4.           |       | Controls and Procedures                                                                                                             |
|              |       |                                                                                                                                |
| **PART II.** | ** ** | **OTHER INFORMATION**                                                                                                               |
|              |       |                                                                                                                                |
| Item 1.           |       | Legal Proceedings                                                                                                                   |
| Item 6.           |       | Exhibits                                                                                                                            |
|              |       | Signatures                                                                                                                          |
|              |       | Index to Exhibits                                                                                                                   |

 

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**PART I—FINANCIALINFORMATION**

 

***Item 1. Financial Statements(Unaudited)***

 

**EXCO RESOURCES, INC.**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                       | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands)**                                          | ** ** | **2007**              | ** ** | **2008**           | ** ** |
| **Assets**                                                       |       |                  |       |               |       |
| Current assets:                                                  |       |                  |       |               |       |
| Cash and cash equivalents                                        |       | $                     | 55,510     |               | $          | 9,113 |   |
| Accounts receivable:                                             |       |                  |       |               |       |
| Oil and natural gas                                              |       | 146,297               |       | 180,029            |       |
| Joint interest                                                   |       | 21,614                |       | 22,871             |       |
| Interest and other                                               |       | 2,151                 |       | 5,296              |       |
| Derivative financial instruments                                 |       | 66,632                |       | —             |       |
| Deferred income taxes                                            |       | 6,764                 |       | —             |       |
| Other                                                            |       | 12,332                |       | 11,671             |       |
| Total current assets                                             |       | 311,300               |       | 228,980            |       |
| Oil and natural gas properties (full cost  accounting method):   |       |                  |       |               |       |
| Unproved oil and natural gas properties                          |       | 334,803               |       | 372,066            |       |
| Proved developed and undeveloped oil and  natural gas properties |       | 4,926,053             |       | 5,447,621          |       |
| Accumulated depletion                                            |       | (500,493              | )          | (604,406           | )          |
| Oil and natural gas properties, net                              |       | 4,760,363             |       | 5,215,281          |       |
| Gas gathering assets                                             |       | 340,706               |       | 428,057            |       |
| Accumulated depreciation and amortization                        |       | (16,142               | )          | (19,614            | )          |
| Gas gathering assets, net                                        |       | 324,564               |       | 408,443            |       |
| Office and field equipment, net                                  |       | 20,844                |       | 21,800             |       |
| Advance on pending acquisition                                   |       | 39,500                |       | 3,500              |       |
| Derivative financial instruments                                 |       | 2,491                 |       | 4,561              |       |
| Deferred financing costs, net                                    |       | 20,406                |       | 19,949             |       |
| Other assets                                                     |       | 6,226                 |       | 3,422              |       |
| Goodwill                                                         |       | 470,077               |       | 470,077            |       |
| Total assets                                                     |       | $                     | 5,955,771  |               | $          | 6,376,013 |   |

 

*See accompanying notes.*

 

3

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** **

**EXCO RESOURCES, INC.**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands, except per share and share data)**                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2007**              | ** ** | **2008**           | ** ** |
| **Liabilities and shareholders’ equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                  |       |               |       |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                  |       |               |       |
| Accounts payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | $                     | 106,305    |               | $          | 111,851 |   |
| Accrued interest payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 21,835                |       | 15,563             |       |
| Revenues and royalties payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 100,978               |       | 120,120            |       |
| Income taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 87                    |       | 87                 |       |
| Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | —                |       | 66,617             |       |
| Current portion of asset retirement  obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 1,656                 |       | 1,850              |       |
| Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 47,306                |       | 268,781            |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 278,167               |       | 584,869            |       |
| Long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 2,099,171             |       | 2,479,048          |       |
| Asset retirement obligations and other  long-term liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | 89,810                |       | 102,514            |       |
| Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 271,398               |       | 121,105            |       |
| Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 109,205               |       | 171,008            |       |
| Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | —                |       | —             |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                  |       |               |       |
| 7.0% Cumulative Convertible Perpetual  Preferred Stock, par value $0.001 per share, 39,008 shares outstanding at  December 31, 2007 and March 31, 2008, liquidation preference of  $391,218 at December 31, 2007 and March 31, 2008                                                                                                                                                                                                                                           |       | 388,574               |       | 388,574            |       |
| Hybrid Preferred Stock, par value $0.001  per share, 160,992 shares outstanding at December 31, 2007 and  March 31, 2008, liquidation preference of $1,614,616 at  December 31, 2007 and March 31, 2008                                                                                                                                                                                                                                                                       |       | 1,603,704             |       | 1,603,704          |       |
| Shareholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                  |       |               |       |
| Preferred stock, par value $0.001 per share;  10,000,000 shares authorized at March 31, 2008, of which 200,000 shares  have been designated for each series of 7.0% Cumulative Convertible Perpetual  Preferred Stock and 200,000 shares have been designated for each series of  Hybrid Preferred Stock; no shares of preferred stock other than the 7.0%  Cumulative Convertible Perpetual and Hybrid Preferred Stock (presented above)  are issued and outstanding at March 31, 2008 |       | —                |       | —             |       |
| Common stock, $0.001 par value; Authorized  shares - 350,000,000; issued and outstanding shares - 104,578,941 at  December 31, 2007 and 104,887,915 at March 31, 2008                                                                                                                                                                                                                                                                                                                   |       | 105                   |       | 105                |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 1,043,645             |       | 1,050,933          |       |
| Retained earnings (deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 71,992                |       | (125,847           | )          |
| Total shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | 1,115,742             |       | 925,191            |       |
| Total liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | $                     | 5,955,771  |               | $          | 6,376,013 |   |

 

*See accompanying notes.*

 

4

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** **

**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                                         | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                         | ** ** | **March 31,**               | ** ** |
| **(in thousands, except per share data)** | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| **Revenues and other income:**                                     |       |                             |       |   |   |
| Oil and natural gas                                                |       | $                                | 118,495    |   | $ | 317,690 |   |
| Loss on derivative financial instruments                           |       | (96,019                          | )          | (341,194 | ) |
| Other income                                                       |       | 6,725                            |       | 8,545 |   |
| Total revenues and other income                                    |       | 29,201                           |       | (14,959 | ) |
| **Costs and expenses:**                                            |       |                             |       |   |   |
| Oil and natural gas production                                     |       | 30,078                           |       | 52,481 |   |
| Gathering and transportation                                       |       | 821                              |       | 3,131 |   |
| Depreciation, depletion and amortization                           |       | 51,324                           |       | 109,217 |   |
| Accretion of discount on asset retirement  obligations             |       | 943                              |       | 1,316 |   |
| General and administrative                                         |       | 14,175                           |       | 22,627 |   |
| Interest                                                           |       | 76,709                           |       | 36,020 |   |
| Total costs and expenses                                           |       | 174,050                          |       | 224,792 |   |
| Loss before income taxes                                           |       | (144,849                         | )          | (239,751 | ) |
| Income tax benefit                                                 |       | (57,152                          | )          | (76,912 | ) |
| Net loss                                                           |       | (87,697                          | )          | (162,839 | ) |
| Preferred stock dividends                                          |       | 1,136                            |       | 35,000 |   |
| Net loss available to common shareholders                          |       | $                                | (88,833    | ) | $ | (197,839 | ) |
| Net loss per common share:                                         |       |                             |       |   |   |
| Net loss per common share - basic                                  |       | $                                | (0.85      | ) | $ | (1.89 | ) |
| Net loss per common share - diluted                                |       | $                                | (0.85      | ) | $ | (1.89 | ) |
| Weighted average shares:                                           |       |                             |       |   |   |
| Basic                                                              |       | 104,202                          |       | 104,683 |   |
| Diluted                                                            |       | 104,202                          |       | 104,683 |   |

 

*See accompanying notes.*

 

5

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                           | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                           | ** ** | **March 31,**               | ** ** |
| **(in thousands)**                                                                                              | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| **Operating Activities:**                                                                                            |       |                             |       |   |   |
| Net loss                                                                                                             |       | $                                | (87,697    | ) | $ | (162,839 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities:                                     |       |                             |       |   |   |
| Depreciation, depletion and amortization                                                                             |       | 51,324                           |       | 109,217 |   |
| Stock option compensation expense                                                                                    |       | 1,910                            |       | 3,004 |   |
| Accretion of discount on asset retirement  obligations                                                               |       | 943                              |       | 1,316 |   |
| Non-cash change in fair value of  derivatives                                                                        |       | 128,092                          |       | 347,840 |   |
| Cash settlements of assumed derivatives                                                                              |       | —                           |       | (10,467 | ) |
| Deferred income taxes                                                                                                |       | (56,037                          | )          | (76,912 | ) |
| Amortization of deferred financing costs  and premium on 7 1/4% senior notes due 2011 and discount on long-term debt |       | 9,355                            |       | 406 |   |
| Loss on sale of fixed assets                                                                                         |       | —                           |       | 31 |   |
| Effect of changes in:                                                                                                |       |                             |       |   |   |
| Accounts receivable                                                                                                  |       | 8,494                            |       | (38,133 | ) |
| Other current assets                                                                                                 |       | 361                              |       | 2,389 |   |
| Accounts payable and other current  liabilities                                                                      |       | (24,194                          | )          | 23,658 |   |
| Net cash provided by operating activities                                                                            |       | 32,551                           |       | 199,510 |   |
| **Investing Activities:**                                                                                            |       |                             |       |   |   |
| Additions to oil and natural gas  properties, gathering systems and equipment                                        |       | (1,489,950                       | )          | (602,667 | ) |
| Advance on pending acquisition                                                                                       |       | (43,000                          | )          | (3,500 | ) |
| Proceeds from disposition of property and  equipment and other                                                       |       | 131,594                          |       | 1,298 |   |
| Net cash used in investing activities                                                                                |       | (1,401,356                       | )          | (604,869 | ) |
| **Financing Activities:**                                                                                            |       |                             |       |   |   |
| Borrowings under credit agreements                                                                                   |       | 1,198,000                        |       | 500,700 |   |
| Repayments under credit agreements                                                                                   |       | (1,672,532                       | )          | (120,000 | ) |
| Proceeds from issuance of common stock                                                                               |       | 817                              |       | 3,527 |   |
| Proceeds from issuance of preferred stock                                                                            |       | 2,000,000                        |       | — |   |
| Payment of preferred stock dividends                                                                                 |       | —                           |       | (35,000 | ) |
| Payments for preferred stock issuance costs                                                                          |       | (525                             | )          | — |   |
| Settlements of derivative financial  instruments with a financing element                                            |       | —                           |       | 10,467 |   |
| Deferred financing costs                                                                                             |       | (10,099                          | )          | (732 | ) |
| Net cash provided by financing activities                                                                            |       | 1,515,661                        |       | 358,962 |   |
| Net increase (decrease) in cash                                                                                      |       | 146,856                          |       | (46,397 | ) |
| Cash at beginning of period                                                                                          |       | 22,822                           |       | 55,510 |   |
| Cash at end of period                                                                                                |       | $                                | 169,678    |   | $ | 9,113 |   |
|                                                                                                                 |       |                             |       |   |   |
| Supplemental Cash Flow Information:                                                                                  |       |                             |       |   |   |
| Interest paid                                                                                                        |       | $                                | 92,695     |   | $ | 38,627 |   |
| Derivative financial instruments assumed in  Vernon Acquisition                                                      |       | $                                | 60,015     |   | $ | — |   |
| Supplemental non-cash investing and  financing activities:                                                           |       |                             |       |   |   |
| Capitalized stock compensation                                                                                       |       | $                                | 368        |   | $ | 675 |   |
| Issuance of common stock for director  services                                                                      |       | $                                | —     |   | $ | 82 |   |

 

*See accompanying notes.*

 

6

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**

**(Unaudited)**

 
| ** **                        | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | **Retained**           | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|------------------------|------------|------------|------------|
| ** **                        | ** ** | **Common Stock** | ** ** | **paid-in** | ** ** | **earnings**   | ** ** | **shareholders’** | ** ** |
| **(in thousands)**           | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **capital**    | ** ** | **(deficit)**          | ** ** | **equity** | ** ** |
| Balance at December 31, 2006 |       | 104,162               |       | $           | 104        |           | $          | 1,024,442              |       | $          | 155,304    |   | $ | 1,179,850 |   |
| Issuance of common stock          |       | 79                    |       | —      |       | 817            |       | —                 |       | 817        |       |
| Preferred stock dividends         |       | —                |       | —      |       | —         |       | (1,136                 | )          | (1,136     | )          |
| Share-based compensation          |       | —                |       | —      |       | 2,277          |       | —                 |       | 2,277      |       |
| Net loss                          |       | —                |       | —      |       | —         |       | (87,697                | )          | (87,697    | )          |
| Balance at March 31, 2007    |       | 104,241               |       | $           | 104        |           | $          | 1,027,536              |       | $          | 66,471     |   | $ | 1,094,111 |   |
|                              |       |                  |       |        |       |           |       |                   |       |       |       |
| Balance at December 31, 2007 |       | 104,579               |       | $           | 105        |           | $          | 1,043,645              |       | $          | 71,992     |   | $ | 1,115,742 |   |
| Issuance of common stock          |       | 309                   |       | —      |       | 3,609          |       | —                 |       | 3,609      |       |
| Preferred stock dividends         |       | —                |       | —      |       | —         |       | (35,000                | )          | (35,000    | )          |
| Share-based compensation          |       | —                |       | —      |       | 3,679          |       | —                 |       | 3,679      |       |
| Net loss                          |       | —                |       | —      |       | —         |       | (162,839               | )          | (162,839   | )          |
| Balance at March 31, 2008    |       | 104,888               |       | $           | 105        |           | $          | 1,050,933              |       | $          | (125,847   | ) | $ | 925,191 |   |

 

*See accompanying notes.*

 

7

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** **

**EXCO RESOURCES, INC.**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

 

**(Unaudited)**

 

**1.****                                      Organizationand basis of presentation**

 

*Unless the context requires otherwise, referencesin this quarterly report on Form 10-Q to “EXCO,” “EXCO Resources,” “Company,”“we,” “us,” and “our” are to EXCO Resources, Inc. and  its consolidated subsidiaries.*

 

EXCO Resources, Inc., a Texascorporation, is an independent oil and natural gas company engaged in theacquisition, development and exploitation of onshore North American oil andnatural gas properties. Our principal operations are located in the EastTexas/North Louisiana, Appalachia, Mid-Continent and Permian producing areas.Our assets in East Texas/North Louisiana are owned by our subsidiary, EXCOPartners Operating Partnership, LP and its subsidiaries and are collectivelyreferred to as EPOP. Organizationally, EPOP is an indirect wholly-ownedsubsidiary of EXCO Resources. EPOP’s debt is not guaranteed by EXCO Resourcesand EPOP does not guarantee EXCO Resources’ debt.

 

The accompanying condensed consolidatedbalance sheets as of December 31, 2007 and March 31, 2008, theresults of operations, cash flows and the changes in shareholders’ equity forthe three months ended March 31, 2007 and 2008, are for EXCO and itssubsidiaries. All intercompany transactions have been eliminated.  Certain prior year amounts have beenreclassified to conform to current year presentation.

 

We have prepared the accompanying unauditedinterim financial statements pursuant to the rules and regulations of theSecurities and Exchange Commission, or SEC, and in the opinion of management,such financial statements reflect all adjustments necessary to present fairlythe consolidated financial position of EXCO at March 31, 2008 and itsresults of operations and cash flows for the periods presented. We have omittedcertain information and disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States pursuant to those rules and regulations, although webelieve that the disclosures we have made are adequate to make the informationpresented not misleading. These unaudited interim financial statements shouldbe read in conjunction with our audited financial statements and notes includedin our Annual Report on Form 10-K for the year ended December 31,2007.

 

The results of operations for the interimperiods are not necessarily indicative of the results we expect for the fullyear.

 

**2.****                                      Significant recent activities**

 

**Appalachian Acquisition**

 

On February 20, 2008, EXCO acquiredshallow natural gas properties from EOG Resources, Inc. located primarilyin EXCO’s central Pennsylvania operating area, or the Appalachian Acquisition.The purchase price, after reduction for preliminary closing adjustments of$7.4 million, was $388.4 million and was financed with funds drawnunder the EXCO Resources credit agreement. Ourpreliminary purchase price allocation to the Appalachian Acquisition ispresented on the following table:

 

8

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| **(in thousands)**                          | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------|------------|
| **Purchase price calculation:**        | ** ** | ** ** | ** ** |
| Preliminary purchase price                       |       | $          | 387,644    |   |
| Acquisition related expenses                     |       | 741        |       |
| Total purchase price                             |       | $          | 388,385    |   |
|                                             |       |       |       |
| **Allocation of purchase price:**                |       |       |       |
| Oil and natural gas properties - proved          |       | $          | 334,308    |   |
| Oil and natural gas properties - unproved        |       | 45,676     |       |
| Gas gathering, compression facilities and  other |       | 19,876     |       |
| Other property and equipment                     |       | 2,617      |       |
| Asset retirement obligations                     |       | (12,647    | )          |
| Other liabilities assumed                        |       | (1,445     | )          |
| Total purchase price allocation                  |       | $          | 388,385    |   |

 

**SouthernGas Acquisition – final purchase price allocation**

 

On March 31, 2008, we finalized the purchaseprice of our May 2007 acquisition of properties located in theMid-Continent region from Anadarko Petroleum Corporation, or the Southern GasAcquisition.  Included in the SouthernGas Acquisition were oil and natural gas properties which were sold to CrimsonExploration on May 8, 2007, or the Gulf Coast Sale.  The final adjusted purchase price wasapproximately $772.5 million and the purchase price allocation is presented inthe following table:

 
| **(in thousands)**                                             | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|
| **Purchase price calculation:**                                     |       |       |       |
| Purchase price                                                      |       | $          | 770,498    |   |
| Acquisition related expenses                                        |       | 2,040      |       |
| Total purchase price                                                |       | $          | 772,538    |   |
|                                                                |       |       |       |
| **Allocation of purchase price:**                                   |       |       |       |
| Oil and natural gas properties - proved                             |       | $          | 586,407    |   |
| Oil and natural gas properties - unproved                           |       | 4,725      |       |
| Gulf Coast Sale, including the value of the  Crimson stock          |       | 241,948    |       |
| Other, net                                                          |       | (5,771     | )          |
| Fair value (liability) of assumed  derivative financial instruments |       | (42,204    | )          |
| Asset retirement obligations                                        |       | (12,567    | )          |
| Total purchase price allocation                                     |       | $          | 772,538    |   |

 

**Pro formaresults of operations**

 

The following table reflects the unaudited pro forma results ofoperations as though the Appalachian Acquisition, our March 30, 2007private placement of preferred stock and the acquisitions and dispositionsduring 2007, including proved and unproved natural gas properties in NorthLouisiana, or the Vernon Acquisition, the Southern Gas Acquisition and the GulfCoast Sale, had occurred on January 1, 2007 (see our Annual Report on Form 10-Kfor the year ended December 31, 2007 for a discussion of theseacquisitions and sales) .

 
| ** **                                                         | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands, except per share data)** | ** ** | **2007**                                             | ** ** | **2008** | ** ** |
| Revenues and other income                                          |       | $                                                    | 168,826    |   | $ | (8,605 | ) |
| Net loss                                                           |       | $                                                    | (34,477    | ) | $ | (162,919 | ) |
| Preferred stock dividends                                          |       | (34,521                                              | )          | (35,000 | ) |
| Net loss available to common shareholders                          |       | $                                                    | (68,998    | ) | $ | (197,919 | ) |
| Basic loss per share                                               |       | $                                                    | (0.66      | ) | $ | (1.89 | ) |
| Diluted loss per share                                             |       | $                                                    | (0.66      | ) | $ | (1.89 | ) |

 

9

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**3.****                                      Recent accounting pronouncements**

 

In September 2006, the Financial AccountingStandards Board, or FASB, issued Statement of Financial Accounting Standards,or SFAS, No. 157, “Fair Value Measurements,” or SFAS No. 157, whichdefines fair value, establishes a framework for measuring fair value in GAAPand expands disclosures about fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007 and interimperiods within those fiscal years for financial instruments.  FASB Financial Staff Position No. FAS157-2 deferred implementation for other non-financial assets and liabilitiesfor one year.  Examples of non-financialassets and liabilities are asset retirement obligations and non-financialassets and liabilities initially measured at fair value in a businesscombination.

 

In March 2008, the FASB issued SFAS, No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities,” or SFAS No. 161.SFAS No. 161 requires enhanced disclosure about the fair value ofderivative instruments and their gains or losses in tabular format andinformation about credit-risk-related contingent features in derivativeagreements, counterparty credit risk, and the company’s strategies andobjectives for using derivative instruments. SFAS No. 161 is effective forfinancial statements issued for fiscal years beginning after December 15,2008, and as such, will be adopted by us on January 1, 2009. We arecurrently evaluating the effect of adopting SFAS No. 161 on our financialstatements.

 

**4.****                                      Significant accounting policies**

 

We consideraccounting policies related to our estimates of assets and liabilities acquiredin acquisitions, estimates of proved reserves, accounting for derivatives,business combinations, share-based payments, accounting for oil and natural gasproperties, goodwill, asset retirement obligations and accounting for incometaxes as significant accounting policies. The policies include significantestimates made by management using information available at the time theestimates are made. However, these estimates could change materially ifdifferent information or assumptions were used. These policies are summarizedin our Annual Report on Form 10-K for the year ended December 31,2007.

 

We adopted SFAS No. 157 on January 1,2008.  SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value and provides forexpanded disclosure of information about fair value measurements.  See “Note 9. Derivative financial instruments and fair value measurements” for adiscussion of the impacts of the adoption of SFAS No. 157.

 

**5.****                                      Asset retirementobligations**

 

The following is a reconciliation of ourasset retirement obligations for the three months ended March 31, 2008:

 
| **(in thousands)**                                        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|
| Asset retirement obligation at  January 1, 2008           |       | $          | 84,370     |   |
| Activity during the three months ended  March 31:         |       |       |       |
| Liabilities incurred during the period                         |       | 1,275      |       |
| Liabilities settled during the period                          |       | (2,260     | )          |
| Additions to asset retirement obligations  due to acquisitions |       | 12,647     |       |
| Accretion of discount                                          |       | 1,316      |       |
| Asset retirement obligations as of  March 31              |       | 97,348     |       |
| Less current portion                                           |       | (1,850     | )          |
| Long-term portion                                              |       | $          | 95,498     |   |

 

We have no assets that are legally restrictedfor purposes of settling asset retirement obligations.

 

**6.****                                      Oiland natural gas properties**

 

We use the full cost method of accounting,which involves capitalizing all acquisition, exploration, exploitation anddevelopment costs.  Once we incur costs,they are recorded in the depletable pool of proved properties or in unprovedproperties, collectively, the full cost pool. Unproved property costs, which totaled $334.8 million and $372.1 millionas of December 31, 2007 and March 31, 2008, respectively, are notsubject to depletion.  We review ourunproved oil and natural gas property costs on a quarterly basis, and we expectthese costs to be evaluated in one to seven years and transferred to thedepletable portion of the full cost pool during that time.  The full cost pool is comprised of intangibledrilling costs, lease and well equipment and exploration and development costsincurred plus acquired proved and unproved leaseholds.

 

10

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We calculate depletion using theunit-of-production method.  Under thismethod, the sum of the full cost pool and all estimated future developmentcosts are divided by the total quantities of proved reserves.  This rate is applied to our total production forthe period, and the appropriate expense is recorded.  We capitalize the portion of general andadministrative costs, including share-based compensation, that is attributableto our acquisition, exploration, exploitation and development activities.

 

Sales, dispositions and other oil and naturalgas property retirements are accounted for as adjustments to the full costpool, with no recognition of gain or loss unless the disposition wouldsignificantly alter the amortization rate.

 

At the end of each quarterly period, theunamortized cost of oil and natural gas properties, net of related deferredincome taxes, is limited to the sum of the estimated future net revenues fromour oil and natural gas properties using current period-end prices discountedat 10%, adjusted for related income tax effects (ceiling test).  When computing our ceiling test, we evaluatethe limitation at the end of each reporting period date. In the event ourcapitalized costs exceed the ceiling limitation at the end of the reporting date,we subsequently evaluate the limitation for price changes that occur after thebalance sheet date to assess impairment as permitted by Staff AccountingBulletin Topic 12—Oil and Gas Producing Activities. In addition, in July 2007,we sought, and received, an exemption from the SEC to exclude the VernonAcquisition and the Southern Gas Acquisition from our ceiling test for a periodof 12 months from the closing date of each acquisition, provided that wecould demonstrate beyond a reasonable doubt that the fair value of the oil andnatural gas reserves exceeded their unamortized carrying costs. The exemptionrelated to the Vernon Acquisition expired March 30, 2008 and was includedin our March 31, 2008 ceiling test calculation. The exemption related tothe Southern Gas Acquisition expired on May 2, 2008.  At March 31, 2008, there was no ceilingtest impairment.

 

The calculation of the ceiling test is basedupon estimates of proved reserves. There are numerous uncertainties inherent inestimating quantities of proved reserves, in projecting the future rates ofproduction and in the timing of development activities. The accuracy of anyreserve estimate is a function of the quality of available data and ofengineering and geological interpretation and judgment. Results of drilling,testing and production subsequent to the date of the estimate may justifyrevision of such estimate. Accordingly, reserve estimates are often differentfrom the quantities of oil and natural gas that are ultimately recovered.

 

**7.****                                      Earnings(loss) per share**

 

We account forearnings per share in accordance with SFAS No. 128, “Earnings per share,”or SFAS No. 128. SFAS No. 128 requires companies to present twocalculations of earnings per share; basic and diluted. Basic earnings (loss)per share for the three months ended March 31, 2007 and 2008 equals thenet income (loss) available to common shareholders divided by the weightedaverage common shares outstanding during the period. Diluted earnings (loss)per common share for the three months ended March 31, 2007 and 2008 iscomputed in the same manner as basic earnings per share after assuming issuanceof common stock for all potentially dilutive common stock equivalents,including our 7.0% Convertible Preferred Stock and Hybrid Preferred Stock,whether exercisable or not.  Since weincurred net losses for the three months ended March 31, 2007 and 2008, wehave excluded the potential common stock equivalents from the assumedconversion of stock options of 2,245,500 and 1,791,867, respectively, and105,263,158 shares of common stock from the assumed conversion of the 7.0%Convertible Preferred Stock and Hybrid Preferred Stock from the computation ofearnings per share as they are antidilutive.

 

11

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The followingtable presents the basic and diluted loss per share computations:

 
| ** **                                                                     | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands, except per share amounts)**          | ** ** | **2007**                                             | ** ** | **2008** | ** ** |
| Basic loss per common share:                                                   |       |                                                 |       |   |   |
| Net loss                                                                       |       | $                                                    | (87,697    | ) | $ | (162,839 | ) |
| Preferred stock dividends                                                      |       | 1,136                                                |       | 35,000 |   |
| Net loss available to common shareholders                                      |       | $                                                    | (88,833    | ) | $ | (197,839 | ) |
|                                                                           |       |                                                 |       |   |   |
| Shares:                                                                        |       |                                                 |       |   |   |
| Weighted average number of common shares  outstanding                          |       | 104,202                                              |       | 104,683 |   |
|                                                                           |       |                                                 |       |   |   |
| Basic loss per common share:                                                   |       |                                                 |       |   |   |
| Net loss available to common shareholders  per common share                    |       | $                                                    | (0.85      | ) | $ | (1.89 | ) |
|                                                                           |       |                                                 |       |   |   |
| Diluted loss per share:                                                        |       |                                                 |       |   |   |
| Net loss available to common shareholders                                      |       | $                                                    | (88,833    | ) | $ | (197,839 | ) |
|                                                                           |       |                                                 |       |   |   |
| Shares:                                                                        |       |                                                 |       |   |   |
| Weighted average number of common shares outstanding                           |       | 104,202                                              |       | 104,683 |   |
| Dilutive effect of stock options                                               |       | —                                               |       | — |   |
| Weighted average common shares and common  stock equivalent shares outstanding |       | 104,202                                              |       | 104,683 |   |
|                                                                           |       |                                                 |       |   |   |
| Diluted loss per share:                                                        |       |                                                 |       |   |   |
| Net loss available to common shareholders  per common share                    |       | $                                                    | (0.85      | ) | $ | (1.89 | ) |

 

**8.****                                     ****Stock options**

 

We account forstock options in accordance with SFAS No. 123(R), “Share-BasedCompensation,” or SFAS No. 123(R). As required by SFAS No. 123(R),the granting of options to our employees under our 2005 Long-Term IncentivePlan, or the 2005 Incentive Plan, are share-based payment transactions and areto be treated as compensation expense by us with a corresponding increase toadditional paid-in capital. Volatility is determined based on the combinationof the weighted average volatility of our common stock price and the dailyclosing prices from five comparable public companies during the period when wewere privately held. For the three months ended March 31, 2008, totalshare-based compensation was $3.7 million, of which $3.0 million is included ingeneral administrative and lease operating expense and $0.7 million wascapitalized as part of proved developed and undeveloped oil and natural gasproperties. Total share-based compensation to be recognized on unvested awardsas of March 31, 2008 is $22.6 million over a weighted average periodof 1.26 years.

 

During the three months ended March 31,2008, options to purchase 426,900 shares were granted under the 2005 IncentivePlan at prices ranging from $15.15 to $16.96 per share with fair values rangingfrom $5.39 to $5.98 per share. The options expire ten years following the dateof grant. Pursuant to the 2005 Incentive Plan, 25% of the options vestimmediately with an additional 25% to vest on each of the next threeanniversaries of the date of the grant. As of December 31, 2007 and March 31, 2008, there were7,022,375 and 6,671,675 shares available to be granted under the 2005 IncentivePlan, respectively.

 

**9.****                                      Derivativefinancial instruments and fair value measurements**

 

We use oil andnatural gas derivatives and financial risk management instruments to manage ourexposures to commodity price and interest rate fluctuations.  We do not designate these instruments ashedging instruments for financial accounting purposes, and, as a result, werecognize the change in the respective instruments’ fair value currently inearnings, as gains or losses on oil and natural gas derivatives and interestexpense on interest rate swaps.

 

In September 2006,the FASB issued SFAS No. 157.  SFAS No. 157defines fair value, establishes a framework for measuring fair value inaccordance with accounting principles generally accepted in the United Statesand provides for expanded disclosure of information about fair value measurements.  We adopted the provisions of SFAS No. 157on January 1, 2008 for our derivative financial instruments’ assets andliabilities.

 

SFAS No. 157defines fair value as the exchange price that would be received for an asset orpaid to transfer a liability (exit price) in the principle or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date. This fair value may be different than the settlement value based oncompany-specific inputs, such as credit rating, futures markets and forwardcurves, and readily available buyers or sellers for such assets or liabilities.Prior to January 1, 2008, our derivative financial instruments wererecorded at settlement value.  The impacton our assets and liabilities related to these derivative financial instrumentswas not material to our balance sheet.

 

12

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SFAS No. 157 alsoestablishes a three-tier fair value hierarchy, which prioritizes the inputs usedin measuring fair value.  These tiersinclude:

 

*Level 1*– Observableinputs, such as quoted market prices in active markets, for substantiallyidentical assets and liabilities.

 

*Level 2*– Observableinputs other than quoted**prices within *Level 1* for similar assets and liabilities.  These include quoted prices in markets thatare not active or other inputs that are observable or can be corroborated byobservable market data.  If the asset orliability has a specified or contractual term, the input must be observable forsubstantially the full term of the asset or liability.

 

*Level 3*–Unobservable inputs that are supported by little or no market activity,generally requiring development of fair value assumptions by management.

 

As of March 31,2008, our oil and natural gas and interest rate derivative financialinstruments are required to be measured at their fair value pursuant to SFAS No. 157.The following presents a summary of our derivative financial instruments atMarch 31, 2008:

 
| **(in thousands)**                               | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|-------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Oil and natural gas derivative financial  instruments |       | $                | —     |             | $          | (431,598         | )          | $         | —     |   | $ | (431,598 | ) |
| Interest rate swaps                                   |       | —           |       | (3,631           | )          | —           |       | (3,631    | )          |
|                                                  |       | $                | —     |             | $          | (435,229         | )          | $         | —     |   | $ | (435,229 | ) |

 

**Oil and natural gas derivatives**

 

The followingtable presents our financial assets and liabilities for oil and natural gasderivative financial instruments measured at fair value subject to thedisclosure requirements of SFAS No. 157 as of March 31, 2008:

 
| ** **                                       | ** ** | ** **    | ** ** | **Weighted**            | ** ** | ** **                   | ** ** |
|--------------------------------------------------|------------|---------------|------------|-------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **Volume**    | ** ** | **average strike** | ** ** | **Fair value at**  | ** ** |
| **(in thousands, except prices)** | ** ** | **Mmbtu/Bbl** | ** ** | **price**               | ** ** | **March 31, 2008** | ** ** |
| **Natural Gas:**                                 |       |          |       |                    |       |                         |       |
| Swaps (NYMEX):                                   |       |          |       |                    |       |                         |       |
| Remainder of 2008                                |       | 80,505        |       | $                       | 8.32       |                         | $          | (157,334 | ) |
| 2009                                             |       | 100,530       |       | 8.18                    |       | (149,764                     | )          |
| 2010                                             |       | 40,748        |       | 8.03                    |       | (37,808                      | )          |
| 2011                                             |       | 9,125         |       | 7.97                    |       | (6,282                       | )          |
| 2012                                             |       | 1,830         |       | 4.51                    |       | (6,356                       | )          |
| 2013                                             |       | 1,825         |       | 4.51                    |       | (6,069                       | )          |
| **Total Natural Gas**                            |       | 234,563       |       |                    |       | (363,613                     | )          |
|                                             |       |          |       |                    |       |                         |       |
| **Oil:**                                         |       |          |       |                    |       |                         |       |
| Swaps (NYMEX):                                   |       |          |       |                    |       |                         |       |
| Remainder of 2008                                |       | 1,071         |       | 68.20                   |       | (33,000                      | )          |
| 2009                                             |       | 1,215         |       | 69.11                   |       | (30,972                      | )          |
| 2010                                             |       | 473           |       | 84.85                   |       | (4,013                       | )          |
| **Total Oil**                                    |       | 2,759         |       |                    |       | (67,985                      | )          |
| **Total Oil and Natural Gas**                    |       |          |       |                    |       | $                            | (431,598   | ) |
|                                                  |            |               |            |                         |            |                              |            |  |  |

 

In measuringfair value of financial assets and liabilities pursuant to SFAS No. 157,we utilized quoted NYMEX futures for period prices applicable to ourderivatives and other relevant information generated by market transactions.Our derivative financial instruments and their related fair value tier havebeen classified as Level 2.   Thesignificant observable inputs for our oil and natural gas derivatives are basedprincipally on NYMEX strip prices, London Inter Bank Offered Rate, or LIBOR,and credit risk assessment which affects the discount rate to be utilized tocompute fair value.

 

At March 31, 2008, the average forwardNYMEX oil prices per Bbl for the remainder of 2008 and for 2009 were $99.55 and$95.93, respectively, and the average forward NYMEX natural gas price per Mmbtufor the remainder of 2008 and for 2009 were $10.30 and $9.75, respectively.

 

13

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** **

**Interestrate swaps**

 

In January 2008, we entered intointerest rate swaps to mitigate our exposure to fluctuations in interest rateson $700.0 million in principal through February 14, 2010 at LIBORrates ranging from 2.45% to 2.8%.  Duringthe three months ended March 31, 2008, we recognized $3.3 million ofadditional interest expense on our interest rate swaps.  The impact of SFAS No. 157 was notmaterial to our interest rate swaps.  Asof March 31, 2008, the fair value of our interest rate swaps was aliability of $3.6 million.

 

**10.****                              ****Long-term debt**

 

Long-term debt is summarized as follows:

 
| ** **                                            | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands)**                               | ** ** | **2007**              | ** ** | **2008**           | ** ** |
| EXCO credit agreement                                 |       | $                     | 560,500    |               | $          | 855,500 |   |
| EPOP credit agreement                                 |       | 1,083,000             |       | 1,168,700          |       |
| 71⁄4% senior notes due 2011                        |       | 444,720               |       | 444,720            |       |
| Unamortized premium on 7 1/4 % senior notes  due 2011 |       | 10,951                |       | 10,128             |       |
| Total                                                 |       | $                     | 2,099,171  |               | $          | 2,479,048 |   |

 

**Creditagreements**

 

*EXCO Resources credit agreement*

 

On February 20,2008, we amended the EXCO Resources credit agreement to reflect the assetsacquired in the Appalachian Acquisition. This amendment to the EXCO Resources credit agreement increased theborrowing base from $900.0 million to $1.2 billion, of which $855.5 million wasdrawn as of March 31, 2008.  Financial covenants and all other terms,including maturity date, contained within the EXCO Resources credit agreementremained unchanged.

 

At December 31, 2007 and March 31, 2008, thesix month LIBOR rates were 4.6% and 2.6%, respectively, which resulted ininterest rates of approximately 5.8% and 3.9%, respectively. At December 31,2007 and March 31, 2008, we had $560.5 million and $855.5 million,respectively, of outstanding indebtedness under the EXCO Resources creditagreement.  The next scheduled borrowingbase redetermination date is October 1, 2008.

 

*EPOP credit agreement*

 

The EPOP credit agreement has a borrowing base of $1.3billion.  At December 31, 2007 and March 31,2008, the six month LIBOR rates were 4.6% and 2.6%, respectively, whichresulted in interest rates of approximately 6.1% and 4.4%, respectively. At December 31,2007 and March 31, 2008, we had approximately $1.1 billion and $1.2billion, respectively, of outstanding indebtedness under the EPOP creditagreement.  The next scheduled borrowingbase redetermination date is October 1, 2008.

 

**71⁄4%senior notes due January 15, 2011**

 

As of March 31,2008, $444.7 million in principal was outstanding on our 7 1⁄4% senior notes due January 15,2011, or Senior Notes. The unamortized premium on the Senior Notes at March 31,2008 was $10.1 million. The estimated fair value of the Senior Notes, based onquoted market prices for the Senior Notes, was $433.6 million on March 31,2008.

 

**11.****                               Condensed********consolidating financialstatements**

 

Set forth below are condensed consolidatingfinancial statements of EXCO, the guarantor subsidiaries and the non-guarantorsubsidiaries. The Senior Notes are jointly and severally guaranteed by some ofour subsidiaries (referred to as Guarantor Subsidiaries). Each of the GuarantorSubsidiaries are wholly-owned subsidiaries of EXCO Resources, or Resources, andthe guarantees are unconditional as it relates to the assets of the GuarantorSubsidiaries.  In 2007, certain subsidiaries,previously Guarantor Subsidiaries, were merged into and with Resources.

 

14

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In connection with the 2007 mergers discussedabove, the consolidating balance sheet as of December 31, 2007 and theconsolidated statements of operations and consolidating statements of cashflows for the three months ended March 31, 2007 have been restated toreflect the Guarantor Subsidiaries as if they had been part of Resources forall periods presented.

 

The following financial information presentsconsolidating financial statements, which include:

 

·                  Resources;

 

·                  the guarantor subsidiaries on acombined basis;

 

·                  the non-guarantor subsidiaries;

 

·                  elimination entries necessary toconsolidate Resources, the guarantor subsidiaries and the non-guarantorsubsidiaries; and

 

·                  EXCO on a consolidated basis.

 

Investments in subsidiaries are accounted for using the equity methodof accounting. The financial information for the guarantor and non-guarantorsubsidiaries are presented on a combined basis. The elimination entriesprimarily eliminate investments in subsidiaries and intercompany balances andtransactions.

 

15

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING BALANCE SHEET**

 

**December 31,2007**

 
| **(in thousands)**                                          | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                                       |       |          |       |                        |       |                              |       |             |       |             |       |
| Current assets:                                                  |       |          |       |                        |       |                              |       |             |       |             |       |
| Cash and cash equivalents                                        |       | $             | 23,069     |                        | $          | 7,250                             |       | $                | 25,191     |             | $          | — |   | $ | 55,510 |   |
| Other current assets                                             |       | 76,261        |       | 31,601                      |       | 147,928                           |       | —           |       | 255,790          |       |
| Total current assets                                             |       | 99,330        |       | 38,851                      |       | 173,119                           |       | —           |       | 311,300          |       |
| Oil and natural gas properties (full cost  accounting method):   |       |          |       |                        |       |                              |       |             |       |             |       |
| Unproved oil and natural gas properties                          |       | 92,680        |       | 17,142                      |       | 224,981                           |       | —           |       | 334,803          |       |
| Proved developed and undeveloped oil and  natural gas properties |       | 1,192,337     |       | 899,745                     |       | 2,833,971                         |       | —           |       | 4,926,053        |       |
| Allowance for depreciation, depletion and  amortization          |       | (112,548      | )          | (84,288                     | )          | (303,657                          | )          | —           |       | (500,493         | )          |
| Oil and natural gas properties, net                              |       | 1,172,469     |       | 832,599                     |       | 2,755,295                         |       | —           |       | 4,760,363        |       |
| Gas gathering, office and field equipment,  net                  |       | 7,449         |       | 32,665                      |       | 305,294                           |       | —           |       | 345,408          |       |
| Advance on pending acquisition                                   |       | 39,500        |       | —                      |       | —                            |       | —           |       | 39,500           |       |
| Deferred financing costs                                         |       | 7,619         |       | —                      |       | 12,787                            |       |             |       | 20,406           |       |
| Derivative financial instruments                                 |       | 851           |       | —                      |       | 1,640                             |       | —           |       | 2,491            |       |
| Goodwill                                                         |       | 110,800       |       | 164,469                     |       | 194,808                           |       | —           |       | 470,077          |       |
| Investments in and advances to affiliates                        |       | 2,525,487     |       | —                      |       | —                            |       | (2,525,487       | )          | —           |       |
| Other assets, net                                                |       | —        |       | 668                         |       | 5,558                             |       | —           |       | 6,226            |       |
| Total assets                                                     |       | $             | 3,963,505  |                        | $          | 1,069,252                         |       | $                | 3,448,501  |             | $          | (2,525,487 | ) | $ | 5,955,771 |   |
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Liabilities and shareholders’ equity**                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Current liabilities                                              |       | $             | 118,522    |                        | $          | 35,959                            |       | $                | 123,686    |             | $          | — |   | $ | 278,167 |   |
| Long-term debt                                                   |       | 1,016,171     |       | —                      |       | 1,083,000                         |       | —           |       | 2,099,171        |       |
| Deferred income taxes                                            |       | 105,531       |       | 165,867                     |       | —                            |       | —           |       | 271,398          |       |
| Other liabilities                                                |       | 77,189        |       | 67,197                      |       | 54,629                            |       | —           |       | 199,015          |       |
| Payable to parent                                                |       | (461,928      | )          | 468,607                     |       | (6,679                            | )          | —           |       | —           |       |
| Commitments and contingencies                                    |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Preferred stock                                                  |       | 1,992,278     |       | —                      |       | —                            |       | —           |       | 1,992,278        |       |
| Shareholders’ equity                                        |       | 1,115,742     |       | 331,622                     |       | 2,193,865                         |       | (2,525,487       | )          | 1,115,742        |       |
| Total liabilities and shareholders’ equity                  |       | $             | 3,963,505  |                        | $          | 1,069,252                         |       | $                | 3,448,501  |             | $          | (2,525,487 | ) | $ | 5,955,771 |   |

 

16

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**(Unaudited)**

 

**March 31,2008**

 
| **(in thousands)**                                          | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                                       |       |          |       |                        |       |                              |       |             |       |             |       |
| Current assets:                                                  |       |          |       |                        |       |                              |       |             |       |             |       |
| Cash and cash equivalents                                        |       | $             | 10,419     |                        | $          | 3,380                             |       | $                | (4,686     | )                | $          | — |   | $ | 9,113 |   |
| Other current assets                                             |       | 47,568        |       | 32,577                      |       | 139,722                           |       | —           |       | 219,867          |       |
| Total current assets                                             |       | 57,987        |       | 35,957                      |       | 135,036                           |       | —           |       | 228,980          |       |
| Oil and natural gas properties (full cost  accounting method):   |       |          |       |                        |       |                              |       |             |       |             |       |
| Unproved oil and natural gas properties                          |       | 92,789        |       | 61,640                      |       | 217,637                           |       | —           |       | 372,066          |       |
| Proved developed and undeveloped oil and  natural gas properties |       | 1,246,790     |       | 1,243,591                   |       | 2,957,240                         |       | —           |       | 5,447,621        |       |
| Allowance for depreciation, depletion and  amortization          |       | (137,066      | )          | (98,521                     | )          | (368,819                          | )          | —           |       | (604,406         | )          |
| Oil and natural gas properties, net                              |       | 1,202,513     |       | 1,206,710                   |       | 2,806,058                         |       | —           |       | 5,215,281        |       |
| Gas gathering, office and field equipment,  net                  |       | 7,597         |       | 52,687                      |       | 369,959                           |       | —           |       | 430,243          |       |
| Advance on pending acquisition                                   |       | 3,500         |       | —                      |       | —                            |       | —           |       | 3,500            |       |
| Deferred financing costs                                         |       | 7,890         |       | —                      |       | 12,059                            |       | —           |       | 19,949           |       |
| Derivative financial instruments                                 |       | 1,964         |       | —                      |       | 2,597                             |       | —           |       | 4,561            |       |
| Goodwill                                                         |       | 110,800       |       | 164,469                     |       | 194,808                           |       | —           |       | 470,077          |       |
| Investments in and advances to affiliates                        |       | 2,373,117     |       | —                      |       | —                            |       | (2,373,117       | )          | —           |       |
| Other assets, net                                                |       | —        |       | 682                         |       | 2,740                             |       | —           |       | 3,422            |       |
| Total assets                                                     |       | $             | 3,765,368  |                        | $          | 1,460,505                         |       | $                | 3,523,257  |             | $          | (2,373,117 | ) | $ | 6,376,013 |   |
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Liabilities and stockholders’ equity**                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Current liabilities                                              |       | 244,771       |       | 47,453                      |       | 292,645                           |       | —           |       | 584,869          |       |
| Long-term debt                                                   |       | 1,310,348     |       | —                      |       | 1,168,700                         |       | —           |       | 2,479,048        |       |
| Deferred income taxes                                            |       | (39,418       | )          | 160,523                     |       | —                            |       | —           |       | 121,105          |       |
| Other liabilities                                                |       | 100,249       |       | 84,141                      |       | 89,132                            |       | —           |       | 273,522          |       |
| Payable to parent                                                |       | (768,051      | )          | 848,081                     |       | (80,030                           | )          | —           |       | —           |       |
| Commitments and contingencies                                    |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Preferred stock                                                  |       | 1,992,278     |       | —                      |       | —                            |       | —           |       | 1,992,278        |       |
| Stockholders’ equity                                        |       | 925,191       |       | 320,307                     |       | 2,052,810                         |       | (2,373,117       | )          | 925,191          |       |
| Total liabilities and stockholders’ equity                  |       | $             | 3,765,368  |                        | $          | 1,460,505                         |       | $                | 3,523,257  |             | $          | (2,373,117 | ) | $ | 6,376,013 |   |

 

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**(Unaudited)**

 

**For thethree months ended March 31, 2007**

 
| ** **                                             | ** ** | ** **    | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | ** **    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **(in thousands)**                                | ** ** | **Resources** | ** ** | **subsidiaries** | ** ** | **subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Revenues and other income:**                         |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural gas                                    |       | $             | 28,928     |             | $          | 29,300           |       | $                | 60,267     |             | $          | — |   | $ | 118,495 |   |
| Loss on derivative financial instruments               |       | (13,588       | )          | (22,670          | )          | (59,761          | )          | —           |       | (96,019          | )          |
| Other income (loss)                                    |       | 9,737         |       | (7,388           | )          | 4,376            |       | —           |       | 6,725            |       |
| Equity in earnings of subsidiaries                     |       | (117,943      | )          | —           |       | —           |       | 117,943          |       | —           |       |
| Total revenues and other income                        |       | (92,866       | )          | (758             | )          | 4,882            |       | 117,943          |       | 29,201           |       |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Costs and expenses:**                                |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural gas production                         |       | 6,704         |       | 5,454            |       | 17,920           |       | —           |       | 30,078           |       |
| Gathering and transportation                           |       | 144           |       | 138              |       | 539              |       | —           |       | 821              |       |
| Depreciation, depletion and amortization               |       | 12,142        |       | 9,898            |       | 29,284           |       | —           |       | 51,324           |       |
| Accretion of discount on asset retirement  obligations |       | 248           |       | 474              |       | 221              |       | —           |       | 943              |       |
| General and administrative                             |       | 7,034         |       | 3,039            |       | 4,102            |       | —           |       | 14,175           |       |
| Interest                                               |       | 16,702        |       | —           |       | 60,007           |       | —           |       | 76,709           |       |
| Total costs and expenses                               |       | 42,974        |       | 19,003           |       | 112,073          |       | —           |       | 174,050          |       |
| Income (loss) before income taxes                      |       | (135,840      | )          | (19,761          | )          | (107,191         | )          | 117,943          |       | (144,849         | )          |
| Income tax benefit                                     |       | (48,143       | )          | (9,009           | )          | —           |       | —           |       | (57,152          | )          |
| Net income (loss)                                      |       | (87,697       | )          | (10,752          | )          | (107,191         | )          | 117,943          |       | (87,697          | )          |
| Preferred stock dividends                              |       | 1,136         |       | —           |       | —           |       | —           |       | 1,136            |       |
| Net income (loss) available to common  shareholders    |       | $             | (88,833    | )                | $          | (10,752          | )          | $                | (107,191   | )                | $          | 117,943 |   | $ | (88,833 | ) |

 

18

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**(Unaudited)**

 

**For thethree months ended March 31, 2008**

 
| ** **                                             | ** ** | ** **    | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | ** **    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **(in thousands)**                                | ** ** | **Resources** | ** ** | **subsidiaries** | ** ** | **subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Revenues and other income:**                         |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural gas                                    |       | $             | 99,789     |             | $          | 44,614           |       | $                | 173,287    |             | $          | — |   | $ | 317,690 |   |
| Loss on derivative financial instruments               |       | (111,487      | )          | (26,572          | )          | (203,135         | )          | —           |       | (341,194         | )          |
| Other income (loss)                                    |       | 7,443         |       | (6,551           | )          | 7,653            |       | —           |       | 8,545            |       |
| Equity in earnings of subsidiaries                     |       | (152,370      | )          | —           |       | —           |       | 152,370          |       | —           |       |
| Total revenues and other income                        |       | (156,625      | )          | 11,491           |       | (22,195          | )          | 152,370          |       | (14,959          | )          |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Costs and expenses:**                                |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural gas production                         |       | 18,243        |       | 7,813            |       | 26,425           |       | —           |       | 52,481           |       |
| Gathering and transportation                           |       | 58            |       | 606              |       | 2,467            |       | —           |       | 3,131            |       |
| Depreciation, depletion and amortization               |       | 25,086        |       | 15,184           |       | 68,947           |       | —           |       | 109,217          |       |
| Accretion of discount on asset retirement  obligations |       | 395           |       | 579              |       | 342              |       | —           |       | 1,316            |       |
| General and administrative                             |       | 14,198        |       | 3,969            |       | 4,460            |       | —           |       | 22,627           |       |
| Interest                                               |       | 19,801        |       | —           |       | 16,219           |       | —           |       | 36,020           |       |
| Total costs and expenses                               |       | 77,781        |       | 28,151           |       | 118,860          |       | —           |       | 224,792          |       |
| Income (loss) before income taxes                      |       | (234,406      | )          | (16,660          | )          | (141,055         | )          | 152,370          |       | (239,751         | )          |
| Income tax benefit                                     |       | (71,567       | )          | (5,345           | )          | —           |       | —           |       | (76,912          | )          |
| Net income (loss)                                      |       | (162,839      | )          | (11,315          | )          | (141,055         | )          | 152,370          |       | (162,839         | )          |
| Preferred stock dividends                              |       | (35,000       | )          | —           |       | —           |       | —           |       | (35,000          | )          |
| Net income (loss) available to common  shareholders    |       | $             | (197,839   | )                | $          | (11,315          | )          | $                | (141,055   | )                | $          | 152,370 |   | $ | (197,839 | ) |

 

19

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**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**(Unaudited)**

 

**For thethree months ended March 31, 2007**

 
| **(in thousands)**                               | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Operating Activities:**                             |       |          |       |                        |       |                              |       |             |       |             |       |
| Net cash provided by (used in) operating  activities  |       | $             | 5,663      |                        | $          | 19,939                            |       | $                | 6,949      |             | $          | — |   | $ | 32,551 |   |
| **Investing Activities:**                             |       |          |       |                        |       |                              |       |             |       |             |       |
| Additions to oil and natural gas  properties,         |       |          |       |                        |       |                              |       |             |       |             |       |
| gathering systems and equipment                       |       | (19,108       | )          | (10,764                     | )          | (1,460,078                        | )          | —           |       | (1,489,950       | )          |
| Proceeds from dispositions of property and  equipment |       | 129,561       |       | —                      |       | 2,033                             |       | —           |       | 131,594          |       |
| Advance on pending acquisition                        |       | (43,000       | )          | —                      |       | —                            |       | —           |       | (43,000          | )          |
| Advances/investments with affiliates                  |       | (1,653,258    | )          | (6,253                      | )          | 1,659,511                         |       | —           |       |             |       |
| Net cash provided by (used in) investing  activities  |       | (1,585,805    | )          | (17,017                     | )          | 201,466                           |       | —           |       | (1,401,356       | )          |
| **Financing Activities:**                             |       |          |       |                        |       |                              |       |             |       |             |       |
| Borrowings under credit agreements                    |       | 68,000        |       | —                      |       | 1,130,000                         |       | —           |       | 1,198,000        |       |
| Repayments under credit agreements                    |       | (352,000      | )          | —                      |       | (1,320,532                        | )          | —           |       | (1,672,532       | )          |
| Proceeds from issuance of common stock                |       | 817           |       | —                      |       | —                            |       | —           |       | 817              |       |
| Proceeds from issuance of preferred stock             |       | 2,000,000     |       | —                      |       | —                            |       |             |       | 2,000,000        |       |
| Payments for preferred stock issuance costs           |       | (525          | )          | —                      |       | —                            |       | —           |       | (525             | )          |
| Deferred financing costs and other                    |       | (349          | )          | —                      |       | (9,750                            | )          | —           |       | (10,099          | )          |
| Net cash provided by (used in) financing  activities  |       | 1,715,943     |       | —                      |       | (200,282                          | )          | —           |       | 1,515,661        |       |
| Net increase (decrease) in cash                       |       | 135,801       |       | 2,922                       |       | 8,133                             |       | —           |       | 146,856          |       |
| Cash at the beginning of the period                   |       | 6,522         |       | 6,233                       |       | 10,067                            |       | —           |       | 22,822           |       |
| Cash at end of period                                 |       | $             | 142,323    |                        | $          | 9,155                             |       | $                | 18,200     |             | $          | — |   | $ | 169,678 |   |

 

20

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** **

**EXCORESOURCES, INC.**

 

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**(Unaudited)**

 

**For thethree months ended March 31, 2008**

 
| **(in thousands)**                                                       | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| **Operating Activities:**                                                     |       |          |       |                        |       |                              |       |             |       |             |       |
| Net cash provided by (used in) operating  activities                          |       | $             | 55,745     |                        | $          | 19,522                            |       | $                | 124,243    |             | $          | — |   | $ | 199,510 |   |
| **Investing Activities:**                                                     |       |          |       |                        |       |                              |       |             |       |             |       |
| Additions to oil and natural gas  properties, gathering systems and equipment |       | (420,017      | )          | (13,730                     | )          | (168,920                          | )          | —           |       | (602,667         | )          |
| Proceeds from dispositions of property and  equipment                         |       | 1,073         |       | 44                          |       | 181                               |       | —           |       | 1,298            |       |
| Advance on pending acquisition                                                |       | (3,500        | )          | —                      |       | —                            |       | —           |       | (3,500           | )          |
| Advances/investments with affiliates                                          |       | 83,291        |       | (9,706                      | )          | (73,585                           | )          | —           |       |             |       |
| Net cash used in investing activities                                         |       | (339,153      | )          | (23,392                     | )          | (242,324                          | )          | —           |       | (604,869         | )          |
| **Financing Activities:**                                                     |       |          |       |                        |       |                              |       |             |       |             |       |
| Borrowings under credit agreements                                            |       | 405,000       |       | —                      |       | 95,700                            |       | —           |       | 500,700          |       |
| Repayments under credit agreements                                            |       | (110,000      | )          | —                      |       | (10,000                           | )          | —           |       | (120,000         | )          |
| Settlements of derivative financial  instruments with a financing element     |       | 7,937         |       | —                      |       | 2,530                             |       | —           |       | 10,467           |       |
| Proceeds from issuance of common stock                                        |       | 3,527         |       | —                      |       | —                            |       | —           |       | 3,527            |       |
| Payment of preferred stock dividends                                          |       | (35,000       | )          | —                      |       | —                            |       | —           |       | (35,000          | )          |
| Deferred financing costs and other                                            |       | (707          | )          | —                      |       | (25                               | )          |             |       | (732             | )          |
| Net cash provided by financing activities                                     |       | 270,757       |       | —                      |       | 88,205                            |       | —           |       | 358,962          |       |
| Net decrease in cash                                                          |       | (12,651       | )          | (3,870                      | )          | (29,876                           | )          | —           |       | (46,397          | )          |
| Cash at beginning of the period                                               |       | 23,069        |       | 7,250                       |       | 25,191                            |       | —           |       | 55,510           |       |
| Cash at end of period                                                         |       | $             | 10,418     |                        | $          | 3,380                             |       | $                | (4,685     | )                | $          | — |   | $ | 9,113 |   |

 

21

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*** ***

***Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations***

*** ***

**Forward-looking statements**

 

This quarterly report containsforward-looking statements, as defined in Section 27A of the SecuritiesAct of 1933, or the Securities Act, and Section 21E of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act. These forward-lookingstatements relate to, among other things, the following:

 

·    our future financial and operatingperformance and results;

 

·    our business strategy;

 

·    market prices;

 

·    our future derivative financialinstrument activities; and

 

·    our plans and forecasts.

 

We have based these forward-lookingstatements on our current assumptions, expectations and projections aboutfuture events.

 

We use the words “may,” “expect,” “anticipate,”“estimate,” “believe,” “continue,” “intend,” “plan,” “budget” and other similarwords to identify forward-looking statements. You should read statements thatcontain these words carefully because they discuss future expectations, containprojections of results of operations or of our financial condition and/or stateother “forward-looking” information. We do not undertake any obligation toupdate or revise publicly any forward-looking statements, except as required bylaw. These statements also involve risks and uncertainties that could cause ouractual results or financial condition to materially differ from ourexpectations in this quarterly report, including, but not limited to:

 

·                  fluctuations inprices of oil and natural gas;

 

·                  imports offoreign oil and natural gas, including liquefied natural gas;

 

·                  future capitalrequirements and availability of financing;

 

·                  estimates ofreserves and economic assumptions used in connection with our acquisitions;

 

·                  geologicalconcentration of our reserves;

 

·                  risks associatedwith drilling and operating wells;

 

·                  exploratoryrisks, including our Marcellus and Huron shale plays in Appalachia and theHaynesville shale play in East Texas/North Louisiana;

 

·                  risks associatedwith the operation of natural gas pipelines and gathering systems;

 

·                  discovery,acquisition, development and replacement of oil and natural gas reserves;

 

·                  cash flow andliquidity;

 

·                  impacts of our March 2007private placement of preferred stock and the impact of dividends on our capitalresources and liquidity;

 

·                  timing andamount of future production of oil and natural gas;

 

·                  availability ofdrilling and production equipment;

 

22

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·                  marketing of oiland natural gas;

 

·                  developments inoil-producing and natural gas-producing countries;

 

·                  title to ourproperties;

 

·                  litigation;

 

·                  competition;

 

·                  general economicconditions, including costs associated with drilling and operations of ourproperties;

 

·                  governmentalregulations;

 

·                  receipt ofamounts owed to us by purchasers of our production and counterparties to ourderivative financial instruments;

 

·                  deciding whetheror not to enter into derivative financial instruments;

 

·                  events similarto those of September 11, 2001;

 

·                  actions of thirdparty co-owners of interests in properties in which we also own an interest;

 

·                  fluctuations ininterest rates; and

 

·                  our ability toeffectively integrate companies and properties that we acquire.

 

We believe that it is important tocommunicate our expectations of future performance to our investors. However,events may occur in the future that we are unable to accurately predict, orover which we have no control. You are cautioned not to place undue reliance ona forward-looking statement. When considering our forward-looking statements,keep in mind the risk factors and other cautionary statements in this quarterlyreport, and the risk factors included in our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

Our revenues, operating results, financialcondition and ability to borrow funds or obtain additional capital dependsubstantially on prevailing prices for oil and natural gas. Declines in oil ornatural gas prices may have a  materialadverse affect our financial condition, liquidity, ability to obtain financingand operating results. Lower oil or natural gas prices also may reduce the amountof oil or natural gas that we can produce economically. A decline in oil ornatural gas prices could have a material adverse effect on the estimated valueand estimated quantities of our oil and natural gas reserves, our ability tofund our operations and our financial condition, cash flow, results ofoperations and access to capital. Historically, oil and natural gas prices andmarkets have been volatile, with prices fluctuating widely, and they are likelyto continue to be volatile.

 

**Overview**

 

We are an independent oil and natural gascompany engaged in the acquisition, development and exploitation of onshoreNorth American oil and natural gas properties. We expect to continue to grow byleveraging our management team’s experience, exploiting our multi-yearinventory of development drilling locations and exploitation projects, andselectively pursuing acquisitions that meet our strategic and financialobjectives. We employ the use of debt and equity along with a comprehensivederivative financial instrument program to support our acquisition strategy.This approach enhances our ability to execute our business plan over the entirecommodity price cycle, protect our return on investments, and manage ourcapital structure.

 

Oil and natural gas prices have beenvolatile. Significant factors that will impact near-term commodity pricesinclude political developments in Iraq, Iran and other oil producing countries,the extent to which members of the OPEC and other oil exporting nations areable to manage oil supply through export quotas and variations in key NorthAmerican natural 

 

23

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gas and refined products supply and demand indicators. A substantialportion of our estimated production is currently covered by derivativefinancial instruments through 2009, and we have adopted a commodity price riskmanagement program under which we intend to enter into additional derivativefinancial instruments that will cover substantial percentages of our estimatedproduction for the next three years to mitigate the impact of price volatilityon our oil and natural gas reserves.

 

The volatility of commodity prices in recentyears has resulted in increased drilling activity and demand for drilling, oilcountry tubular goods and operating services and equipment in our operatingareas. Due to the expected continued favorable commodity price environment andrelated demand pressures, we anticipate drilling, service and labor costs, aswell as costs of equipment and raw materials, to remain at or exceed the levelsexperienced in 2007.

 

Our 2008 capital expenditure budget, asamended in March 2008, totals $800.0 million, which includes $763.0million for drilling, exploitation and production operations, $19.0 million formidstream projects and $18.0 million for corporate projects.  The increase in the upstream operationscapital expenditure budget reflects expected significant acreage acquisitionsand drilling in the Marcellus and Huron shales in Appalachia.  In addition, we supplemented our developmentdrilling budget for our February 2008 acquisition of shallow producing andundeveloped oil and natural gas properties from EOG Resources, Inc., orthe Appalachian Acquisition. We also plan to seek Board approval for anincrease in our capital budget for acreage acquisition and drilling in theHaynesville shale in East Texas/North Louisiana. We do not budget foracquisitions as these transactions are opportunistic in nature. Our futureearnings and cash flows are dependent upon our ability to manage our overallcost structure to a level that allows for profitable production.

 

Like all oil and natural gas productioncompanies, we face the challenge of natural production declines. Oil andnatural gas production from a given well naturally decreases over time. Weattempt to overcome this natural decline by drilling to develop and identifyadditional reserves and by acquisitions. Our future growth will depend upon ourability to continue to add oil and natural gas reserves in excess of productionat a reasonable cost. We will maintain our focus on the costs of addingreserves through drilling and acquisitions as well as the costs necessary toproduce such reserves.

 

On February 20,2008, we acquired oil and natural gas properties including approximately 2,500producing wells, 2,000 shallow undrilled locations and 16 Mmcfe/d of netproduction in the Appalachian Acquisition. The purchase price, afterpreliminary closing adjustments of $7.4 million, was $388.4 millionand was financed with the EXCO Resources credit agreement.

 

On March 11, 2008, we acquired agathering system in East Texas, or the Gathering System Acquisition, forapproximately $55.6 million, net of preliminary purchase price adjustments.

 

We continue to face the challenge offinancing future acquisitions. In connection with our 2007 and 2008acquisitions, we amended our credit agreements to increase our borrowingcapacity to an aggregate of approximately $2.5 billion as of March 31,2008.  The credit agreement of ourwholly-owned unrestricted subsidiary, EXCO Partners Operating Partnership, orEPOP, which holds all of our assets located in East Texas/North Louisiana, orthe EPOP Credit Agreement, provides for an aggregate borrowing base of$1.3 billion, of which approximately $1.2 billion and $1.1 billion wasdrawn as of March 31, 2008 and May 1, 2008, respectively. The EXCOResources credit agreement as amended and restated on March 20, 2008, orthe EXCO Resources Credit Agreement, to reflect the Appalachian Acquisition,increased the borrowing base to approximately $1.2 billion.  As of March 31, 2008, outstandingborrowings on the EXCO Resources Credit Agreement were $855.5 million and $1.0billion as of May 1, 2008. With these credit agreements, we believe ourunused borrowing capacity as of May 1, 2008 of approximately $365.2million will be sufficient to meet our commitments. Funding for futureacquisitions may require additional sources of financing, which may not beavailable.

 

**Critical accounting policies**

 

We consideraccounting policies related to our estimates of assets and liabilities acquiredin acquisitions, proved reserves, accounting for derivatives, businesscombinations, share-based payments, accounting for oil and natural gasproperties, goodwill, asset retirement obligations and accounting for incometaxes as critical accounting policies. The policies include significantestimates made by management using information available at the time theestimates are made. However, these estimates could change materially ifdifferent information or assumptions were used. These policies are summarizedin Management’s Discussion and Analysis of Financial Condition and Results ofOperations in our Annual Report on Form 10-K for the year ended December 31,2007.

 

24

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We adopted Financial Accounting Standards Board, orFASB, Statement of Financial Accounting Standards, or SFAS, No. 157, “FairValue Measurements,” or SFAS No. 157 on January 1, 2008.  SFAS No. 157 defines fair value,establishes a framework for measuring fair value and provides for expandeddisclosure of information about fair value measurements.  Beginning with the first quarter of 2008, werevised our computations of the fair value of our derivative financialinstruments related to oil and natural gas sales to reflect the requirementsoutlined in SFAS No. 157.  As theimpact of SFAS No. 157 affects only our non-cash mark-to-marketactivities, we do not consider the adoption of the statement to be material toour results of operations or resources and liquidity.

 

**Recent accounting pronouncements**

** **

In September 2006, the FASB issued SFAS No. 157which defines fair value, establishes a framework for measuring fair value inGAAP and expands disclosures about fair value measurements. SFAS No. 157is effective for fiscal years beginning after November 15, 2007 andinterim periods within those fiscal years for financial instruments.  FASB Financial Staff Position No. FAS157-2 deferred implementation for other non-financial assets and liabilitiesfor one year.  Examples of non-financialassets and liabilities are asset retirement obligations and  non-financial assets and liabilitiesinitially measured at fair value in a business combination.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities,” or SFAS No. 161.SFAS No. 161 requires enhanced disclosure about the fair value ofderivative instruments and their gains or losses in tabular format andinformation about credit-risk-related contingent features in derivativeagreements, counterparty credit risk, and the company’s strategies andobjectives for using derivative instruments. SFAS No. 161 is effective forfinancial statements issued for fiscal years beginning after December 15,2008, and as such, will be adopted by us on January 1, 2009. We arecurrently evaluating the effect of adopting SFAS No. 161 on our financialstatements.

 

**Our results of operations**

 

A summary of key financial data for the threemonths ended March 31, 2007 and 2008 related to our results of operationsis presented below:

 
| ** **                                                                                              | ** ** | **Three months ended** | ** ** | **Quarter to**     | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                                              | ** ** | **March 31,**               | ** ** | **quarter change** | ** ** |
| **(dollars in thousands, except prices and per unit expenses)** | ** ** | **2007**                         | ** ** | **2008**                | ** ** | **2007 - 2008** | ** ** |
| **Production:**                                                                                         |       |                             |       |                    |       |   |   |
| Oil (Mbbls)                                                                                             |       | 275                              |       | 507                     |       | 232 |   |
| Natural gas (Mmcf)                                                                                      |       | 15,663                           |       | 32,049                  |       | 16,386 |   |
| Total production (Mmcfe)                                                                                |       | 17,313                           |       | 35,091                  |       | 17,778 |   |
| **Oil and natural gas revenues before  derivative financial instrument activities:**                    |       |                             |       |                    |       |   |   |
| Oil revenues                                                                                            |       | $                                | 15,105     |                    | $          | 49,017 |   | $ | 33,912 |   |
| Natural gas sales                                                                                       |       | 103,390                          |       | 268,673                 |       | 165,283 |   |
| Total oil and natural gas sales                                                                         |       | $                                | 118,495    |                    | $          | 317,690 |   | $ | 199,195 |   |
| **Other income:**                                                                                       |       |                             |       |                    |       |   |   |
| Pipeline and marketing                                                                                  |       | $                                | 5,345      |                    | $          | 7,427 |   | $ | 2,082 |   |
| Interest and other                                                                                      |       | 1,380                            |       | 1,118                   |       | (262 | ) |
| Total other income                                                                                      |       | $                                | 6,725      |                    | $          | 8,545 |   | $ | 1,820 |   |
| **Oil and natural gas derivative financial  instruments:**                                              |       |                             |       |                    |       |   |   |
| Cash settlements on derivative financial  instruments                                                   |       | $                                | 32,073     |                    | $          | 3,015 |   | $ | (29,058 | ) |
| Non-cash change in fair value of derivative  financial instruments                                      |       | (128,092                         | )          | (344,209                | )          | (216,117 | ) |
| Total derivative financial instrument  activities                                                       |       | $                                | (96,019    | )                       | $          | (341,194 | ) | $ | (245,175 | ) |
| **Average sales price (before cash  settlements of derivative financial instruments):**                 |       |                             |       |                    |       |   |   |
| Oil (Bbl)                                                                                               |       | $                                | 54.93      |                    | $          | 96.68 |   | $ | 41.75 |   |
| Natural gas (per Mcf)                                                                                   |       | 6.60                             |       | 8.38                    |       | 1.78 |   |
| Natural gas equivalent (per Mcfe)                                                                       |       | 6.84                             |       | 9.05                    |       | 2.21 |   |
| **Oil and natural gas production costs:**                                                               |       |                             |       |                    |       |   |   |
| Oil and natural gas operating costs                                                                     |       | $                                | 21,702     |                    | $          | 33,171 |   | $ | 11,469 |   |
| Gathering and transportation                                                                            |       | 821                              |       | 3,131                   |       | 2,310 |   |
| Production and ad valorem taxes                                                                         |       | 8,376                            |       | 19,310                  |       | 10,934 |   |
| Depletion                                                                                               |       | 48,416                           |       | 103,912                 |       | 55,496 |   |
| Depreciation and amortization                                                                           |       | 2,908                            |       | 5,305                   |       | 2,397 |   |
| General and administrative                                                                              |       | 14,175                           |       | 22,627                  |       | 8,452 |   |
| Interest expense, including impacts of  interest rate swaps                                             |       | 76,709                           |       | 36,020                  |       | (40,689 | ) |
| **Oil and natural gas production costs (per  Mcfe):**                                                   |       |                             |       |                    |       |   |   |
| Oil and natural gas operating costs                                                                     |       | $                                | 1.25       |                    | $          | 0.95 |   | $ | (0.30 | ) |
| Gathering and transportation                                                                            |       | 0.05                             |       | 0.09                    |       | 0.04 |   |
| Production and ad valorem taxes                                                                         |       | 0.48                             |       | 0.55                    |       | 0.07 |   |
| Depletion                                                                                               |       | 2.80                             |       | 2.96                    |       | 0.16 |   |
| Depreciation and amortization                                                                           |       | 0.17                             |       | 0.15                    |       | (0.02 | ) |
| General and administrative                                                                              |       | 0.82                             |       | 0.64                    |       | (0.18 | ) |
| **Net loss**                                                                                            |       | $                                | (87,697    | )                       | $          | (162,839 | ) | $ | (75,142 | ) |

 

25

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The following is a discussion of ourfinancial condition and results of operations for the three months ended March 31,2007 and 2008.

 

The comparability of our results ofoperations from period to period is impacted by:

 

·                  property acquisitions in the Vernon Field ofLouisiana, or the Vernon Acquisition, on March 30, 2007, propertieslocated in the Mid-Continent region in May 2007, or the Southern GasAcquisition and the Appalachian Acquisition in February 2008;

 

·                  dispositions of oil and natural gas properties,primarily the sale of our non-operating interests in the Cement Field inOklahoma in July 2007;

 

·                  significant changes in the amount of our long-termdebt and the issuance of $2.0 billion of preferred stock related to the VernonAcquisition, the Southern Gas Acquisition and the Appalachian Acquisition;

 

·                  changes in proved reserves and their impact ondepletion;

 

·                  fluctuations in prices of oil and natural gas due tothe use of mark-to-market accounting for our derivative financial instruments;and

 

·                  fluctuations in oil and natural gas prices whichimpact our oil and natural gas reserves, revenues and ceiling test results andour derivative financial instruments.

 

***General***

 

The availability of a ready market for oiland natural gas and the prices of oil and natural gas are dependent upon anumber of factors that are beyond our control. These factors include, amongother things:

 

·                  the level of domestic production and economicactivity;

 

·                  the availability of imported oil and natural gas;

 

·                  actions taken by foreign oil producing nations;

 

·                  the cost and availability of natural gas pipelineswith adequate capacity and other transportation facilities;

 

·                  the cost and availability of other competitivefuels, fluctuating and seasonal demand for oil, natural gas and refinedproducts; and

 

·                  the extent of governmental regulation and taxation(under both present and future legislation) of the production, refining,transportation, pricing, use and allocation of oil, natural gas, refinedproducts and substitute fuels.

 

Accordingly, in light of the manyuncertainties affecting the supply and demand for oil, natural gas and refinedpetroleum products, we cannot accurately predict the prices or marketability ofoil and natural gas from any producing well in which we have or may acquire aninterest.

 

***Marketingarrangements***

 

We produce oil and natural gas. We do notrefine or process the oil we produce.

 

We sell the majority of the oil we produceunder short-term contracts using market sensitive pricing. The majority of ourcontracts are based on NYMEX pricing, which is typically calculated as theaverage of the daily closing prices of oil to be delivered one month in thefuture. We also sell a portion of our oil at F.O.B. field prices posted by theprincipal purchaser of oil where our producing properties are located. Oursales contracts are of a type common within the industry, and we usuallynegotiate a separate contract for each property. Generally, we sell our oil topurchasers and refiners near the areas of our producing properties.

 

We sell the majority of our natural gas underindividually negotiated gas purchase contracts using market sensitive pricing.Our sales contracts vary in length from spot market sales of a single day toterm agreements that may extend for a

 

26

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year or more. Our natural gas customers include utilities, natural gasmarketing companies and a variety of commercial and industrial end users. Thenatural gas purchase contracts define the terms and conditions unique to eachof these sales. The price received for natural gas sold on the spot marketvaries daily, reflecting changing market conditions. We also gather andtransport natural gas for other producers for which we are compensated.

 

We may not be able to market all of the oiland natural gas we produce. If our oil and natural gas can be marketed, we maynot be able to negotiate favorable price and contractual terms. Changes in oilor natural gas prices may significantly affect our revenues, cash flows, thevalue of our oil and natural gas properties and the estimates of recoverableoil and natural gas contained in our properties. Further, significant declinesin the prices of oil or natural gas may have a material adverse effect on our businessand on our financial condition.

 

We engage in oil and natural gas productionactivities in geographic regions where, from time to time, the supply of oil ornatural gas available for delivery exceeds the demand. In this situation,companies purchasing oil or natural gas in these areas reduce the amount of oilor natural gas that they purchase from us. If we cannot locate other buyers forour production or for any of our newly discovered oil or natural gas reserves,we may shut-in our oil or natural gas wells for periods of time. If thisoccurs, we may incur additional payment obligations under our oil and naturalgas leases and, under certain circumstances, the oil and natural gas leasesmight be terminated.

 

**Summary**

 

For the three months ended March 31,2008, we reported a net loss available to common shareholders of $197.8 millioncompared to a net loss available to common shareholders of $88.8 million forthe quarter ended March 31, 2007.

 

The impact of the Vernon Acquisition, theSouthern Gas Acquisition and other acquisitions in 2007 increased ourproduction, revenues, operating expenses and general and administrativeexpenses when compared to the prior year. Derivative financial instruments alsohave a significant impact on our results of operations, as we do not designateour derivative financial instruments as hedges. As a result, we mark thenon-cash changes in the fair value of our derivatives to market at the end ofeach reporting period, which can cause our reported net income to fluctuate dramaticallywhen oil and natural gas prices experience significant increases, as was thecase in the first quarter of 2008, or significant decreases.  While net income is affected by thismark-to-market treatment, a substantial portion of these gains or losses arenon-cash so the impact on our capital resources and liquidity is typicallyminimal. For the three months ended March 31, 2007, we incurred lossesfrom our derivative financial instruments of $96.0 million, representing incomefrom cash settlements of $32.1 million and $128.1 million of unrealizedlosses.  For the three months ended March 31,2008, we recognized losses of $341.2 million on our derivative financialinstruments, representing income from cash settlements of $3.0 million and$344.2 million of unrealized losses.

 

**Total revenues**

 

Our total revenues are comprised of sales ofoil and natural gas, settlements and changes in the fair value of ourderivative financial instruments and other income.  Due to significant increases in the prices ofoil and natural gas during the first quarters of 2007 and 2008 our changes inthe fair value of our derivative financial instruments resulted in negativerevenue adjustments of $96.0 million and $341.2 million for the three monthsended March 31, 2007 and 2008, respectively.  For the first quarter of 2008, the impact ofour derivative financial instruments resulted in our total revenues being anegative $15.0 million.  The $341.2 millionnegative adjustment for the 2008 quarter includes $3.0 million of cash receivedfrom our counterparties to settle derivatives and $344.2 million of non-cashchanges in the fair value of our derivative financial instruments.  Excluding the non-cash components resultingfrom mark-to-market changes in the fair value of our derivative financialinstruments, our total revenues for the three months ended March 31, 2007and 2008 were $157.3 million and $329.3 million, respectively.

 

***Oil and natural gasrevenues, production and prices***

 

For the three months ended March 31,2008, total oil and natural gas revenues, excluding the impact of derivativefinancial instruments, were $317.7 million, a 168.1% increase over the threemonths ended March 31, 2007 total oil and natural gas revenues of $118.5million. Total equivalent production volumes were 35.1 Bcfe for the threemonths ended March 31, 2008, a 102.7% increase over the prior yearscomparable period production of 17.3 Bcfe. The increased volumes are primarilyattributable to the Vernon Acquisition and the Southern Gas Acquisition, with asmaller contribution from the Appalachian Acquisition. The increased volumesfrom acquisitions were partially offset by property sales of our Cement

 

27

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field and other divestitures. The increase in production volumes for the three months ended March 31,2008 compared to the same period in 2007 is presented below:

 

·                  the Vernon Acquisition which closed on March 30,2007, produced 11.4 Bcfe for the three months ended March 31, 2008compared with 0.3 Bcfe in the prior year’s quarter, an increase of 11.1 Bcfe;

 

·                   the Southern Gas Acquisition which closed on May 2,2007, contributed an increase of 4.3 Bcfe for the three months ended March 31,2008;

 

·                   increased volumes of 1.1 Bcfe from our incrementalacquisitions in the Sugg Ranch area in West Texas;

 

·                   organic growth from our drilling and other producingregions of approximately 1.9 Bcfe; and

 

·                  the Appalachian Acquisition on February 20,2008, which increased production by 0.6 Bcfe in our Appalachian region.

 

The aforementioned increases were partially offset by reduced volumesof 1.2 Bcfe resulting from sales of producing properties during 2007,particularly from the Cement Field in Oklahoma.

 

The average sales price, excluding the impactof derivative financial instruments, increased for oil during the three monthsended March 31, 2008 compared to the three months ended March 31,2007 by $41.75 per Bbl (to $96.68 from $54.93) or 76.0%. The average naturalgas sales prices, excluding the impact of derivative financial instruments,were $8.38, an increase of 27.0% for the three months ended March 31, 2008compared with $6.60 per Mcf for the three months ended March 31, 2007.

 

***Derivative financial instruments***

 

We use oil and natural gas derivatives andfinancial risk management instruments to manage exposures to commodity priceand interest rate fluctuations.  We donot designate these instruments as hedging instruments for financial accountingpurposes, and, as a result, we recognize the change in the respectiveinstrument’s fair value currently in earnings, as a gain or loss on oil andnatural gas derivatives and interest expense on financial risk managementinstruments.

 

Our cash settlements from derivativefinancial instruments increased revenue by $3.0 million for the three monthsended March 31, 2008 compared with an increase of $32.1 million from cashsettlements for the three months ended March 31, 2007.

 

For the three months ended March 31,2008, we recognized a decrease in revenue of $344.2 million from thechange in the fair value of our oil and natural gas derivative financialinstruments.  For the three months ended March 31,2007, we recognized a decrease in revenue of $128.1 million from the change inthe fair value of our oil and natural gas derivative financial instruments. Weexpect that our revenues will continue to be significantly impacted in futureperiods by changes in the fair value of our derivative financial instruments asa result of the volatility in oil and natural gas prices.  In addition, prices for oil and natural gashave been increasing during 2008 and in the upcoming months we expect our cashsettlements on our derivatives to decrease revenues as a result of increases inoil and natural gas prices that have occurred during the second quarter of2008.  For the remainder of 2008,approximately 78% of our expected production volumes are subject to oil andnatural gas derivative contracts.  Inaddition to our oil and natural gas derivative financial instruments, weentered into interest rate swaps in February 2008.  The impact of these derivative financialinstruments are presented on the following table:

 

28

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| ** **                                                          | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **March 31,**               | ** ** |
| **(in thousands)**                                             | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| **Oil and natural gas derivative financial  instruments:**          |       |                             |       |   |   |
| Cash settlements on derivative financial  instruments               |       | $                                | 32,073     |   | $ | 3,015 |   |
| Non-cash change in fair value of derivative  financial instruments  |       | (128,092                         | )          | (344,209 | ) |
| Total oil and natural gas derivative loss  on financial instruments |       | $                                | (96,019    | ) | $ | (341,194 | ) |
|                                                                |       |                             |       |   |   |
| **Interest rate swaps:**                                            |       |                             |       |   |   |
| Interest rate swaps settlement receipts                             |       | $                                | —     |   | $ | 378 |   |
| Fair market value adjustment on interest  rate swaps                |       | —                           |       | (3,631 | ) |
| Total interest rate swaps                                           |       | $                                | —     |   | $ | (3,253 | ) |

 

***Other income***

 

Our other income increased to $8.5 millionfor the three months ended March 31, 2008 from $6.7 million for the sameperiod in the prior year. Our income from natural gas gathering andtransportation activities for the three month period ended March 31, 2008increased approximately $2.1 million when compared to the same period in theprior year, which is due primarily to mid-stream activities from the VernonAcquisition which closed in March 2007. We closed an acquisition of agathering system in March 2008 and are constructing an extension to ourexisting pipeline system which we expect to begin a portion of operationsduring the second quarter of 2008 and become fully operational by the end of2008.  We anticipate this recentacquisition, combined with additional third party throughput from the pipelineextension to increase our other income from our gathering and transportationassets in the upcoming quarters.

 

***Oil and natural gasoperating costs***

 

Our oil and natural gas operating costs forthe three months ended March 31, 2008 increased $11.5 million, or 52.8%from the same period in 2007. The increase in oil and natural gas operatingcosts was primarily attributable to:

 

·                  the Vernon Acquisition, which closed on March 30,2007, added production expenses of $3.7 million for the three months ended March 31,2008 when compared to an insignificant amount of expenses during the sameperiod in 2007;

 

·                  the Southern Gas Acquisition, which closed on May 2,2007, added $5.3 million of production expenses for the three months ended March 31,2008;

 

·                  the Appalachian Acquisition on February 20,2008, added $0.6 million of production expenses for the three months ended March 31,2008;

 

·                  increased production expenses of approximately $1.2million in our Sugg Ranch area primarily due to the acquisition of incrementalworking interests in that area;

 

·                  $1.0 million of non-cash stock-based compensationexpenses;

 

·                  a general increase in the cost of goods and services usedin our oil and natural gas operations; and

 

·                  new wells added through our development and exploitationcapital program.

 

The oil and natural gas operating costs perunit decreased from $1.25 per Mcfe for the three months ended March 31,2007 to $0.95 per Mcfe, or 24%, for the three months ended March 31,2008.  This decrease in operating costsper unit reflects the impact of significant volumes from the VernonAcquisition, which has relatively low operating expenses.  This per unit decrease in operating costs ispartially offset by the general increase in the costs of goods and servicesused in our operations and an increase in workover activities.

 

***Gathering and transportation***

 

We generally sell oil and natural gas undertwo types of agreements which are common in our industry.  Both types

 

29

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of agreements include a transportation charge.  One is a netback arrangement, under which wesell oil or natural gas at the wellhead and collect a price, net of thetransportation incurred by the purchaser. In this case, we record sales at the price received from the purchaser,net of the transportation costs.  Underthe other arrangement, we sell oil or natural gas at a specific delivery point,pay transportation to a third party and receive proceeds from the purchaserwith no transportation deduction.  Inthis case, we record the transportation cost as gathering and transportationexpense.  Due to these two distinctselling arrangements, our computed realized prices, before the impact ofderivative financial instruments, contain revenues which are reported under twoseparate bases.  Transportation andgathering expenses totaled $3.1 million for the three months ended March 31,2008 and $0.8 million for the three months ended March 31, 2007, or $0.09and $0.05 per Mcfe, respectively.  As ourmarketing efforts expand, our total gathering and transportation expenses willalso increase.

 

***Production and ad valorem taxes***

 

Production and ad valorem taxes for the threemonths ended March 31, 2008 increased by $10.9 million, or 130.5%, overthe same period in 2007. This increase is primarily attributable to higher oiland natural gas volumes and prices resulting from acquisitions and our organicgrowth. On a percentage of revenue basis, before the impact of derivativefinancial instruments, production and ad valorem taxes were 6.1% of gross oiland natural gas sales for the three months ended March 31, 2008, comparedwith 7.1% during the same period in the prior year. The decrease in the overalltax rate is primarily the result of a statutory severance tax rate reduction inthe state of Louisiana, which lowered the rate from $0.37 per Mcf for 2007 to$0.27 per Mcf for 2008.  The lowerseverance and ad valorem tax rate in Louisiana impacted our consolidatedseverance tax rate in 2008, when measured as a percentage of revenue due to asignificant increase in Louisiana production volume resulting from the VernonAcquisition and development drilling in North Louisiana.  Production taxes are set by state and localgovernments and vary as to the tax rate and the value to which that rate isapplied. Further, ad valorem taxes in Texas and other states are basedpartially on the value of oil and natural gas reserves, which have increasedsignificantly since the beginning of 2007 due to acquisitions. These taxes aregenerally based upon the price received for production.

 

***Depletion***

 

Our depletion costs for the three monthsended March 31, 2008 increased by $55.5 million, or 114.6%, from the sameperiod in 2007. The primary reason for the increase was a 102.7% increase inoil and natural gas sales volumes for the three months ended March 31,2008.  This increase was directly relatedto the Vernon Acquisition and the Southern Gas Acquisition which caused anincrease in the per unit depletion rate from $2.80 per Mcfe for the threemonths ended March 31, 2007 to $2.96 per Mcfe for the three months ended March 31,2008.

 

***Depreciation and amortization***

 

Our depreciation and amortization costs forthe three months ended March 31, 2008 increased by $2.4 million, or 82.4%,from the same period in 2007. The primary reason for the increase was from theincrease in our depreciable asset base for the three months ended March 31,2008, which was directly related to our 2007 acquisitions.

 

***General and administrative***

 

Our general and administrative costs for thethree months ended March 31, 2008 was $22.6 million, or $0.64 per Mcfecompared to $14.2 million, or $0.82 per Mcfe for the same period in 2007, anincrease of $8.5 million, or 59.6%. Significant components of the increaseinclude the following items:

 

·                  increased personnel costs of $6.1 million due toadditional headcount of 227 employees related primarily to our acquisitions;

 

·                  an increase in share-based compensation costs of $0.1 million dueprimarily to additional headcount;

 

·                  increased consulting and contract labor costs of$0.5 million due primarily to acquisitions and Sarbanes-Oxley compliance;

 

·                  increased information technology related costs of$0.9 million primarily due to the information technology requirementsattributable to our increased headcount;

 

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·                  increased legal fees, including $3.7 millionattributable to our proposed master limited partnership offering, which waswithdrawn in January 2008;

 

·                  increased occupancy costs of $0.3 million resultingfrom expansion of corporate facilities;

 

·                  increased franchise tax of $1.0 million due tochanges in the jurisdictional make-up of our properties; and

 

·                    other expenses related to the overall growth of ourbusiness.

 

Partially offsetting the above increases in general and administrativecosts were increased operator overhead recoveries of $5.7 million for the threemonths ended March 31, 2008, a $2.8 million increase from the same periodin the prior year.  Additionally, wecapitalized approximately $2.2 million in salary costs to our full cost pool,which was $1.3 million higher than the amount capitalized in the same period in2007.  These increases from the sameperiod in the prior year are the result of the increased personnel, primarilyattributable to the Vernon Acquisition and the Southern Gas Acquisition.

 

The following table presents the components of our general andadministrative expenses:

 
| ** **                                       | ** ** | **For the three months ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                       | ** ** | **March 31,**                                 | ** ** |
| **(in thousands)**                          | ** ** | **2007**                                           | ** ** | **2008** | ** ** |
| Gross general and administrative expenses        |       | $                                                  | 18,048     |   | $ | 30,521 |   |
| Capitalized general and administrative  expenses |       | (966                                               | )          | (2,219 | ) |
| Reimbursed general and administrative  expenses  |       | (2,907                                             | )          | (5,675 | ) |
| Net general and administrative expenses          |       | $                                                  | 14,175     |   | $ | 22,627 |   |

 

***Interestexpense***

 

Our interest expense for the three monthsended March 31, 2008 decreased $40.7 million from the same period in 2007.The decrease is primarily due to the one-time charges taken in 2007 that wereassociated with the amended credit agreements used to fund the VernonAcquisition and the Southern Gas Acquisition. The following table presents the components of our interest expense:

 
| ** **                                                            | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **March 31,**               | ** ** |
| **(in thousands)**                                               | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| **Interest expense:**                                                 |       |                             |       |   |   |
| 7 1/4% senior notes due 2011                                          |       | $                                | 7,289      |   | $ | 7,238 |   |
| EXCO Credit Agreement                                                 |       | 6,302                            |       | 9,263 |   |
| EPOP Credit Agreement                                                 |       | 11,504                           |       | 14,566 |   |
| EPOP term loan                                                        |       | 18,049                           |       | — |   |
| Amortization of deferred financing costs on  EXCO Credit Agreement    |       | 2,989                            |       | 476 |   |
| Amortization and write-off of deferred financing  costs on EPOP loans |       | 29,111                           |       | 753 |   |
| Interest rate swaps settlements                                       |       | —                           |       | (378 | ) |
| Fair market value adjustment on interest  rate swaps                  |       | —                           |       | 3,631 |   |
| Other interest expense                                                |       | 1,465                            |       | 471 |   |
| Total interest expense                                                |       | $                                | 76,709     |   | $ | 36,020 |   |

 

***Income taxes***

 

Our effective income tax rate for the threemonths ended March 31, 2008 was a benefit of 32.1%. Our effective incometax rate for the three months ended March 31, 2007 was a benefit of 39.5%.A substantial portion of our stock-based compensation included in our resultsof operations for the three months ended March 31, 2008 are in the form ofincentive stock options which are not deductible for tax purposes until adisqualifying event occurs. The decrease in the tax rate from the prior year isa result of changes in the jurisdictional make up of our state income taxes andthe impact of incentive stock options (including disqualifying dispositions).

 

31

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**Our liquidity, capital resources and capitalcommitments**

 

***General***

 

Most of our growth has resulted fromacquisitions and our development and exploitation program. Consistent with ourstrategy of acquiring and developing reserves, we have an objective ofmaintaining financing flexibility. In the past, we have utilized a variety ofsources of capital to fund our acquisition, development and exploitationprograms and to fund our operations. Our general financial strategy is to use acombination of cash flow from operations, bank financing, cash received fromthe sale of oil and natural gas properties and the sale or issuance of equityand debt securities to fund our operations, conduct development andexploitation activities and to fund acquisitions. As of May 1, 2008, theaggregate borrowing base under our credit agreements totaled approximately $2.5billion, of which $2.1 billion was outstanding. We do not have a set budget foracquisitions, as these tend to be opportunity driven. Historically, we haveused the proceeds from the issuance of equity and debt securities andborrowings under our credit agreements to raise cash to fund acquisitions. Ourability to borrow from sources other than our credit agreements is subject torestrictions imposed by our lenders. In addition, our indenture governing ourSenior Notes contains restrictions on incurring indebtedness and pledging ourassets.

 

Net cash provided by operating activities was$199.5 million for the three months ended March 31, 2008 compared with$32.6 million for the three months ended March 31, 2007. The increase isattributable primarily to net cash provided from the oil and natural gasproperties acquisitions which were partially offset by higher interest costs.At March 31, 2008, our cash and cash equivalents balance was $9.1 million,a decrease of $46.4 million from December 31, 2007 primarily as a resultof payments to reduce debt. On January 15, 2008, we made an interestpayment on our Senior Notes of $16.1 million and we made a dividend payment toour preferred shareholders of $35.0 million on March 14, 2008.

 

***Acquisitions andcapital expenditures***

 

The following table presents our capitalexpenditures for the three months ended March 31, 2007 and 2008.

 
| ** **                       | ** ** | **Three months ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 31,**               | ** ** |
| **(in thousands)**          | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| **Capital expenditures:**        |       |                             |       |   |   |
| Property acquisitions            |       | $                                | 1,447,281  |   | $ | 470,186 |   |
| Lease purchases                  |       | 7,619                            |       | 10,288 |   |
| Development capital expenditures |       | 75,892                           |       | 152,159 |   |
| Corporate and other              |       | 3,037                            |       | 21,533 |   |
| Total capital expenditures       |       | $                                | 1,533,829  |   | $ | 654,166 |   |

 

On February 20, 2008, we closed the Appalachian Acquisition for$388.4 million in cash, net of preliminary purchase price adjustments. Theassets include producing oil and natural gas properties, undeveloped oil andnatural gas properties, undeveloped acreage and related facilities in theAppalachia region. The Appalachian Acquisition was financed by the EXCOResources Credit Agreement.

 

For the year 2008, we have budgeted capitalexpenditures of approximately $800.0 million for our development,exploitation and exploration activities, of which $184.0 million was spentduring the three months ended March 31, 2008, exclusive of propertyacquisitions. As of March 31, 2008, we were contractually obligated tospend approximately $90.2 million for our development, exploitation andexploration activities for the remainder of 2008.

 

We expect to utilize our current cashbalance, cash flow from operations and available funds under our creditagreements to fund our acquisitions, capital expenditures and working capital.In order to meet strategic objectives, we may also sell assets to provideliquidity.

 

We believe that our capital resources fromexisting cash balances, cash flow from operating activities and borrowingcapacity under our credit agreements are adequate to meet the cash requirementsof our business. However, future cash flows are subject to a number ofvariables including production volumes and oil and natural gas prices. If cashflows decline we may be required to reduce our capital expenditure budget,which in turn may affect our production in future periods. Our operations andother capital resources may not provide cash in sufficient amounts to maintainor initiate planned levels of capital expenditures. We have experiencedincreased costs for tubular goods and for certain services during 2007 and2008. Further, we have encountered difficulties in contracting for drillingrigs and other services due to high demand. Currently, we

 

32

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do not believe that these conditions have had a significant impact uponour capital expenditures programs or our results of operations. If theconditions continue, however, projects may be delayed due to lack of servicesor materials or we may have to delay projects to stay within our capitalbudget.

 

***7***1⁄4***% senior notes due January 15, 2011***

 

As of March 31,2008, $444.7 million in principal was outstanding on our 7 1⁄4% senior notes due January 15,2011, or Senior Notes. The unamortized premium on the Senior Notes at March 31,2008 was $10.1 million. The estimated fair value of the Senior Notes, based onquoted market prices for the Senior Notes, was $433.6 million on March 31,2008.

 

Interest ispayable on the Senior Notes semi-annually in arrears on January 15 and July 15of each year.  Effective January 15,2007, we may redeem some or all of the Senior Notes for the redemption priceset forth in the Senior Notes.

 

The indenturegoverning the Senior Notes contains covenants, which limit our ability and theability of our guarantor subsidiaries to:

 

·                  incur or guaranteeadditional debt and issue certain types of preferred stock;

 

·                  pay dividends onour capital stock or redeem, repurchase or retire our capital stock orsubordinated debt;

 

·                  makeinvestments;

 

·                  create liens onour assets;

 

·                  enter intosale/leaseback transactions;

 

·                  createrestrictions on the ability of our restricted subsidiaries to pay dividends ormake other payments to us;

 

·                  engage intransactions with our affiliates;

 

·                  transfer orissue shares of stock of subsidiaries;

 

·                  transfer or sellassets; and

 

·                  consolidate,merge or transfer all or substantially all of our assets and the assets of oursubsidiaries.

 

***Credit agreements***

 

*EXCO Resources Credit Agreement*

 

On February 20,2008, we entered into the second amendment to our Amended and Restated CreditAgreement.  The primary change to theEXCO Credit Agreement included an increase in the borrowing base from$900.0 million to approximately $1.2 billion, principally to reflect the assetsacquired in the Appalachian Acquisition.  Financial covenants and allother terms, including maturity date, contained within the EXCO CreditAgreement remained unchanged.

 

The borrowing baseis redetermined semi-annually with EXCO and the lenders having the right tointerim unscheduled redeterminations in certain circumstances. Scheduledredeterminations are on or about April 1 and October 1 of eachyear.  The next scheduled borrowing baseredetermination date is October 1, 2008. The interest rate ranges fromLIBOR plus 100 bps to LIBOR plus 175 bps depending upon borrowing baseusage.  The facility also includes an Alternate Base Rate, or ABR, pricingalternative ranging from ABR plus 0 bps to ABR plus 75 bps depending uponborrowing base usage.  Borrowings under the EXCO Resources CreditAgreement are collateralized by a first lien mortgage providing a securityinterest in our oil and natural gas properties. EXCO has also agreed to have inplace derivative financial instruments covering no more than 80% of itsforecasted production from total proved reserves (as defined) for 2008 and 70%in the 2009 - 2011 years.  EXCO will have in place mortgages covering 80%of the engineered value of its Borrowing Base Properties (as defined). The foregoing description is not complete and is qualified in its entirety bythe EXCO Resources Credit

 

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Agreement. As of March 31,2008, EXCO was in compliance with the financial covenants contained in the EXCOResources Credit Agreement which require that we:

 

·                  maintain aConsolidated Current Ratio (as defined) of at least 1.0 to 1.0 as of the end ofany fiscal quarter ending on or after September 30, 2007;

 

·                  not permit ourratio of Consolidated Funded Indebtedness (as defined) to Consolidated EBITDAX(as defined) to be greater than 3.5 to 1.0 at the end of any fiscal quarterending on or after September 30, 2007; and

 

·                  maintain aConsolidated EBITDAX to Consolidated Interest Expense (as defined) ratio of atleast 2.5 to 1.0 at the end of any fiscal quarter ending on or after September 30,2007.

 

At May 1,2008, the six month LIBOR rate was 2.9%, which would result in an interest rateof approximately 4.2% on any new indebtedness we may incur under the EXCOResources Credit Agreement. At May 1, 2008 we had $1.0 billion ofoutstanding indebtedness under the EXCO Resources Credit Agreement.

 

*EPOP Credit Agreement*

 

The EPOP Credit Agreement has a borrowingbase of $1.3 billion. The borrowing base is scheduled to be redetermined on asemi-annual basis, with EPOP and the lenders having the right to interimunscheduled redeterminations in certain circumstances. Scheduledredeterminations will be made on or about April 1 and October 1 ofeach year.  The next scheduled borrowingbase redetermination date is October 1, 2008.The EPOP Credit Agreement issecured by a first priority lien on the assets of EPOP, including 100% of theequity of EPOP’s subsidiaries, and is guaranteed by all existing and futuresubsidiaries of EPOP. EPOP has agreed to have in place derivative financialinstruments covering no more than 80% of the “forecasted production from totalproved reserves” (as defined) for 2008 and 70% of the forecasted productionfrom total proved reserves for 2009 - 2011. The foregoing description is notcomplete and is qualified in its entirety by the EPOP Credit Agreement. As of March 31,2008, EPOP was in compliance with the financial covenants contained in the EPOPCredit Agreement, which require that EPOP:

 

·                  maintain a consolidated current ratio(as defined under the EPOP Credit Agreement) of at least 1.0 to 1.0 at the endof any fiscal quarter, beginning with the quarter ended June 30, 2007;

 

·                  not permit our ratio of consolidatedindebtedness to consolidated EBITDAX (as defined under the EPOP CreditAgreement) to be greater than 3.5 to 1.0 at the end of each fiscal quarter,beginning with the quarter ended June 30, 2007; and

 

·                  not permit our interest coverageratio (as defined under the EPOP Credit Agreement) to be less than 2.5 to 1.0at the end of each fiscal quarter, beginning with the quarter ended June 30,2007.

 

The EPOP Credit Agreement containsrepresentations, warranties, covenants, events of default, and indemnitiescustomary for agreements of this type. The EPOP Credit Agreement matures March 30,2012. Interest under the EPOP Credit Agreement ranges from LIBOR plus 100 basispoints (bps) to 175 bps ABR, as defined, ranging from ABR plus 0 bps to ABRplus 75 bps.

 

At May 1,2008, the six month LIBOR rate was 2.9%, which would result in an interest rateof approximately 4.7% on any new indebtedness we may incur under the EPOPCredit Agreement. At May 1, 2008 we had $1.1 billion of outstandingindebtedness under the EPOP Credit Agreement.

 

***Preferred stock***

 

The 7.0% Preferred Stock and Hybrid Preferred Stock were issued inseveral series at a purchase price of $10,000 per share on March 30,2007.  The 7.0% Preferred Stock and theHybrid Preferred Stock are convertible into common stock at any time by theholder at a price of $19.00 per share, as may be adjusted.  We may force the conversion of the7.0% Preferred Stock and the Hybrid Preferred Stock at any time if the commonstock trades for 20 days within a period of 30 consecutive days at a price(i) above 175% of the then effective conversion price ($33.25 per share atthe current conversion price of $19.00 per share) at any time during the24 months after issuance, (ii) above 150% of the then effectiveconversion

 

34

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price($28.50 per share at the current conversion price of $19.00 per share)thereafter through the 48th month after issuance and (iii) above125% of the then effective conversion price ($23.75 per share at the currentconversion price of $19.00 per share) at any time thereafter. Cash dividendswill accrue at the rate of 7.0% per annum prior to March 30, 2013 and atthe rate of 9.0% per annum thereafter. In lieu of paying cash dividends, wemay, under certain circumstances prior to March 30, 2013, pay dividends ata rate of 9.0% per annum by adding the dividends to the liquidation preferenceof the shares of preferred stock. Upon the occurrence of a change of control,holders of our preferred stock may require us to repurchase their shares for cashat the liquidation preference plus accumulated dividends. Holders of ourpreferred stock have the right to vote with the holders of common stock as asingle class on all matters submitted to our shareholders (except the electionof directors) on an as-converted basis. Holders of 7.0% Preferred Stock andHybrid Preferred Stock have the right to separately elect up to four directors,subject to the rights of the holders of Series B 7.0% Preferred Stock and Series C7.0% Preferred Stock to vote as separate classes to each elect one of suchpreferred directors. In addition, upon the occurrence of specified defaults inthe Statements of Designation for the 7.0% Preferred Stock and the HybridPreferred Stock, the holders of the 7.0% Preferred Stock and Hybrid PreferredStock, voting together as a class, have the right to elect four additionaldirectors, or default directors, until such default is cured.

 

As of March 31, 2008, the liquidation preference of the 7.0%Preferred Stock and the Hybrid Preferred Stock was $0.4 billion and $1.6billion, respectively.

 

We paid dividends totaling $35.0 million on March 14, 2008 to theholders of our preferred stock. We have accrued dividends of $5.8 million as ofMarch 31, 2008. As a result of the of the shareholder vote in 2007 infavor of the transformation of the Hybrid Preferred Stock into terms identicalto the 7.0% Preferred Stock, the annual dividend requirement on the HybridPreferred Stock and the 7.0% Preferred Stock is $140.0 million per annum.

 

***Derivative financialinstruments***

 

We use oil and natural gas derivatives andfinancial risk management instruments to manage our exposure to commodity priceand interest rate fluctuations.  We donot designate these instruments as hedging instruments for financial accountingpurposes, and, as a result, we recognize the change in the respectiveinstruments’ fair value currently in earnings, as a gain or loss on oil andnatural gas derivatives and interest expense on financial risk managementinstruments.

 

***Oil and natural gas derivatives***

 

Our production is generally sold atprevailing market prices. However, we periodically enter into oil and naturalgas contracts for a portion of our production when market conditions are deemedfavorable and oil and natural gas prices exceed our minimum internal pricetargets.

 

Our objective in entering into oil andnatural gas contracts is to manage price fluctuations and achieve a morepredictable cash flow associated with our acquisition activities and borrowingsunder our credit agreements. These transactions limit exposure to declines inprices, but also limit the benefits we would realize if prices increase. As of March 31,2008, we had contracts in place for the volumes and prices shown below:

 
| ** **                                       | ** ** | **Natural gas** | ** ** | **Weighted**                  | ** ** | ** **     | ** ** | **Weighted**                | ** ** |
|--------------------------------------------------|------------|----------------------|------------|-------------------------------|------------|----------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **volume/**          | ** ** | **average strike**       | ** ** | **Oil**        | ** ** | **average strike**     | ** ** |
| **(in thousands, except prices)** | ** ** | **Mmbtu**            | ** ** | **price per Mmbtu** | ** ** | **volume/Bbl** | ** ** | **price per Bbl** | ** ** |
| **Natural Gas:**                                 |       |                 |       |                          |       |           |       |                        |       |
| Swaps (NYMEX):                                   |       |                 |       |                          |       |           |       |                        |       |
| Q2 2008                                          |       | 26,695               |       | $                             | 8.27       |           | 355        |                        | $          | 68.23 |   |
| Q3 2008                                          |       | 26,900               |       | 8.29                          |       | 358            |       | 68.20                       |       |
| Q4 2008                                          |       | 26,910               |       | 8.39                          |       | 358            |       | 68.16                       |       |
| 2009                                             |       | 100,530              |       | 8.18                          |       | 1,215          |       | 69.11                       |       |
| 2010                                             |       | 40,748               |       | 8.03                          |       | 473            |       | 84.85                       |       |
| 2011                                             |       | 9,125                |       | 7.97                          |       | —         |       | —                      |       |
| 2012                                             |       | 1,830                |       | 4.51                          |       | —         |       | —                      |       |
| 2013                                             |       | 1,825                |       | 4.51                          |       | —         |       | —                      |       |
|                                                  |            |                      |            |                               |            |                |            |                             |            |  |  |

 

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***Interest rateswaps***

 

In January 2008, we entered intointerest rate swaps to mitigate our exposure to fluctuations in interest rateson $700.0 million in principal through February 14, 2010 at LIBORrates ranging from 2.45% to 2.8%.  Duringthe three months ended March 31, 2008, we had $3.6 million of unrealizedlosses on our interest rate swaps.

 

***Off-balance sheetarrangements***

 

None.

 

***Contractualobligations and commercial commitments***

 

The following table presents a summary of ourcontractual obligations at March 31, 2008:

 
| ** **                                              | ** ** | **Less than one** | ** ** | **One to three** | ** ** | **Three to five** | ** ** | **More than five** | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------------------------|------------|------------------------------|------------|------------|------------|
| **(in thousands)**                                 | ** ** | **year**                    | ** ** | **years**                  | ** ** | **years**                   | ** ** | **years**                    | ** ** | **Total**  | ** ** |
| **Contractual obligations:**                            |       |                        |       |                       |       |                        |       |                         |       |       |       |
| Long-term debt - senior notes (1)                       |       | $                           | —     |                       | $          | 444,720                     |       | $                            | —     |       | $          | — |   | $ | 444,720 |   |
| Long-term debt - EXCO Resources Credit  Agreement (2)   |       | —                      |       | —                     |       | 855,500                     |       | —                       |       | 855,500    |       |
| Long-term debt - EPOP Credit Agreement (3)              |       | —                      |       | —                     |       | 1,168,700                   |       | —                       |       | 1,168,700  |       |
| Operating leases (4)                                    |       | 16,277                      |       | 8,486                      |       | 4,944                       |       | 1,161                        |       | 30,868     |       |
| Pending property and lease acquisition  commitments (5) |       | 31,500                      |       | —                     |       | —                      |       | —                       |       | 31,500     |       |
| Drilling/work commitments                               |       | 23,988                      |       | 10,035                     |       | —                      |       | —                       |       | 34,023     |       |
| Total contractual cash obligations (6)                  |       | $                           | 71,765     |                       | $          | 463,241                     |       | $                            | 2,029,144  |       | $          | 1,161 |   | $ | 2,565,311 |   |

 

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(1)          Our Senior Notes are due on January 15, 2011. The annual interestobligation is $32.2 million.

(2)          The EXCO Resources Credit Agreement matures on March 30, 2012.

(3)          The EPOP Credit Agreement matures on March 30, 2012.

(4)          Excludes month-to-month rental expense on compressors.

(5)          Represents an executed purchase and sale agreement, dated March 11,2008, to purchase oil and natural gas properties and other undeveloped leaseacquisitions.

(6)          Excludes annual dividends of $140.0 million on our 7.0% Preferred and HybridPreferred Stock.  Such dividends are      payable when, and as, declared by theBoard of Directors.

 

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***Item 3****. **Quantitativeand Qualitative Disclosures About Market Risk***

 

Some of the information below containsforward-looking statements. The primary objective of the following informationis to provide forward-looking quantitative and qualitative information aboutour potential exposure to market risks. The term “market risk” refers to therisk of loss arising from adverse changes in oil and natural gas prices,interest rates charged on borrowings and earned on cash equivalent investments,and adverse changes in the market value of marketable securities. Thedisclosure is not meant to be a precise indicator of expected future losses,but rather an indicator of reasonably possible losses. This forward-lookinginformation provides an indicator of how we view and manage our ongoing marketrisk exposures. Our market risk sensitive instruments were entered into forhedging and investment purposes, not for trading purposes.

 

***Commodity price risk***

 

Our major market risk exposure is in thepricing applicable to our oil and natural gas production. Realized pricing isprimarily driven by the prevailing worldwide price for crude oil and spotmarket prices for natural gas. Pricing for oil and natural gas production isvolatile.

 

The following table sets forth our oil and naturalgas derivatives management activities as of March 31, 2008.

 
| ** **                                       | ** ** | ** **    | ** ** | **Weighted**            | ** ** | ** **                   | ** ** |
|--------------------------------------------------|------------|---------------|------------|-------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **Volume**    | ** ** | **average strike** | ** ** | **Fair value at**  | ** ** |
| **(in thousands, except prices)** | ** ** | **Mmbtu/Bbl** | ** ** | **price**               | ** ** | **March 31, 2008** | ** ** |
| **Natural Gas:**                                 |       |          |       |                    |       |                         |       |
| Swaps (NYMEX):                                   |       |          |       |                    |       |                         |       |
| Remainder of 2008                                |       | 80,505        |       | $                       | 8.32       |                         | $          | (157,334 | ) |
| 2009                                             |       | 100,530       |       | 8.18                    |       | (149,764                     | )          |
| 2010                                             |       | 40,748        |       | 8.03                    |       | (37,808                      | )          |
| 2011                                             |       | 9,125         |       | 7.97                    |       | (6,282                       | )          |
| 2012                                             |       | 1,830         |       | 4.51                    |       | (6,356                       | )          |
| 2013                                             |       | 1,825         |       | 4.51                    |       | (6,069                       | )          |
| **Total Natural Gas**                            |       | 234,563       |       |                    |       | (363,613                     | )          |
|                                             |       |          |       |                    |       |                         |       |
| **Oil:**                                         |       |          |       |                    |       |                         |       |
| Swaps (NYMEX):                                   |       |          |       |                    |       |                         |       |
| Remainder of 2008                                |       | 1,071         |       | 68.20                   |       | (33,000                      | )          |
| 2009                                             |       | 1,215         |       | 69.11                   |       | (30,972                      | )          |
| 2010                                             |       | 473           |       | 84.85                   |       | (4,013                       | )          |
| **Total Oil**                                    |       | 2,759         |       |                    |       | (67,985                      | )          |
| **Total Oil and Natural Gas**                    |       |          |       |                    |       | $                            | (431,598   | ) |
|                                                  |            |               |            |                         |            |                              |            |  |  |

 

At March 31, 2008, the average forwardNYMEX oil prices per Bbl for the remainder of 2008 and for calendar year 2009were $99.55 and $95.93, respectively and the average forward NYMEX natural gasprices per Mmbtu for the remainder of 2008 and for calendar 2009 were $10.30and $9.75, respectively.

 

Realized gains or losses from the settlementof our oil and natural gas derivatives are recorded in our financial statementsas increases or decreases in oil and gas revenue. For example, using the oilswaps in place at March 31, 2008, for the remainder of 2008, if thesettlement price exceeds the actual weighted average strike price of $68.20,then a reduction in oil and natural gas revenue would be recorded for thedifference between the settlement price and $68.20, multiplied by the hedgedvolume of 1,071 Mbbls. Conversely, if the settlement price is less than $68.20,then an increase in oil and natural gas revenue would be recorded for thedifference between the settlement price and $68.20, multiplied by the hedgedvolume of 1,071 Mbbls. For example, for a hedged volume of 1,071 Mbbls, if thesettlement price is $69.20, then oil and natural gas revenue would decrease by$1.1 million. Conversely, if the settlement price is $67.20, oil and naturalgas revenue would increase by $1.1 million.

 

37

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***Interest rate risk***

 

At March 31, 2008, our exposure tointerest rate changes related primarily to borrowings under our creditagreements and interest earned on our short-term investments. The interest rateis fixed at 71/4% on the $444.7 million inSenior Notes we have outstanding. Interest is payable on borrowings under ourcredit agreements based on a floating rate as more fully described in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Ourliquidity, capital resources and capital commitments.”  At March 31, 2008, we had $2.0 billionin outstanding borrowings under our credit agreements. A 1% change in interestrates based on the borrowings as of March 31, 2008 would result in anincrease or decrease in our interest costs of $20.2 million per year. Theinterest we pay on these borrowings is set periodically based upon marketrates.

 

In January 2008, we entered intofinancial risk management instruments to mitigate our exposure to fluctuationsin interest rates on $700.0 million in principal through February 14,2010 at LIBOR rates ranging from 2.45% to 2.8%. During the three months ended March 31, 2008, we had $3.6 millionof unrealized losses on our interest rate swaps.

 

***Preferred stock liquidated damages risk***

 

In connection with the Private Placement, weentered into a registration rights agreement, or 7.0% Registration RightsAgreement, with the Preferred Stock investors. If any shares of 7.0% PreferredStock or Hybrid Preferred Stock are outstanding on March 30, 2011, weagreed to file a registration statement with the SEC by June 28, 2011registering such shares for resale and to use our best efforts to have suchregistration statement declared effective by September 26, 2011.

 

If we are unable to meet the registrationdeadlines described above, if a registration statement ceases to remaineffective or if we restrict sales under a registration statement under certain “blackoutprovisions” for longer than the contractually permitted period, we must payliquidated damages at a rate of 0.5% per annum of the Preferred Stockliquidation preference for the first 90 days and thereafter for each subsequent90-day period at an additional rate of 0.25% up to a maximum of 2.0% per annumduring any default period.  If we become obligated to pay theaforementioned liquidated damages under the 7.0% Registration Rights Agreement,the initial 0.5% increase of liquidated damages would be approximately $2.5million for the first 90 days and an additional $1.3 million for eachsuccessive 90 day period. The maximum amount of potential liquidated damagesunder the 7.0% Registration Rights Agreement would total $40.0 million perannum.

 

***Item 4.   Controls and Procedures***

 

**Evaluation of disclosure controls andprocedures**

 

We maintain “disclosure controls andprocedures,” as such term is defined in Rule 13a-15(e) under theExchange Act that are designed to ensure that information required to bedisclosed by us in reports that we file or submit under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer (CEO),Chief Financial Officer (CFO) and Chief Accounting Officer (CAO), asappropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating our disclosure controls and procedures, managementrecognizes that disclosure controls and procedures, no matter how wellconceived and operated, can provide only reasonable assurance of achieving thedesired control objectives, and we are required to apply our judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures.

 

Our management evaluated, under thesupervision and with the participation of our CEO, CFO and CAO, theeffectiveness of the design and operation of our disclosure controls andprocedures as of March 31, 2008 and concluded our controls were effective.

 

**Changes in internal control over financialreporting**

 

Nochanges in EXCO’s internal control over financial reporting occurred during thecurrent quarter that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

38

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**PART II—OTHERINFORMATION**

 

**Item1.          Legal proceedings**

 

EffectiveMarch 18, 2008, we entered into an agreement to settle all claims arisingunder a putative royalty owner class action filed against our subsidiaries,North Coast Energy, Inc. and North Coast Energy Eastern, Inc., styled *PRC Holdings, LLC, et al. v. North Coast Energy, Inc.* for $40,000*.* In connection with thissettlement, all claims alleged by the plaintiffs are scheduled to be dismissedwith prejudice. This settlement is awaiting a hearing and final approval by thefederal district court before a dismissal can be entered.

 

**Item 6. Exhibits**

 

See “Indexto Exhibits” for a description of our exhibits.

 

39

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                              | EXCO RESOURCES, INC. |
|-----------------------------------|---------------------------|
|                              | (Registrant)              |
|                              |                      |   |
| Date:  May 7, 2008 | By:                       | /s/ DOUGLAS H. MILLER |
|                              |                      | Douglas H. Miller |
|                              |                      | Chairman and Chief Executive Officer |
|                              |                      |   |
|                              | By:                       | /s/ J. DOUGLAS RAMSEY |
|                              |                      | J. Douglas Ramsey, Ph.D. |
|                              |                      | Vice President and Chief Financial Officer |
|                              |                      |   |
|                              | By:                       | /s/ MARK E. WILSON |
|                              |                      | Mark E. Wilson  Vice President, Chief Accounting Officer |
|                              |                      | and Controller |

 

40

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**Index toExhibits**

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                 |       | Merger  Agreement, dated July 22, 2006, by and among Winchester  Acquisition, LLC, Progress Fuels Corporation, Winchester Energy  Company, Ltd., and WGC Holdco, LLC, filed as an Exhibit to  EXCO’s Current Report on Form 8-K, dated July 22, 2006  and filed on July 25, 2006 and incorporated by reference herein.                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.2                 |       | First  Amendment to Agreement and Plan of Merger, dated as of September 28,  2006, by and among Winchester Acquisition, LLC, Progress Fuels  Corporation, Winchester Energy Company, Ltd., and WGC Holdco, LLC, filed  as an Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 2, dated July 22, 2006 and filed on October 4, 2006 and  incorporated by reference herein.                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.3                 |       | Purchase  and Sale Agreement by and among Anadarko Petroleum Corporation and Anadarko  Gathering Company, as Seller, and Vernon Holdings, LLC, as Purchaser,  dated December 22, 2006, filed as an Exhibit to EXCO’s  Pre-Effective Amendment No. 1 to the Registration Statement on  Form S-1 (File No. 333-139568) filed on January 16, 2007 and  incorporated by reference herein.                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.4                 |       | Purchase  and Sale Agreement by and among EXCO Resources, Inc., as Purchaser,  Anadarko Petroleum Corporation, Anadarko E&P Company, LP, Howell  Petroleum Corporation and Kerr-McGee Oil & Gas Onshore LP, as  Seller, dated February 1, 2007, filed as an Exhibit to EXCO’s  Annual Report on Form 10-K filed on March 19, 2007 and incorporated  by reference herein.                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.5                 |       | First  Amendment to Purchase and Sale Agreement and Assignment of Partial Interest  in the Purchase and Sale Agreement by and among Anadarko Petroleum  Corporation, Anadarko Gathering Company, EXCO Partners Operating  Partnership, LP (successor by merger to Vernon Holdings, LLC) and  Vernon Gathering, LLC, dated March 30, 2007, filed as an  Exhibit to EXCO’s Form 8-K dated March 28, 2007 and filed on  April 2, 2007 and incorporated by reference herein.                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.6                 |       | First  Amendment Letter Agreement by and among EXCO Resources, Inc., Southern G  Holdings, LLC, Anadarko Petroleum Corporation, Anadarko E&P  Company, LP, Howell Petroleum Corporation, and Kerr-McGee Oil &  Gas Onshore LP, dated April 13, 2007, filed as an Exhibit to  EXCO’s Form 8-K dated May 2, 2007 and filed on May 8, 2007 and  incorporated by reference herein.                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.7                 |       | Second  Amendment to Purchase and Sale Agreement, effective as of February 1,  2007, by and among Anadarko Petroleum Corporation, Anadarko E&P  Company LP, Howell Petroleum Corporation, Kerr-McGee Oil & Gas  Onshore LP, EXCO Resources, Inc. and Southern G Holdings, LLC,  filed as an Exhibit to EXCO’s Form 8-K dated May 2, 2007 and filed  on May 8, 2007 and incorporated by reference herein.                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.8                 |       | Third  Amendment to Purchase and Sale Agreement and Assignment of Partial Interest  in the Purchase and Sale Agreement, effective as of February 1, 2007, by  and among Anadarko Petroleum Corporation, Anadarko E&P Company LP,  Howell Petroleum Corporation, Kerr-McGee Oil & Gas Onshore LP,  EXCO Resources, Inc. and Southern G Holdings, LLC, filed as an  Exhibit to EXCO’s Form 8-K dated May 2, 2007 and filed on  May 8, 2007 and incorporated by reference herein. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.9                 |       | Membership  Interest Purchase and Sale Agreement, dated May 8, 2007, by and among  EXCO Resources, Inc., Southern G Holdings, LLC and Crimson  Exploration Inc. and Crimson Exploration Operating, Inc., filed as  an Exhibit to EXCO’s Form 8-K dated May 2, 2007 and filed on  May 8, 2007 and incorporated by reference herein.                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.10                |       | Asset  Purchase Agreement, dated December 7, 2007, between EXCO  Appalachia, Inc., as purchaser, and EOG Resources, Inc., EOG  Resources Appalachian LLC and Energy Search, Incorporated, as sellers,  filed as an Exhibit to EXCO’s Current Report on Form 8-K dated  February 20, 2008 and filed on February 26, 2008 and incorporated  by reference herein.                                                                                                                                   |

 

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| 2.11   |   | First  Amendment to Asset Purchase Agreement, dated February 20, 2008, between  EXCO Appalachia, Inc., as purchaser, and EOG Resources, Inc., EOG  Resources Appalachian LLC, and Energy Search, Incorporated, as sellers,  filed as an exhibit to EXCO’s Current Report on Form 8-K dated  February 20, 2008 and filed on February 26, 2008 and incorporated  by reference herein. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.1    |   | Third  Amended and Restated Articles of Incorporation of EXCO Resources, Inc.,  filed as an Exhibit to EXCO’s Current Report on Form 8-K, dated  February 8, 2006 and filed on February 14, 2006 and incorporated by  reference herein.                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.2    |   | Amended  and Restated Bylaws of EXCO Resources, Inc., filed as an Exhibit to  EXCO’s Current Report on Form 8-K, dated November 14, 2007 and  filed on November 16, 2007 and incorporated by reference herein.                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.3    |   | Statement  of Designation of Series A-1 7.0% Cumulative Convertible Perpetual  Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.4    |   | Statement  of Designation of Series A-2 7.0% Cumulative Convertible Perpetual  Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.5    |   | Statement  of Designation of Series B 7.0% Cumulative Convertible Perpetual  Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein.                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.6    |   | Statement  of Designation of Series C 7.0% Cumulative Convertible Perpetual  Preferred Stock of EXCO Resources, Inc., filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein.                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.7    |   | Statement  of Designation of Series A-1 Hybrid Preferred Stock of EXCO  Resources, Inc., filed as an Exhibit to EXCO’s Form 8-K dated  March 28, 2007 and filed on April 2, 2007 and incorporated by  reference herein.                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.8    |   | Statement  of Designation of Series A-2 Hybrid Preferred Stock of EXCO  Resources, Inc., filed as an Exhibit to EXCO’s Form 8-K dated  March 28, 2007 and filed on April 2, 2007 and incorporated by  reference herein.                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.1    |   | Indenture  among EXCO Resources, Inc., the Subsidiary Guarantors and Wilmington  Trust Company, as Trustee, dated as of January 20, 2004, filed as  exhibit (b)(2) to Amendment No. 4 to the Schedule TO  filed by NCE Acquisition, Inc. and EXCO Resources, Inc. on  January 21, 2004 and incorporated by reference herein.                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.2    |   | First  Supplemental Indenture by and among EXCO Resources, Inc., North Coast  Energy, Inc., North Coast Energy Eastern, Inc. and Wilmington Trust  Company, as Trustee, dated as of January 27, 2004, filed as an  Exhibit to EXCO’s Registration Statement on Form S-4 filed  March 25, 2004 and incorporated by reference herein.                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3    |   | Second  Supplemental Indenture by and among EXCO Resources, Inc., Pinestone  Resources, LLC and Wilmington Trust Company, as Trustee, filed as an  Exhibit to EXCO’s Annual Report on Form 10-K for 2004 filed  March 31, 2005 and incorporated by reference herein.                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.4    |   | Third  Supplemental Indenture by and among EXCO Resources, Inc., TXOK  Acquisition, Inc. and Wilmington Trust Company, as Trustee, filed as an Exhibit to  EXCO’s Current Report on Form 8-K filed on February 21, 2006 and  incorporated by reference herein.                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.5    |   | Form of  71/4% Global Note Due  2011, filed as an Exhibit to EXCO’s Pre-effective Amendment No. 1  to its Registration Statement on Form S-4 filed April 20, 2004 and  incorporated by reference herein.                                                                                                                                                                                      |

 

42

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| 4.6    |   | Specimen  Stock Certificate for EXCO’s common stock, filed as an Exhibit to EXCO’s  Amendment No. 2 to the Form S-1 (File No. 333- 129935) filed  on January 27, 2006 and incorporated by reference herein.                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.7    |   | Fourth  Supplemental Indenture, dated as of May 4, 2006, by and among EXCO  Resources, Inc., Power Gas Marketing & Transmission, Inc.  and Wilmington Trust Company, as Trustee, filed as an Exhibit to EXCO’s  Current Report on Form 8-K, dated May 4, 2006 and filed on  May 10, 2006 and incorporated by reference herein.                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.8    |   | Fifth  Supplemental Indenture, dated as of May 2, 2007, by and among EXCO  Resources, Inc., Southern G Holdings, LLC and Wilmington Trust  Company, as Trustee, filed as an Exhibit to EXCO’s Current Report on Form 8-K, dated May 2,  2007 and filed on May 8, 2007 and incorporated by reference herein.                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.9    |   | Sixth  Supplemental Indenture, dated as of February 12, 2008, by and among EXCO  Resources, Inc., EXCO Services, Inc. and Wilmington Trust Company,  as Trustee, filed as an Exhibit to EXCO’s Annual Report on  Form 10-K for 2007 filed February 29, 2008 and incorporated by  reference herein.                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10   |   | First  Amended and Restated Registration Rights Agreement, by and among EXCO  Holdings Inc. and the Initial Holders (as defined therein), effective  January 5, 2006, filed as an Exhibit to EXCO’s Amendment No. 1  to its Registration Statement on Form S-1 (File No. 333-129935)  filed on January 6, 2006 and incorporated by reference herein.   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.11   |   | Registration  Rights Agreement, dated March 28, 2007, by and among EXCO  Resources, Inc. and the other parties thereto with respect to the 7.0%  Cumulative Convertible Perpetual Preferred Stock and the Hybrid Preferred  Stock, filed as an Exhibit to EXCO’s Form 8-K dated March 28,  2007 and filed on April 2, 2007 and incorporated by reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.12   |   | Registration  Rights Agreement, dated March 28, 2007, by and among EXCO  Resources, Inc. and the other parties thereto with respect to the Hybrid  Preferred Stock, filed as an Exhibit to EXCO’s Form 8-K dated  March 28, 2007 and filed on April 2, 2007 and incorporated by  reference herein.                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.1   |   | Indenture  among EXCO Resources, Inc., the Subsidiary Guarantors and Wilmington  Trust Company, as Trustee, dated as of January 20, 2004, filed as  exhibit (b)(2) to Amendment No. 4 to the Schedule TO  filed by NCE Acquisition, Inc. and EXCO Resources, Inc. on January 21,  2004 and incorporated by reference herein.                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2   |   | First  Supplemental Indenture by and among EXCO Resources, Inc., North Coast  Energy, Inc., North Coast Energy Eastern, Inc. and Wilmington Trust  Company, as Trustee, dated as of January 27, 2004, filed as an  Exhibit to EXCO’s Registration Statement on Form S-4 filed  March 25, 2004 and incorporated by reference herein.                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3   |   | Second  Supplemental Indenture by and among EXCO Resources, Inc., Pinestone  Resources, LLC and Wilmington Trust Company, as Trustee, dated as of  December 21, 2004, filed as an Exhibit to EXCO’s Annual Report on Form 10-K for 2004  filed March 31, 2005 and incorporated by reference herein.                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4   |   | Third  Supplemental Indenture by and among EXCO Resources, Inc., TXOK  Acquisition, Inc. and Wilmington Trust Company, as Trustee, filed as an  Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 1, dated February 8, 2006 and filed on February 21, 2006  and incorporated by reference herein.                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.5   |   | Fourth  Supplemental Indenture, dated as of May 4, 2006, by and among EXCO  Resources, Inc., Power Gas Marketing & Transmission, Inc.  and Wilmington Trust Company, as Trustee, filed as an Exhibit to EXCO’s  Current Report on Form 8-K, dated May 4, 2006 and filed on  May 10, 2006 and incorporated by reference herein.                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.6   |   | Form of  71/4% Global Note Due  2011, filed as an Exhibit to EXCO’s Pre-effective Amendment No. 1  to its Registration Statement on Form S-4 filed April 20, 2004 and  incorporated by reference herein.                                                                                                                                                              |

 

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| 10.7   |   | Amended  and Restated Credit Agreement, dated as of March 17, 2006, among EXCO  Resource, Inc. as Borrower, certain of its subsidiaries, as Guarantors,  the Lenders defined therein, JPMorgan Chase Bank, N.A., as Administrative  Agent, and J.P. Morgan Securities Inc., as Sole Bookrunner and Lead  Manager, filed as an Exhibit to EXCO’s Current Report on Form 8-K,  dated March 17, 2006 and filed on March 23, 2006 and incorporated  by reference herein. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.8   |   | Amended  and Restated 2005 Long-Term Incentive Plan, filed as an Exhibit to  EXCO’s Current Report on Form 8-K, dated November 14, 2007 and  filed on November 16, 2007 and incorporated by reference herein.*                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.9   |   | Form of  Incentive Stock Option Agreement for the EXCO Resources, Inc. 2005  Long-Term Incentive Plan, filed as an Exhibit to EXCO’s Current Report  on Form 8-K, dated November 14, 2007 and filed on November 16,  2007 and incorporated by reference herein.*                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.10  |   | Form of  Nonqualified Stock Option Agreement for the EXCO Resources, Inc. 2005 Long-Term  Incentive Plan, filed as an Exhibit to EXCO’s Current Report on  Form 8-K, dated November 14, 2007 and filed on November 16,  2007 and incorporated by reference herein.*                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.11  |   | Form of  Restricted Stock Award Agreement for the EXCO Resources, Inc. 2005  Long-Term Incentive Plan, filed as an Exhibit to EXCO’s Registration  Statement on Form S-8 (File No. 333-132551) filed on March 17,  2006 and incorporated by reference herein.*                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.12  |   | Merger  Agreement, dated July 22, 2006, by and among Winchester  Acquisition, LLC, Progress Fuels Corporation, Winchester Energy  Company, Ltd., and WGC Holdco, LLC., filed as an Exhibit to  EXCO’s Current Report on Form 8-K, dated July 22, 2006  and filed on July 25, 2006 and incorporated by reference herein.                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.13  |   | First  Amendment to Agreement and Plan of Merger, dated as of September 28,  2006, by and among Winchester Acquisition, LLC, Progress Fuels  Corporation, Winchester Energy Company, Ltd., and WGC Holdco, LLC, filed  as an Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 2, dated July 22, 2006 and filed on October 4, 2006 and  incorporated by reference herein.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.14  |   | Payment  Performance Guaranty, dated July 22, 2006, by and between Progress Fuels  Corporation and EXCO Resources, Inc., filed as an exhibit to EXCO’s  Current Report on Form 8-K, dated July 22, 2006 and filed on  July 24, 2006 and incorporated by reference herein.                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.15  |   | Senior  Revolving Credit Agreement, dated October 2, 2006, among EXCO Partners  Operating Partnership, LP, certain of its subsidiaries, JPMorgan Chase  Bank, N.A., as Administrative Agent, and the lenders party thereto, filed as  an Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 2, dated July 22, 2006 and filed on October 4, 2006 and  incorporated by reference herein.                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.16  |   | First  Amendment to Credit Agreement, dated October 2, 2006, among EXCO  Resources, Inc., certain of its subsidiaries, JPMorgan Chase Bank, N.A.,  as Administrative Agent, and the lenders party thereto, filed as an  Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 2, dated July 22, 2006 and filed on October 4, 2006 and  incorporated by reference herein.                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.17  |   | Amended  and Restated Equity Contribution Agreement, dated October 4, 2006, among  EXCO Resources, Inc., EXCO Partners Operating Partnership, LP, and  JPMorgan Chase Bank, N.A., as Administrative Agent, filed as an  Exhibit to EXCO’s Current Report on Form 8-K/A-Amendment  No. 2, dated July 22, 2006 and filed on October 4, 2006 and  incorporated by reference herein.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.18  |   | Senior  Term Credit Agreement, dated October 2, 2006, as amended and restated as  of October 13, 2006, among EXCO Partners Operating Partnership, LP,  certain of its subsidiaries, JPMorgan Chase Bank, N.A., as Administrative  Agent, and the lenders party thereto, filed as an Exhibit to EXCO’s  Current Report on Form 8-K/A-Amendment No. 3, dated July 22,  2006 and filed on October 19, 2006 and incorporated by reference herein.                   |

 

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| 10.19  |   | Second  Amended and Restated Equity Contribution Agreement, dated October 13,  2006, among EXCO Resources, Inc., EXCO Partners Operating  Partnership, LP, and JPMorgan Chase Bank, N.A., as Administrative Agent,  filed as an Exhibit to EXCO’s Current Report on  Form 8-K/A-Amendment No. 3, dated July 22, 2006 and filed on  October 19, 2006 and incorporated by reference herein.                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20  |   | Third  Amended and Restated EXCO Resources, Inc. Severance Plan, filed as an  Exhibit to EXCO’s Current Report on Form 8-K, dated  November 14, 2007 and filed on November 16, 2007 and incorporated  by reference herein.*                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21  |   | Amended  and Restated 2007 Director Plan of EXCO Resources, Inc., filed as an  Exhibit to EXCO’s Current Report on Form 8-K, dated  November 14, 2007 and filed on November 16, 2007 and incorporated  by reference herein.                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22  |   | Purchase  and Sale Agreement by and among Anadarko Petroleum Corporation and Anadarko  Gathering Company, as Seller, and Vernon Holdings, LLC, as Purchaser,  dated December 22, 2006, filed as an Exhibit to EXCO’s  Pre-Effective Amendment No. 1 to the Registration Statement on  Form S-1 (File No. 333-139568) filed on January 16, 2007 and  incorporated by reference herein.                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.23  |   | First  Amendment to Purchase and Sale Agreement and Assignment of Partial Interest  in the Purchase and Sale Agreement by and among Anadarko Petroleum  Corporation, Anadarko Gathering Company, EXCO Partners Operating  Partnership, LP (successor by merger to Vernon Holdings, LLC) and  Vernon Gathering, LLC, dated March 30, 2007, filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24  |   | Guaranty  dated December 22, 2006 by EXCO Resources, Inc. in favor of  Anadarko Petroleum Corporation and Anadarko Gathering Company, filed as an  Exhibit to EXCO’s Pre-Effective Amendment No. 1 to the Registration  Statement on Form S-1 (File No. 333-139568) filed on  January 16, 2007 and incorporated by reference herein.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.25  |   | Purchase  and Sale Agreement by and among EXCO Resources, Inc., Anadarko Petroleum  Corporation, Anadarko E&P Company, LP, Howell Petroleum Corporation,  and Kerr-McGee Oil & Gas Onshore LP, dated February 1,  2007, filed as an Exhibit to EXCO’s Annual Report on Form 10-K  filed on March 19, 2007 and incorporated by reference herein.                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26  |   | First  Amendment to Credit Agreement effective as of December 31, 2006 among  EXCO Partners Operating Partnership, LP, certain of its subsidiaries,  JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party  thereto, filed as an exhibit to EXCO’s Current Report on Form 8-K, dated  March 8, 2007 and filed March 13, 2007 and incorporated by  reference herein.                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.27  |   | Preferred  Stock Purchase Agreement, dated March 28, 2007, by and among EXCO  Resources, Inc. and the other parties thereto filed as an  Exhibit to EXCO’s Form 8-K dated March 28, 2007 and filed on  April 2, 2007 and incorporated by reference herein.                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.28  |   | Letter  Agreement, dated March 28, 2007, with OCM Principal Opportunities Fund  IV, L.P. and OCM EXCO Holdings, LLC, filed as an Exhibit to  EXCO’s Form 8-K dated March 28, 2007 and filed on April 2,  2007 and incorporated by reference herein.*                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.29  |   | Letter  Agreement, dated March 28, 2007, with Ares Corporate Opportunities Fund,  ACOF EXCO, L.P., ACOF EXCO 892 Investors, L.P., Ares Corporate  Opportunities Fund II, L.P., Ares EXCO, L.P. and Ares EXCO 892  Investors, L.P, filed as an Exhibit to EXCO’s Form 8-K dated  March 28, 2007 and filed on April 2, 2007 and incorporated by  reference herein.                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.30  |   | Amended  and Restated Credit Agreement, dated as of March 30, 2007, among EXCO  Partners Operating Partnership, LP, as Borrower, certain subsidiaries of  Borrower, as Guarantors, the lenders party thereto, JPMorgan Chase Bank,  N.A., as Administrative Agent, and J.P. Morgan Securities Inc., as Sole  Bookrunner and Lead Arranger, filed as an Exhibit to EXCO’s  Form 8-K dated March 28, 2007 and filed on April 2, 2007 and  incorporated by reference herein.     |

 

45

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| 10.31  |   | Registration  Rights Agreement, dated March 28, 2007, by and among EXCO  Resources, Inc. and the other parties thereto with respect to the 7.0%  Cumulative Convertible Perpetual Preferred Stock and the Hybrid Preferred  Stock, filed as an Exhibit to EXCO’s Form 8-K dated March 28,  2007 and filed on April 2, 2007 and incorporated by reference herein.                                                                                                                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.32  |   | Registration  Rights Agreement, dated March 28, 2007, by and among EXCO  Resources, Inc. and the other parties thereto with respect to the Hybrid  Preferred Stock, filed as an Exhibit to EXCO’s Form 8-K dated  March 28, 2007 and filed on April 2, 2007 and incorporated by  reference herein.                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.33  |   | First  Amendment to Letter Agreement by and among EXCO Resources, Inc.,  Southern G Holdings, LLC, Anadarko Petroleum Corporation,  Anadarko E&P Company, LP, Howell Petroleum Corporation, and  Kerr-McGee Oil & Gas Onshore LP, dated April 13, 2007,  filed as an Exhibit to EXCO’s Form 8-K dated May 2, 2007 and  filed on May 8, 2007 and incorporated by reference herein.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.34  |   | Second  Amended and Restated Credit Agreement, dated as of May 2, 2007, among  EXCO Resources, Inc. as Borrower, certain of its subsidiaries, as  Guarantors, the Lenders defined therein, JPMorgan Chase Bank, N.A., as  Administrative Agent, and J.P. Morgan Securities Inc., as Sole  Bookrunner and Lead Arranger, filed as an Exhibit to EXCO’s  Form 8-K dated May 2, 2007 and filed on May 8, 2007 and  incorporated by reference herein.                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.35  |   | Fifth  Supplemental Indenture, dated as of May 2, 2007, by and among EXCO  Resources, Inc., Southern G Holdings, LLC and Wilmington Trust  Company, as Trustee, filed as an Exhibit to EXCO’s Current Report on Form 8-K, dated May 2,  2007 and filed on May 8, 2007 and incorporated by reference herein.                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.36  |   | Second  Amendment to Purchase and Sale Agreement, effective as of February 1,  2007, by and among Anadarko Petroleum Corporation, Anadarko E&P  Company LP, Howell Petroleum Corporation, Kerr-McGee Oil & Gas  Onshore LP, EXCO Resources, Inc. and Southern G Holdings, LLC,  filed as an Exhibit to EXCO’s Form 8-K dated May 2, 2007 and  filed on May 8, 2007 and incorporated by reference herein.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.37  |   | Third  Amendment to Purchase and Sale Agreement and Assignment of Partial Interest  in the Purchase and Sale Agreement, effective as of February 1, 2007, by  and among Anadarko Petroleum Corporation, Anadarko E&P Company LP,  Howell Petroleum Corporation, Kerr-McGee Oil & Gas Onshore LP,  EXCO Resources, Inc. and Southern G Holdings, LLC, filed as an  Exhibit to EXCO’s Form 8-K dated May 2, 2007 and filed on  May 8, 2007 and incorporated by reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.38  |   | Membership  Interest Purchase and Sale Agreement, dated May 8, 2007, by and among  EXCO Resources, Inc., Southern G Holdings, LLC, Crimson  Exploration Inc. and Crimson Exploration Operating, Inc., filed as  an Exhibit to EXCO’s Form 8-K dated May 2, 2007 and filed on  May 8, 2007 and incorporated by reference herein.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.39  |   | Purchase  Agreement, effective August 15, 2007, between OCM GW Holdings, LLC  and EXCO Resources, Inc., filed as an Exhibit to EXCO’s Current  Report on Form 8-K, dated August 15, 2007 and filed on  August 21, 2007 and incorporated by reference herein.                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.40  |   | Asset  Purchase Agreement, dated December 7, 2007, between EXCO  Appalachia, Inc., as purchaser, and EOG Resources, Inc., EOG  Resources Appalachian LLC and Energy Search, Incorporated, as sellers,  filed as an Exhibit to EXCO’s Current Report on Form 8-K dated  February 20, 2008 and filed on February 26, 2008 and incorporated  by reference herein.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.41  |   | Sixth  Supplemental Indenture, dated as of February 12, 2008, by and among EXCO  Resources, Inc., EXCO Services, Inc. and Wilmington Trust Company,  as Trustee, filed as an Exhibit to EXCO’s Annual Report on  Form 10-K for 2007 filed February 29, 2008 and incorporated by  reference herein.                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.42  |   | Counterpart  Agreement, dated February 4, 2008, to that Certain Second Amended and  Restated Credit Agreement, dated May 2, 2007, among EXCO  Resources, Inc., as Borrower, and certain subsidiaries of Borrower and  the lender parties thereto, filed as an Exhibit to EXCO’s Annual Report  on Form 10-K for 2007 filed February 29, 2008 and incorporated by  reference herein.                                                                                                                        |

 

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| 10.43  |   | First  Amendment to Second Amended and Restated Credit Agreement, dated as of  February 20, 2008, by and among EXCO Resources, Inc., as Borrower,  certain of its subsidiaries, as Guarantors, the Lenders defined herein, and  JP Morgan Chase Bank, N.A., as Administrative Agent, filed as an Exhibit to  EXCO’s Current Report on Form 8-K, dated February 20, 2008 and  filed on February 26, 2008 and incorporated by reference herein.                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.44  |   | First  Amendment to Amended and Restated Credit Agreement, dated as of  February 20, 2008, by and among EXCO Partners Operating  Partnership, LP, as Borrower, certain of its subsidiaries, as  Guarantors, the Lenders defined therein and JP Morgan Chase Bank, N.A., as  Administrative Agent, filed as an exhibit to EXCO’s Current Report on Form 8-K, dated February 20,  2008 and filed on February 26, 2008 and incorporated by reference  herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.45  |   | First  Amendment to Asset Purchase Agreement, dated February 20, 2008, between  EXCO Appalachia, Inc., as purchaser, and EOG Resources, Inc., EOG  Resources Appalachian LLC, and Energy Search, Incorporated, as sellers,  filed as an exhibit to EXCO’s Current Report on Form 8-K dated  February 20, 2008 and filed on February 26, 2008 and incorporated  by reference herein.                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.1   |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief  Executive Officer of EXCO Resources, Inc., filed herewith.                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.2   |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief  Financial Officer of EXCO Resources, Inc., filed herewith.                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.3   |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief  Accounting Officer of EXCO Resources, Inc., filed herewith.                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 32.1   |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief  Executive Officer and Chief Financial Officer of EXCO Resources, Inc.,  filed herewith.                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 99.1   |   | Audit  Committee Charter, filed as an Exhibit to EXCO’s Registration Statement  on Form S-1 Amendment No. 3 filed February 6, 2006 and  incorporated by reference herein.                                                                                                                                                                                                                                                                                                      |

 

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*These exhibits are managementcontracts.

 

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