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

**FORM 10-Q**
| **ý**                                         | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|----------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|
| ** **                                         | ** ** | ** **                                                                                                    |
| **For  the quarterly period ended March 31, 2007** |
| ** **                                         | ** ** | ** **                                                                                                    |
| **OR**                                             |
| ** **                                         | ** ** | ** **                                                                                                    |
| **o**                                              | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom              to              **

**Commission File 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 checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES x   NO o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler o                Acceleratedfiler o                Non-acceleratedfiler x

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

YES o   NO x

The number ofshares of common stock, par value $0.001 per share, outstanding as of May 10,2007 was 104,308,965.

 

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**EXCORESOURCES, INC.**

**INDEX**
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                                        | ** ** |
|--------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
|         |                                                                                                                             |       |
| Item 1.      | Financial  Statements (Unaudited)                                                                                                |       |
|         | Condensed  Consolidated Balance Sheets at December 31, 2006 and March 31, 2007                                         |       |
|         | Condensed  Consolidated Statements of Operations for the Three Months Ended March  31, 2006 and 2007                        |       |
|         | Condensed  Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2006 and 2007                        |       |
|         | Condensed  Consolidated Statements of Changes in Shareholders’ Equity for the Three  Months Ended   March 31, 2006 and 2007 |       |
|         | 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  1A.    | Risk Factors                                                                                                                     |       |
| Item 2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                     |       |
| Item  6.     | Exhibits                                                                                                                         |       |
|         | Signatures                                                                                                                       |       |
|         | Index  to Exhibits                                                                                                               |       |

 

2

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**PART I—FINANCIAL INFORMATION**

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

**EXCORESOURCES, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                       | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands)**                                          | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| ** **                                                       | ** ** | ** **            | ** ** | **(Unaudited)**    | ** ** |
| Assets                                                           |       |                  |       |               |       |
| Current assets:                                                  |       |                  |       |               |       |
| Cash and cash  equivalents                                       |       | $                     | 22,822     |               | $          | 169,678 |   |
| Accounts  receivable:                                            |       |                  |       |               |       |
| Oil and natural  gas sales                                       |       | 84,078                |       | 76,709             |       |
| Joint interest                                                   |       | 14,902                |       | 15,550             |       |
| Interest and  other                                              |       | 12,199                |       | 12,256             |       |
| Oil and natural  gas derivatives                                 |       | 91,614                |       | 30,829             |       |
| Deferred income  taxes                                           |       | —                |       | 37,996             |       |
| Other                                                            |       | 11,095                |       | 10,419             |       |
| Total current  assets                                            |       | 236,710               |       | 353,437            |       |
| Oil and natural gas  properties (full cost accounting method):   |       |                  |       |               |       |
| Unproved oil and  natural gas properties                         |       | 297,919               |       | 350,813            |       |
| Proved developed  and undeveloped oil and natural gas properties |       | 2,492,863             |       | 3,841,474          |       |
| Accumulated  depreciation, depletion and amortization            |       | (142,591              | )          | (191,007           | )          |
| Oil and natural  gas properties, net                             |       | 2,648,191             |       | 4,001,280          |       |
| Gas gathering assets                                             |       | 203,537               |       | 323,264            |       |
| Accumulated  depreciation, depletion and amortization            |       | (4,181                | )          | (6,021             | )          |
| Gas gathering  assets, net                                       |       | 199,356               |       | 317,243            |       |
| Office and field  equipment, net                                 |       | 14,805                |       | 14,926             |       |
| Advance on pending  acquisition                                  |       | 80,000                |       | 43,000             |       |
| Oil and natural gas  derivatives                                 |       | 41,469                |       | 10,650             |       |
| Deferred financing  costs, net                                   |       | 15,929                |       | 16,353             |       |
| Other assets                                                     |       | 520                   |       | 471                |       |
| Goodwill                                                         |       | 470,077               |       | 470,077            |       |
| Total assets                                                     |       | $                     | 3,707,057  |               | $          | 5,227,437 |   |

 

*Seeaccompanying notes.*

 

3

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**EXCORESOURCES, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands, except per share and share data)**                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | ** **            | ** ** | **(Unaudited)**    | ** ** |
| Liabilities and  shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                             |       |                  |       |               |       |
| Current  liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                  |       |               |       |
| Accounts payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                               |       | $                     | 54,402     |               | $          | 80,356 |   |
| Accrued interest payable                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 36,000                |       | 7,684              |       |
| Revenues and royalties payable                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 53,994                |       | 51,926             |       |
| Income taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | 89                    |       | 87                 |       |
| Deferred income taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 32,639                |       | —             |       |
| Current portion of asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                        |       | 1,579                 |       | 1,577              |       |
| Current portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 6,500                 |       | —             |       |
| Oil and natural gas derivatives                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 5,721                 |       | 68,599             |       |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 190,924               |       | 210,229            |       |
| Long-term debt,  net of current portion                                                                                                                                                                                                                                                                                                                                                                                                                |       | 2,081,653             |       | 1,613,061          |       |
| Asset retirement  obligations and other long-term liabilities                                                                                                                                                                                                                                                                                                                                                                                          |       | 57,570                |       | 70,481             |       |
| Deferred income  taxes                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 166,136               |       | 182,563            |       |
| Oil and natural  gas derivatives                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 30,924                |       | 64,551             |       |
| Commitments and  contingencies                                                                                                                                                                                                                                                                                                                                                                                                                         |       | —                |       | —             |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                  |       |               |       |
| 7.0% Cumulative  Convertible Perpetual Preferred Stock, par value $0.001 per share, 39,008  shares outstanding at March 31, 2007, liquidation preference of $390,232 at  March 31, 2007                                                                                                                                                                                                                                                                |       | —                |       | 388,606            |       |
| Hybrid Preferred  Stock, par value $0.001 per share, 160,992 shares outstanding at March 31,  2007, liquidation preference of $1,610,904 at March 31, 2007                                                                                                                                                                                                                                                                                             |       | —                |       | 1,603,835          |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                  |       |               |       |
| Shareholders’  equity:                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                  |       |               |       |
| Preferred stock, par value $0.001 per share; 10,000,000  shares authorized at March 31, 2007, of which 39,008 shares have been  designated as 7.0% Cumulative Convertible Perpetual Preferred Stock and  160,992 shares have been designated as 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, 2007 |       | —                |       | —             |       |
| Common stock, $.001 par value; Authorized shares -  250,000,00 issued and outstanding shares - 104,162,241 at December 31, 2006  and 104,240,840 at March 31, 2007                                                                                                                                                                                                                                                                                     |       | 104                   |       | 104                |       |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 1,024,442             |       | 1,027,536          |       |
| Retained earnings                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 155,304               |       | 66,471             |       |
| Total shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 1,179,850             |       | 1,094,111          |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                       |       | $                     | 3,707,057  |               | $          | 5,227,437 |   |

 

*See accompanying notes.*

4

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**EXCO RESOURCES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**
| ** **                                                | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **March 31,**               | ** ** |
| **(in thousands,  except per share and share data)** | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| **Revenues  and other income:**                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Oil and natural gas                                       |       | $                                | 69,738     |   | $ | 117,811 |   |
| Gain (loss) on derivative financial instruments           |       | 40,775                           |       | (96,019 | ) |
| Other income                                              |       | 2,276                            |       | 6,725 |   |
| Total revenues and other income                           |       | 112,789                          |       | 28,517 |   |
| **Costs  and expenses:**                                  | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Oil and natural gas production                            |       | 11,128                           |       | 30,215 |   |
| Depreciation, depletion and amortization                  |       | 20,677                           |       | 51,324 |   |
| Accretion of discount on asset retirement  obligations    |       | 302                              |       | 943 |   |
| General and administrative                                |       | 5,909                            |       | 14,175 |   |
| Interest                                                  |       | 16,345                           |       | 76,709 |   |
| Total costs and expenses                                  |       | 54,361                           |       | 173,366 |   |
| Equity in net income of TXOK Acquisition, Inc.            |       | 1,593                            |       | — |   |
| Income (loss)  before income taxes                        |       | 60,021                           |       | (144,849 | ) |
| Income tax  expense (benefit)                             |       | 22,869                           |       | (57,152 | ) |
| Net income  (loss)                                        |       | 37,152                           |       | (87,697 | ) |
| Preferred stock dividends                                 |       | —                           |       | 1,136 |   |
| Net income  (loss) available to common shareholders       |       | $                                | 37,152     |   | $ | (88,833 | ) |
| Net income  (loss) per common share:                      |       |                             |       |   |   |
| Net income (loss) per common share - basic                |       | $                                | 0.46       |   | $ | (0.85 | ) |
| Net income (loss) per common share - diluted              |       | $                                | 0.45       |   | $ | (0.85 | ) |
| Weighted average  shares:                                 |       |                             |       |   |   |
| Basic                                                     |       | 80,098,873                       |       | 104,201,768 |   |
| Diluted                                                   |       | 81,814,515                       |       | 104,201,768 |   |

 

*See accompanying notes.*

 

5

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**EXCORESOURCES, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| ** **                                                                                                               | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                               | ** ** | **March 31,**               | ** ** |
| **(in thousands)**                                                                                                  | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| ** **                                                                                                               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Operating  Activities:                                                                                                   |       |                             |       |   |   |
| Net income  (loss)                                                                                                       |       | $                                | 37,152     |   | $ | (87,697 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:                                |       |                             |       |   |   |
| Equity in net income of TXOK Acquisition, Inc.                                                                           |       | (1,593                           | )          | — |   |
| Depreciation, depletion and amortization                                                                                 |       | 20,677                           |       | 51,324 |   |
| Stock option compensation expense                                                                                        |       | 598                              |       | 1,910 |   |
| Accretion of discount on asset retirement  obligations                                                                   |       | 302                              |       | 943 |   |
| Non-cash change in fair value of derivatives                                                                             |       | (43,570                          | )          | 128,092 |   |
| Deferred income taxes                                                                                                    |       | 22,176                           |       | (56,037 | ) |
| Amortization of deferred financing costs, premium on  7 1/4% senior notes due 2011 and discount on long-term debt        |       | 5,877                            |       | 9,355 |   |
| Effect of changes in:                                                                                                    |       |                             |       |   |   |
| Accounts receivable                                                                                                      |       | 47,421                           |       | 8,494 |   |
| Other current assets                                                                                                     |       | (1,939                           | )          | 361 |   |
| Accounts payable and other current liabilities                                                                           |       | (24,221                          | )          | (24,194 | ) |
| Net cash  provided by operating activities                                                                               |       | 62,880                           |       | 32,551 |   |
| Investing  Activities:                                                                                                   |       |                             |       |   |   |
| Additions to oil  and natural gas properties, gathering systems and equipment                                            |       | (32,649                          | )          | (1,489,950 | ) |
| Advance to TXOK  Acquisition, Inc.                                                                                       |       | (158,750                         | )          | — |   |
| Cash acquired in  acquisition of TXOK Acquisition, Inc.                                                                  |       | 32,261                           |       | — |   |
| Advance on  pending acquisition                                                                                          |       | —                           |       | (43,000 | ) |
| Proceeds from  disposition of property and equipment and other                                                           |       | (608                             | )          | 131,594 |   |
| Net cash used in  investing activities                                                                                   |       | (159,746                         | )          | (1,401,356 | ) |
| Financing  Activities:                                                                                                   |       |                             |       |   |   |
| Borrowings under  credit agreements                                                                                      |       | 184,500                          |       | 1,198,000 |   |
| Repayments under  credit agreements                                                                                      |       | (584,751                         | )          | (1,672,532 | ) |
| Payments on  interim bank loan                                                                                           |       | (350,000                         | )          | — |   |
| Proceeds from  issuance of common stock, net of underwriter commissions and initial public  offering costs               |       | 656,331                          |       | 817 |   |
| Proceeds from  issuance of preferred stock                                                                               |       | —                           |       | 2,000,000 |   |
| Payments for  preferred stock issuance costs                                                                             |       | —                           |       | (525 | ) |
| Deferred  financing costs                                                                                                |       | (745                             | )          | (10,099 | ) |
| Net cash  provided by (used in) financing activities                                                                     |       | (94,665                          | )          | 1,515,661 |   |
| Net increase  (decrease) in cash                                                                                         |       | (191,531                         | )          | 146,856 |   |
| Cash at  beginning of period                                                                                             |       | 226,953                          |       | 22,822 |   |
| Cash at end of  period                                                                                                   |       | $                                | 35,422     |   | $ | 169,678 |   |
|                                                                                                                     |       |                             |       |   |   |
| Supplemental  Cash Flow Information:                                                                                     |       |                             |       |   |   |
| Interest paid                                                                                                            |       | $                                | 27,398     |   | $ | 92,695 |   |
| Value of shares  issued in connection with redemption of TXOK Acquisition, Inc. preferred  stock                         |       | $                           | 4,667      |   | $  | — |   |
| Long-term debt  assumed in TXOK Acquisition, Inc. acquisition                                                            |       | $                                | 508,750    |   | $ | — |   |
| Elimination of  deferred income taxes related to equity in net income of TXOK Acquisition,  Inc. due to step acquisition |       | $                           | 899        |   | $  | — |   |
| Derivative financial  instruments assumed in Vernon Acquisition                                                          |       | $                                | —     |   | $ | 60,015 |   |

 

*See accompanying notes.*

6

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**EXCO RESOURCES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY**

**(Unaudited)**
| ** **                                 | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **             | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|------------------------|------------|------------|------------|
| ** **                                 | ** ** | **Common Stock** | ** ** | **paid-in** | ** ** | **Retained**   | ** ** | **shareholders’** | ** ** |
| **(in thousands)**                    | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **capital**    | ** ** | **earnings**           | ** ** | **equity** | ** ** |
| ** **                                 | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance at  December 31, 2005              |       | 50,000                |       | $           | 50         |           | $          | 354,482                |       | $          | 16,350     |   | $ | 370,882 |   |
| Issuance of  common stock, net of expenses |       | 54,004                |       | 54          |       | 666,760        |       | —                 |       | 666,814    |       |
| Deferred initial  public offering costs    |       | —                |       | —      |       | (5,892         | )          | —                 |       | (5,892     | )          |
| Share-based  compensation                  |       | —                |       | —      |       | 804            |       | —                 |       | 804        |       |
| Net income                                 |       | —                |       | —      |       | —         |       | 37,152                 |       | 37,152     |       |
| Balance at March  31, 2006                 |       | 104,004               |       | $           | 104        |           | $          | 1,016,154              |       | $          | 53,502     |   | $ | 1,069,760 |   |
|                                       |       |                  |       |        |       |           |       |                   |       |       |       |
| Balance at  December 31, 2006              |       | 104,162               |       | $           | 104        |           | $          | 1,024,442              |       | $          | 155,304    |   | $ | 1,179,850 |   |
| Issuance of  common stock, net of expenses |       | 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 |   |

 

*Seeaccompanying notes.*

7

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**EXCORESOURCES, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.****             Organization and basis of presentation**

*Unlessthe context requires otherwise, references in this quarterly report to “EXCO,” “we,”“us,” and “our” are to EXCO Resources, its consolidated subsidiaries and EXCOHoldings Inc., or EXCO Holdings, our former parent company, which was acquiredby and into which EXCO Holdings II, Inc., or Holdings II, merged on October 3,2005. On February 14, 2006, EXCO Holdings merged with and into EXCO Resources.*

EXCO Resources, Inc., a Texas corporation, or EXCOResources, is an independent oil and natural gas company engaged in theacquisition, development and exploitation of onshore North American oil andnatural gas properties. We expect to continue to grow by leveraging ourmanagement team’s experience, exploiting our multi-year inventory ofdevelopment drilling locations and exploitation projects, and selectivelypursuing acquisitions that meet our strategic and financial objectives. We employthe use of debt and equity along with a comprehensive derivative financialinstrument program to support our acquisition strategy. This approach enhancesour ability to execute our business plan over the entire commodity price cycle,protect our returns on investment, and manage our capital structure.

During2006, we completed acquisitions of oil and natural gas properties, acreage andrelated gathering facilities totaling in excess of $2.0 billion, the largest ofwhich was Winchester Energy Company, Ltd., or Winchester, for approximately$1.1 billion.  The Winchesteracquisition, which consisted of oil and natural gas properties, gatheringfacilities and acreage located in the East Texas/North Louisiana area, wascompleted within our subsidiary, EXCO Partners, LP, or EXCO Partners.  Concurrent with the acquisition ofWinchester, EXCO Resources contributed all of its assets and subsidiaries thatconducted business in the East Texas/North Louisiana area to EXCO Partners.  Organizationally, EXCO Partners and itssubsidiaries are indirect wholly-owned subsidiaries of EXCO Resources.  EXCO Partners’ debt is not guaranteed by EXCOResources and EXCO Partners does not guarantee EXCO Resources’ debt.

Duringthe first quarter of 2007, we completed a significant acquisition in the EastTexas/North Louisiana area, completed a private placement of preferred stockand amended one of our credit agreements. See –“Significant recent transactions – Amended and restated creditagreement of EPOP.”

The accompanyingcondensed consolidated balance sheets as of December 31, 2006 and March31, 2007, the results of operations and cash flows for the three months endedMarch 31, 2006 and 2007 and the changes in shareholders’ equity for the threemonths ended March 31, 2006 and 2007, are for EXCO, its subsidiaries, and priorto the IPO, its parent.  All intercompanytransactions have been eliminated. Certain prior year amounts have been reclassified to conform to thecurrent year presentation.

Wehave prepared the accompanying unaudited interim financial statements pursuantto the rules and regulations of the Securities and Exchange Commission, or SEC,and in the opinion of management, reflect all adjustments necessary to presentfairly the consolidated financial position of EXCO at March 31, 2007 and itsresults of operations and cash flows for the periods presented.  We have omitted certain information anddisclosures normally included in annual financial statements prepared inaccordance with accounting principles generally accepted in the United Statespursuant to those rules and regulations, although we believe that thedisclosures we have made are adequate to make the information presented notmisleading.  These unaudited interimfinancial statements should be read in conjunction with our audited financialstatements and notes included in our Annual Report on Form 10-K for the yearended December 31, 2006.

Theresults of operations for the interim periods are not necessarily indicative ofthe results we expect for the full year.

**2.****             Significantrecent transactions**

**Private placement of preferred stock**

On March 30, 2007, we completed a private placement, or Private Placement, of an aggregate of $390.0 million of 7.0% Cumulative Convertible Perpetual Preferred Stock, or 7.0% Preferred Stock, and $1.61 billion of Hybrid Preferred Stock, or Hybrid Preferred Stock, to accredited investors pursuant to the terms and conditions of a Preferred Stock Purchase Agreement dated March 28, 2007.  The purchase price for each share was $10,000 (which equals the liquidation preference per share on March 30, 2007).  The issuance and sale of the shares in the Private Placement was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.

8

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The net proceeds of the Private Placement were used to fund the purchase price of approximately $1.5 billion for the acquisition on March 30, 2007 of substantially all of the oil and natural gas properties, acreage and related assets, including hedges in respect of a significant portion of estimated production for 2007, 2008 and 2009, from entities affiliated with Anadarko Petroleum Corporation, or Anadarko, in the Vernon and Ansley Fields located in Jackson Parish, Louisiana, or the Vernon Acquisition, and to repay certain outstanding indebtedness.

The 7.0% Preferred Stock is convertible into shares of our common stock at an initial conversion price of $19.00 per share, subject to anti-dilution adjustments, which equates to each share of 7.0% Preferred Stock being initially convertible into approximately 526.3 shares of our common stock, subject to adjustment for fractional shares.  The Hybrid Preferred Stock is not currently convertible into shares of our common stock.  Under applicable New York Stock Exchange, or NYSE, rules, shareholder approval is required to issue common stock, or securities convertible into or exercisable for common stock, if (i) such common stock has, or will have upon issuance, 20.0% or more of the voting power outstanding before the issuance, (ii) the number of shares of common stock to be issued is, or will be upon issuance, equal to 20.0% or more of the number of shares of common stock outstanding before the issuance, (iii) such common stock, or securities convertible into or exercisable for common stock, will be issued to a director, officer or substantial security holder of a company and such securities exceed either a threshold of one percent or, if issued to a substantial security holder who is not a director or officer at a price that is not less than the book and market value of the common stock, five percent of the number of shares of common stock or the voting power outstanding before the issuance or (iv) such issuance will result in a change of control of a company.

Absent NYSE rules, we likely would have issued 200,000shares of 7.0% Preferred Stock to fund the Vernon Acquisition and to repaycertain outstanding indebtedness.  As aresult of the limited time period to fund the Vernon Acquisition and the timerequired to organize a special meeting of shareholders, we were unable to holda special meeting of our shareholders to approve the issuance of 200,000 sharesof 7.0% Preferred Stock prior to the Vernon Acquisition.  Therefore, in the interim, we issued (i)39,008 shares of 7.0% Preferred Stock, consisting of 23,408 shares of SeriesA-1 7.0% Preferred Stock, 975 shares of Series A-2 7.0% Preferred Stock, 11,700shares of Series B 7.0% Preferred Stock and 2,925 shares of Series C 7.0%Preferred Stock, which shares by their terms are convertible into 19.7% of thenumber of shares of common stock outstanding before the preferred stockissuance and (ii) 160,992 shares of Hybrid Preferred Stock, consisting of149,441 shares of Series A-1 Hybrid Preferred Stock and 11,551 shares of SeriesA-2 Hybrid Preferred Stock, which shares are not currently convertible intocommon stock and which do not have general voting rights.

We agreed with the preferred stock investors to seek the shareholder approval required by the NYSE, or NYSE Shareholder Approval, to transform the terms of the Hybrid Preferred Stock into the same terms as the 7.0% Preferred Stock.  If NYSE Shareholder Approval is obtained, the designations, preferences, limitations and relative voting rights of the Series A-1 Hybrid Preferred Stock and Series A-2 Hybrid Preferred Stock will become identical to the designations, preferences, limitations and relative voting rights of the Series A-1 7.0% Preferred Stock and the Series A-2 7.0% Preferred Stock, respectively, including the right to dividends and the right to convert into shares of our common stock at an initial conversion price of $19.00 per share, subject to anti-dilution adjustments.

If NYSEShareholder Approval is not obtained prior to September 26, 2007, the HybridPreferred Stock will remain outstanding and the 11.0% per annum dividend ratewill be increased by 0.5% per annum for the first 90-day period thereafter andby an additional rate of 0.5% per annum for each subsequent 90-day periodthereafter, up to a maximum rate of 18.0% per annum until NYSE ShareholderApproval is obtained.  In addition, theHybrid Preferred Stock will continue to have the terms described below under “—Principal Terms of the Hybrid PreferredStock,” including restrictive covenants on our right to incur additionalindebtedness, the requirement for us to repurchase the shares following certainasset dispositions and a mandatory redemption by us on April 18, 2011 at 125%of the liquidation preference plus accumulated dividends.

## **Principalterms of the 7.0% Preferred Stock**

The following summarizes the principal terms of the 7.0% Preferred Stock.

## Series A-17.0% Preferred Stock

The Series A-17.0% Preferred Stock has an initial liquidation preference equal to $10,000 pershare and is convertible into common stock at a price of $19.00 per share, asmay be adjusted in accordance with the terms of the Series A-1 7.0% PreferredStock. We may force the conversion of the Series A-1 7.0% Preferred Stock atany time if the common stock trades for 20 days within a period of 30consecutive days at a price, above 175% of the then effective conversion price($33.25 per share at the current conversion price of $19.00 per share) at anytime during the 24 months after issuance, above 150% of the then effectiveconversion price ($28.50

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per share at thecurrent conversion price of $19.00 per share) thereafter through the 48th month after issuance and above 125% of thethen effective conversion price ($23.75 per share at the current conversionprice of $19.00 per share) at any time thereafter.  Cash dividends will accrue at the rate of7.0% per annum prior to March 30, 2013 and at the rate of 9.0% per annum thereafter.  In lieu of paying cash dividends, we may,under certain circumstances prior to March 30, 2013, pay such dividend at arate of 9.0% per annum by adding the dividend to the liquidation preference ofthe shares of Series A-1 7.0% Preferred Stock. Upon the occurrence of a change of control, holders of the Series A-17.0% Preferred Stock may require us to repurchase their shares for cash at theliquidation preference plus accumulated dividends.  Holders of the Series A-1 7.0% PreferredStock have the right to vote with the holders of common stock, the holders ofother series of 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, the holders of Hybrid Preferred Stock, together as a single class, onall matters submitted to our shareholders (except the election of directors) onan as-converted basis.  Holders of SeriesA-1 7.0% Preferred Stock, Series B 7.0% Preferred Stock, Series C 7.0%Preferred Stock and, if NYSE Shareholder Approval is obtained, Series A-1Hybrid 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 andSeries C 7.0% Preferred Stock to vote as separate classes to each elect one ofsuch preferred directors.  In addition,upon the occurrence of specified defaults in the Statements of Designation forthe 7.0% Preferred Stock and the Hybrid Preferred Stock, the holders of the7.0% Preferred Stock and Hybrid Preferred Stock, voting together as a class,have the right to elect four additional directors, or Default Directors, untilsuch default is cured.

## Series A-27.0% Preferred Stock

The Series A-27.0% Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that holders of Series A-2 7.0% Preferred Stock do nothave the right to elect directors (other than the Default Directors) and do nothave any registration rights under the 7.0% Registration Rights Agreement.  Shares of Series A-2 7.0% Preferred Stock automaticallyconvert into shares of Series A-1 7.0% Preferred Stock when the holder thereofhas provided the Company with a certificate certifying that either no filing isrequired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, asamended, or HSR Act, with respect to such holder’s acquisition of the shares ofSeries A-1 7.0% Preferred Stock or the waiting period applicable to such holderunder the HSR Act has expired.

## Series B 7.0%Preferred Stock

The Series B 7.0%Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that the holders of Series B 7.0% Preferred Stock havethe right to designate one of the preferred directors and do not haveregistration rights under the registration rights agreement with the 7.0%Preferred Stock investors, or 7.0% Registration Rights Agreement.  The Series B 7.0% Preferred Stock isconvertible into Series A-1 7.0% Preferred Stock at any time at the election ofthe holder and will automatically convert into Series A-1 7.0% Preferred Stockwhen such holder ceases to own an aggregate of 10,000 shares of Series B 7.0%Preferred Stock and/or Hybrid Preferred Stock.

## Series C 7.0%Preferred Stock

The Series C 7.0%Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that the holders of Series C 7.0% Preferred Stock havethe right to designate one of the preferred directors and do not have anyregistration rights under the 7.0% Registration Rights Agreement.  The Series C 7.0% Preferred Stock isconvertible into Series A-1 7.0% Preferred Stock at any time at the election ofthe holder and will automatically convert into Series A-1 7.0% Preferred Stockwhen such holder ceases to own an aggregate of 10,000 shares of Series C 7.0%Preferred Stock and/or Hybrid Preferred Stock.

## **Principalterms of the Hybrid Preferred Stock**

The following summarizes the principal terms of the Hybrid Preferred Stock.

Series A-1 HybridPreferred Stock

Initially, theSeries A-1 Hybrid Preferred Stock is not convertible into common stock.  If NYSE Shareholder Approval is obtained,then the designations, preferences, limitations and relative voting rights ofthe Series A-1 Hybrid Preferred Stock will become identical to thedesignations, preferences, limitations and relative voting rights of the SeriesA-1 7.0% Preferred Stock, including the right to dividends and the right toconvert into our common stock.

If NYSEShareholder Approval is not obtained prior to September 26, 2007, cashdividends will continue to accrue on the Series A-1 Hybrid Preferred Stock at arate of 11.0% per annum and the annual dividend rate will increase by 0.5% perquarter

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thereafter (up toa maximum rate of 18% per annum) until NYSE Shareholder Approval isobtained.  Prior to the earlier ofSeptember 26, 2007 and the date that NYSE Shareholder Approval is obtained, theSeries A-1 Hybrid Preferred Stock may be redeemed only with the consent of theholders of the Hybrid Preferred Stock at a redemption price equal to 100.0% ofthe liquidation preference plus accrued dividends.  After September 26, 2007 and prior to thedate that NYSE Shareholder Approval is obtained, the Series A-1 Hybrid PreferredStock is redeemable at our option at any time, and must be redeemed onApril 18, 2011, for cash at 125.0% of the liquidation preference plusaccrued dividends.  Upon the occurrenceof a change of control, holders of Series A-1 Hybrid Preferred Stock mayrequire us to repurchase their shares for cash at 101% of the liquidationpreference plus accrued dividends.  Inaddition, upon the occurrence of specified defaults in the Statements ofDesignation for the Hybrid Preferred Stock, the holders of 7.0% Preferred Stockand Hybrid Preferred Stock, voting together as a class, have the right to electfour default directors until such default is cured.  Prior to obtaining NYSE Shareholder Approval,the Series A-1 Hybrid Preferred Stock contains covenants that restrict ourability to incur additional indebtedness and require us to repurchase theshares following certain asset dispositions.

## Series A-2Hybrid Preferred Stock

The Series A-2Hybrid Preferred Stock has substantially the same rights as the Series A-1Hybrid Preferred Stock, except that holders of Series A-2 Hybrid PreferredStock do not have any registration rights. Initially the Series A-1 Hybrid Preferred Stock is not convertible intoour common stock.  If NYSE ShareholderApproval is obtained, then the designations, preferences, limitations andrelative voting rights of the Series A-2 Hybrid Preferred Stock will becomeidentical to the designations, preferences, limitations and relative votingrights of the Series A-2 7.0% Preferred Stock, including the right to dividendsand the right to convert into our common stock. Shares of Series A-2 Hybrid Preferred Stock automatically convert intoshares of Series A-1 Hybrid Preferred Stock when the holder thereof hasprovided us with a certificate certifying that either no filing is requiredunder the HSR Act with respect to such holder’s acquisition of the shares ofSeries A-1 Hybrid Preferred Stock or the waiting period applicable to suchholder under the HSR Act has expired.

**7.0%Preferred Stock Registration Rights Agreement**

In connection withthe Private Placement, we entered into the 7.0% Registration Rights Agreementwith the 7.0% Preferred Stock investors. The 7.0% Registration Rights Agreementcontemplates the registration of the resale of the shares of common stockunderlying the 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, the Hybrid Preferred Stock. The 7.0% Registration Rights Agreementcontains customary terms and conditions for a transaction of this type. We agreed to file with the SEC, not later than September 26, 2007, aregistration statement to register the offer and sale of the common sharesissuable upon conversion of the 7.0% Preferred Stock and to use our bestefforts to have the registration statement declared effective by March 24,2008.  If any shares of 7.0% Preferred Stock are outstanding on March 30,2011, we agreed 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 weare unable to meet the deadlines described above, if a registration statementceases to remain effective or if we restrict sales under a registrationstatement under certain “blackout provisions” for longer than the contractuallypermitted period, we must pay liquidated damages at a rate of 0.5% per annum ofthe 7.0% Preferred Stock liquidation preference for the first 90 days andthereafter for each subsequent 90-day period at an additional rate of 0.25% upto a maximum of 2.0% per annum during any default period.  We also agreedto indemnify holders against certain liabilities under the Securities Act of1933 in respect of any such resale registration.

**Hybrid Preferred StockRegistration Rights Agreement**

In connection withthe Private Placement, we entered into a registration rights agreement, orHybrid Registration Rights Agreement, with the Hybrid Preferred Stockinvestors. The Hybrid Registration Rights Agreement contemplates theregistration of the resale of the shares of Series A-1 Hybrid PreferredStock.  If NYSE Shareholder Approval is not obtained by September 26,2007, we agreed to file a registration statement with the SEC by December 24,2007, covering the resale prior to such shareholder approval of shares ofHybrid Preferred Stock and to use our best efforts to have the registrationstatement declared effective by March 24, 2008.  The Hybrid RegistrationRight Agreement contains liquidated damages payment provisions andindemnification obligations similar to those contained in the 7.0% RegistrationRights Agreement.

## **Amended and restatedcredit agreement of EPOP**

On March 30, 2007, EXCOPartners Operating Partnership, or EPOP, entered into an Amended and RestatedCredit Agreement, or the EPOP Credit Agreement, among EPOP, as borrower,certain subsidiaries of EPOP, as guarantors, and certain lenders, JPMorgan Chase Bank,N.A., as administrative agent, and J.P. Morgan Securities Inc., as sole bookrunner and lead arranger. The initial interest rate is LIBOR plus 150basis points with a maximum rate of LIBOR plus 175 basis points.  Thematerial changes reflected in the EPOP Credit Agreement include anincrease in the borrowing base from $750.0 million to $1.3 billion, principallyto reflect the assets acquired in the Vernon Acquisition.  EPOP applied$416.2 million (plus $252.5 of EXCO’s capital contribution) to

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repay its Senior Term Credit Facility plus accruedinterest of $5.7 million and a prepayment premium of $13.0 million.  Uponconsummation of the transactions, approximately $1.1 billion is outstandingunder the EPOP Credit Agreement.  Financial covenants contained within theEPOP Credit Agreement include a Consolidated Current Ratio (as defined) as ofthe end of any fiscal quarter ending on or after June 30, 2007 to be at least1.00 to 1.00.  For any fiscal quarter ending June 30, 2007 and thereafter,the ratio of Consolidated Funded Indebtedness (as defined) to ConsolidatedEBITDAX (as defined) must be no greater than 3.50 to 1.00.  For anyquarter beginning June 30, 2007 and thereafter, the ratio of ConsolidatedEBITDAX to Consolidated Interest Expense (as defined) must be at least 2.50 to1.00.  EPOP has also agreed to have in place commodity derivativecontracts covering no more than 80% of its “forecasted production from totalproved reserves” (as defined) for the next two years and 70% in the third,fourth and fifth years.  EPOP shall have in place mortgages covering 80%of its proved reserve value.  Finally, EPOP is permitted to dividend toits parent EXCO Partners up to $200.0 million per annum provided that (i) EPOPis not in default under the EPOP Credit Agreement and (ii) the amount borrowedunder the EPOP Credit Agreement does not exceed 90% of the then-permittedborrowing base.

**Vernon Acquisition**

On March 30, 2007, EPOP completed the purchaseof substantially all of the oil and natural gas properties and related assetsrelated to the Vernon and Ansley fields located in Jackson Parish, Louisianafrom Anadarko Petroleum Corporation and Anadarko Gathering Company, or Anadarko,for approximately $1.5 billion in cash, net of preliminary purchase priceadjustments.  The Vernon Acquisition wasfunded by a $1.75 billion capital contribution from EXCO to EPOP.  The capital contribution consisted of $1.67billion in cash and an $80.0 million deposit made by EXCO in December 2006. Ourpreliminary allocation of value to the Vernon Acquisition, which includes theassumption of derivative financial contracts covering a significant portion ofestimated production for 2007, 2008 and 2009, was approximately $1.39 billionto proved properties, $57.0 million to unproved properties and $117.0 millionto gathering and treating facilities, respectively.  The fair value of the assumed derivativefinancial instruments was a liability of approximately $60.0 million.

**Pro forma results of operations**

The following table reflects the unaudited proforma results of operations as though the acquisitions of TXOK Acquisition,Inc., Power Gas Marketing & Transmission, Inc., Winchester Acquisition,Inc. (see our annaul report on Form 10-K filed on March 19, 2007 fordiscussion of these acquisitions) and the Vernon Acquisition had occurred onJanuary 1, 2006.
|                                                                    | ** ** | **For the three months ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(in thousands, except per share data)** | ** ** | **2006**                                                               | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Revenues and  other income                                         |       | $                                                                      | 364,821    |   | $ | 130,303 |   |
| Net income  (loss)                                                 |       | $                                                                      | 159,708    |   | $ | (46,727 | ) |
| Preferred stock  dividends                                         |       | (51,099                                                                | )          | (51,099 | ) |
| Net income  (loss) available to common shareholders                |       | $                                                                      | 108,609    |   | $ | (97,826 | ) |
| Basic earnings  per share                                          |       | $                                                                      | 1.36       |   | $ | (0.94 | ) |
| Diluted earnings per  share                                        |       | $                                                                      | 0.91       |   | $ | (0.94 | ) |

 

**Sale of Colorado oil and natural gas properties**

On January 5, 2007, we completed the sale ofoil and natural gas properties and undeveloped drilling locations in theWattenberg field area of the Denver Julesburg Basin for approximately $129.6million in cash, net of contractual adjustments.  The transaction included substantially all ofthe assets EXCO held in the area.  Proceedsfrom the sale were deposited with a third party intermediary pending closing ofan acquisition to facilitate a like-kind exchange for federal income taxpurposes.

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

In****July 2006,the Financial Accounting Standards Board, or FASB, issued FinancialInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”, orFIN 48. FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in a company’s financial statements in accordance with Statement ofFinancial Accounting Standards No. 109, “Accounting for Income Taxes”. FIN48 provides guidance on recognizing, measuring, presenting and disclosing inthe financial statements uncertain tax positions that a company has taken orexpects to take on a tax return. We adopted FIN 48 on January 1, 2007. Theadoption of FIN 48 did not have a material impact on our consolidated financialposition or results of operations.

The FinancialAccounting Standards Board (FASB) issued FASB Staff Position EITF 00-19-2 “Accountingfor Registration Payment Arrangements” (FSP 00-19-2) on December 21, 2006.  FSP 00-19-2 requires contingent obligationsto make future payments under a registration payment arrangement to berecognized separately in accordance with Statement of Financial Accounting

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Standards No. 5, “Accountingfor Contingencies” (SFAS No. 5).  SFASNo. 5 requires that an estimated loss from a loss contingency be accrued if theloss is probable and can reasonably be estimated.  Our 7.0% Preferred Stock and Hybrid PreferredStock contain requirements for EXCO to register shares on behalf of thepreferred stockholders.  If suchregistration dates are not met, or a prior registration statement ceases toremain effective, we may be obligated to pay liquidation damages in the form ofincreased dividend rates.  The maximum liquidationdamages that can be incurred on the 7.0% Preferred Stock is 2.0% per year, or anincrease of approximately $7.8 million. The 11.0% dividend obligation on the Hybrid Preferred Stock increases by0.5% per quarter beginning on September 26, 2007 if Exco has not obtainedshareholder approval, and increases 0.5% per quarter up to a maximum of18.0%.  Assuming the full additionaldividend obligation is incurred on the Hybrid Preferred Stock, the annualdividend obligation would increase from $177.1 million per year to $289.8million, an increase of $112.7 million. We adopted FSP 00-19-2 upon issuance of the 7.0% Preferred Stock and theHybrid Preferred Stock.  We do notbelieve any of the contingencies associated with the registration rights of thepreferred stockholders exist as of March 31, 2007 and therefore are not valuedseparately at March 31, 2007.

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

We consider accountingpolicies related to 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. When we acquire oil and natural gasproperties, the application of purchase accounting is also a significantaccounting policy. The policies include significant estimates made bymanagement using information available at the time the estimates are made.However, these estimates could change materially if different information orassumptions were used. These policies are summarized in our annual report onForm 10-K for the year ended December 31, 2006.

**5.****             Asset retirement obligations**

Thefollowing is a reconciliation of our asset retirement obligations as of March31, 2006 and 2007 (in thousands):
|                                                    | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **March 31,**               | ** ** |
| **(Unaudited)**                                    | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| Asset retirement  obligation at January 1          |       | $                                | 15,823     |   | $ | 56,149 |   |
| Activity during  the three months ended March 31:  |       |                             |       |   |   |
| Acquisition of  TXOK Acquisition, Inc              |       | 8,204                            |       | — |   |
| Liabilities  incurred during the period            |       | 159                              |       | 465 |   |
| Liabilities  settled during the period             |       | —                           |       | (1,674 | ) |
| Adjustment to  liability due to Vernon Acquisition |       | —                           |       | 10,726 |   |
| Accretion of  discount                             |       | 302                              |       | 943 |   |
| Asset retirement  obligations as of March 31       |       | 24,488                           |       | 66,609 |   |
| Less current  portion                              |       | (1,407                           | )          | (1,577 | ) |
| Long-term portion                                  |       | $                                | 23,081     |   | $ | 65,032 |   |

 

Wehave no assets that are legally restricted for purposes of settling assetretirement obligations.

**6.****             Oil and natural gas properties**

Werecord oil and natural gas properties at cost using the full cost method ofaccounting. Under the full cost method, all costs associated with theacquisition, exploration or development of oil and natural gas properties arecapitalized as part of the full cost pool. Capitalized costs are limited to theaggregate of the present value of future net revenues plus the lower of cost orfair market value of unproved properties less the income tax effects related tobook and tax basis of the oil and natural gas properties involved. The fullcost pool is comprised of lease and well equipment and exploration anddevelopment costs incurred, plus intangible acquired proved leaseholds.

Unprovedoil and natural gas properties are excluded from the calculation ofdepreciation, depletion and amortization until it is determined whether or notProved Reserves can be assigned to such properties. At December 31, 2006and March 31, 2007, $297.9 million and $350.8 million, respectively,in unproved oil and natural gas properties were excluded from our full costpool in calculating our depreciation, depletion and amortization. We assess ourunproved oil and natural gas properties for impairment on a quarterly basis.

Sales,dispositions and other oil and natural gas property retirements are accountedfor as adjustments to the full cost pool, with no recognition of gain or lossunless the disposition would significantly alter the amortization rate.

At theend of each quarterly period, the unamortized cost of proved oil and naturalgas properties, net of related deferred income taxes, is limited to the sum ofthe estimated future net revenues from proved properties using currentperiod-end prices discounted at 10%, adjusted for related income tax effects(ceiling test).

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Thecalculation of the ceiling test is based upon estimates of Proved Reserves.There are numerous uncertainties inherent in estimating quantities of ProvedReserves, in projecting the future rates of production and in the timing ofdevelopment activities. The accuracy of any reserve estimate is a function ofthe quality of available data and of engineering and geological interpretationand judgment. Results of drilling, testing and production subsequent to thedate of the estimate may justify revision of such estimate. Accordingly,reserve estimates are often different from the quantities of oil and naturalgas that are ultimately recovered.

**7.****             Earnings (loss) pershare**

We account for earningsper share in accordance with Statement of Financial Accounting Standard (“SFAS”)No. 128, “Earnings per share”. SFAS No. 128 requires companies to presenttwo calculations of earnings per share (EPS); basic and diluted. Basic earnings(loss) per common share for the three months ended March 31, 2006 and 2007equals the net income (loss) divided by the weighted average common sharesoutstanding during the period.  Dilutedearnings (loss) per common share for the three months ended March 31, 2006 and2007 equals net income (loss) divided by the sum of weighted average commonshares outstanding during the period plus any dilutive common stock equivalentsassumed to be issued.  Common stockequivalents for the three months ended March 31, 2006 and 2007 are sharesassumed to be issued if EXCO’s outstanding stock options were in-the-money andexercised.   We have excluded 2,245,500stock options from the computation of earnings per share as they areantidilutive due to the net loss for the three months ended March 31, 2007

The following tablepresents the basic and diluted earnings (loss) per share computations for thethree months ended March 31, 2006 and 2007:
|                                                                                | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands, except per share amounts)**          | ** ** | **2006**                                             | ** ** | **2007** | ** ** |
|                                                                           |       |                                                 |       |   |   |
| Basic earnings  (loss) per common share                                        |       |                                                 |       |   |   |
|                                                                           |       |                                                 |       |   |   |
| Net income (loss)                                                              |       | $                                                    | 37,152     |   | $ | (87,697 | ) |
| Preferred stock dividends                                                      |       | —                                               |       | 1,136 |   |
| Net income (loss) available to common shareholders                             |       | $                                                    | 37,152     |   | $ | (88,833 | ) |
|                                                                           |       |                                                 |       |   |   |
| Shares:                                                                        |       |                                                 |       |   |   |
| Weighted average number of common shares outstanding                           |       | 80,098,873                                           |       | 104,201,768 |   |
|                                                                           |       |                                                 |       |   |   |
| Basic earnings  (loss) per share:                                              |       |                                                 |       |   |   |
| Net income (loss) available to common shareholders  per common share           |       | $                                                    | 0.46       |   | $ | (0.85 | ) |
|                                                                           |       |                                                 |       |   |   |
| Diluted earnings  (loss) per share                                             |       |                                                 |       |   |   |
|                                                                           |       |                                                 |       |   |   |
| Net income (loss) available to common shareholders                             |       | $                                                    | 37,152     |   | $ | (88,833 | ) |
|                                                                           |       |                                                 |       |   |   |
| Shares:                                                                        |       |                                                 |       |   |   |
| Weighted average number of common shares  outstanding.                         |       | 80,098,873                                           |       | 104,201,768 |   |
| Dilutive effect of stock options                                               |       | 1,715,642                                            |       | — |   |
| Weighted average common shares and common stock  equivalent shares outstanding |       | 81,814,515                                           |       | 104,201,768 |   |
|                                                                           |       |                                                 |       |   |   |
| Diluted earnings  (loss) per share:                                            |       |                                                 |       |   |   |
| Net income  (loss) available to common shareholders per common share           |       | $                                                    | 0.45       |   | $ | (0.85 | ) |

 

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

We adopted SFAS No.123(R), “Share-Based Compensation” on October 3, 2005. As required bySFAS 123(R), the granting of options to our employees under the 2005Long-Term Incentive Plan, or the 2005 Incentive Plan, are share-based paymenttransactions and are to be treated as compensation expense by us with a correspondingincrease to additional paid-in capital. Volatility was determined based on theweighted average of volatility of our common stock from October 1, 2001 toDecember 31, 2002 and the daily closing prices from five comparable publiccompanies. For the three months ended March 31, 2007, total share-basedcompensation was $2.3 million, of which $1.9 million is included in general andadministrative expense and $0.4 million was capitalized as part of proveddeveloped and undeveloped oil and natural gas properties. Total share-basedcompensation to be recognized on unvested awards as of March 31, 2007 is$14.8 million over a weighted average period of 2.0 years.

During the threemonths ended March 31, 2007, options to purchase 468,500 shares were grantedunder the 2005 Incentive

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Plan at prices rangingfrom $16.00 to $17.24 per share with fair values ranging from $5.60 to $6.01per share. The options expire ten years following the date of grant. Pursuantto the 2005 Incentive Plan, 25% of the options vest immediately with anadditional 25% to vest on each of the next three anniversaries of the date ofthe grant. As of December 31, 2006 and March 31, 2007, there were1,574,475 and 1,215,825 shares available to be granted under the 2005 IncentivePlan, respectively.

**9.****             Geographicoperating segment information**

We follow Statement of Financial Accounting Standards No.131, “Disclosures About Segments of an Enterprise and Related Information”, orSFAS No. 131. We have operations in only one industry segment, that being theoil and natural gas exploration and production industry.   In prior periods, the Company providedgeographic segment financial information for the following regions within theUnited States: EXCO (excluding Appalachia) and Appalachia.  Effective in the fourth quarter of 2006, weno longer present separate financial information for geographic regions withina country.  We now present industrysegment information on a basis consistent with the determination of our fullcost pools.

**10.****         ****Derivative financial instruments**

We donot designate our derivative financial instruments as hedging instruments forfinancial accounting purposes and, as a result, we recognize the change in thederivative’s fair value currently in earnings.

The following table setsforth our oil and natural gas derivatives as of March 31, 2007 and includes theassumed derivative contracts acquired in connection with the VernonAcquisition. The fair values at March 31, 2007 are estimated from quotes fromthe counterparties and represent the amount that we would expect to receive orpay to terminate the contracts at March 31, 2007. We have the right to offsetamounts we expect to receive or pay among our individual counterparties. As aresult, we have offset amounts for financial statement presentation purposes.
|                                                  | ** ** | ** **     | ** ** | **Weighted**            | ** ** | ** **                   | ** ** |
|--------------------------------------------------|------------|----------------|------------|-------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **Volume**     | ** ** | **average strike** | ** ** | **Fair value at**  | ** ** |
| **(in thousands, except prices)** | ** ** | **Mmbtu/Bbls** | ** ** | **price**               | ** ** | **March 31, 2007** | ** ** |
|                                             |       |           |       |                    |       |                         |       |
| **Natural  Gas:**                                |       |           |       |                    |       |                         |       |
| Swaps NYMEX:                                     |       |           |       |                    |       |                         |       |
| Remainder of  2007                               |       | 74,410         |       | $                       | 7.92       |                         | $          | (22,697 | ) |
| 2008                                             |       | 81,570         |       | 8.41                    |       | (22,172                      | )          |
| 2009                                             |       | 58,555         |       | 7.92                    |       | (22,275                      | )          |
| 2010                                             |       | 6,985          |       | 6.63                    |       | (8,062                       | )          |
| 2011                                             |       | 1,825          |       | 4.51                    |       | (4,753                       | )          |
| 2012                                             |       | 1,830          |       | 4.51                    |       | (4,295                       | )          |
| 2013                                             |       | 1,825          |       | 4.51                    |       | (3,957                       | )          |
| **Total  Natural Gas**                           |       | 227,000        |       |                    |       | (88,211                      | )          |
|                                             |       |           |       |                    |       |                         |       |
| **Oil:**                                         |       |           |       |                    |       |                         |       |
| Swaps:                                           |       |           |       |                    |       |                         |       |
| Remainder of  2007                               |       | 552            |       | 69.37                   |       | 323                          |       |
| 2008.                                            |       | 327            |       | 62.67                   |       | (2,229                       | )          |
| 2009                                             |       | 120            |       | 60.80                   |       | (865                         | )          |
| 2010                                             |       | 108            |       | 59.85                   |       | (689                         | )          |
| **Total  Oil**                                   |       | 1,107          |       |                    |       | (3,460                       | )          |
| **Total Oil and Natural Gas**                    |       |           |       |                    |       | $                            | (91,671    | ) |
|                                                  |            |                |            |                         |            |                              |            |  |  |

 

AtMarch 31, 2007, the average forward NYMEX oil prices per Bbl for the remainderof 2007 and for 2008 was $68.80 and $69.95, respectively, and the averageforward NYMEX natural gas price per Mmbtu for the remainder of calendar 2007and for 2008 were $8.24 and $8.70, respectively.

**11.****         ****Long-term debt**

Long-term debt issummarized as follows:

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|                                                            | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| **(in thousands)**                                    | ** ** | **2006**              | ** ** | **2007**           | ** ** |
|                                                       | ** ** | ** **            | ** ** | ** **         | ** ** |
| Short-term debt:                                           | ** ** | ** **            | ** ** | ** **         | ** ** |
| Current portion  of long-term debt                         |       | $                     | 6,500      |               | $          | — |   |
| Long-term debt:                                            |       |                  |       |               |       |
| EPOP Credit  Agreement                                     |       | 643,500               |       | 1,100,000          |       |
| EPOP Senior Term  Credit Agreement                         |       | 643,500               |       | —             |       |
| EXCO Resources  Credit Agreement                           |       | 339,000               |       | 55,000             |       |
| Unamortized  discount on EPOP Senior Term Credit Agreement |       | (3,180                | )          | —             |       |
| 7 1/4% senior  notes due 2011                              |       | 444,720               |       | 444,720            |       |
| Unamortized  premium on 7 1/4% senior notes due 2011       |       | 14,113                |       | 13,341             |       |
| Total                                                      |       | $                     | 2,081,653  |               | $          | 1,613,061 |   |

 

**Credit agreements**

*EPOP Credit Agreement*

The EPOP CreditAgreement has an initial borrowing base of $1.3 billion and $1.1 billion drawnas of March 31, 2007. The borrowing base will be redetermined on a semi-annualbasis, with EPOP and the lenders having the right to interim unscheduledredeterminations in certain circumstances. Scheduled redeterminations will bemade on or about April 1 and October 1 of each year, beginning October 1,2007.  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. Financial covenants under the EPOP Credit Agreementrequire that we:

·      maintain a consolidated current ratio (as definedunder the EPOP Credit Agreement) of at least 1.0 to 1.0 at the end of anyfiscal quarter, beginning with the quarter ending June 30, 2007;

·      not permit our ratio of consolidated indebtednessto consolidated EBITDAX (as defined under the EPOP Credit Agreement) to begreater than 3.5 to 1.0 at the end of each fiscal quarter, beginning with thequarter ending June 30, 2007; and

·      not permit our interest coverage ratio (asdefined under the EPOP Credit Agreement) to be less than 2.5 to 1.0 at the endof each fiscal quarter, beginning with the quarter ending June 30, 2007.

The EPOP CreditAgreement contains representations, warranties, covenants, events of default,and indemnities customary for agreements of this type. The EPOP CreditAgreement matures March 30, 2012 and has an initial drawn interest rate ofLIBOR + 150 basis points (“bps”) and an undrawn commitment fee of37.5 bps.

*EPOP Senior Term Credit Agreement*

In connection with theWinchester acquisition, EPOP entered into the EPOP Senior Term Credit Agreementdated October 2, 2006 (as amended and restated as of October 13, 2006) withJPMorgan Chase Bank, N.A., as administrative agent.  On March 30, 2007, in connection with the $1.75billion capital contribution from EXCO and the amendments to the EPOP CreditAgreement, the EPOP Senior Term Credit Agreement was paid in full. Total coststo retire the debt was $668.7 million consisting of $650.0 million ofprincipal, $5.7 million of accrued interest and $13.0 million representing a2.0% redemption premium pursuant to terms of the EPOP Senior Term CreditAgreement.  The $13.0 million redemptionpremium is reported as a component of interest expense in the condensedconsolidated statement of operations for the three months ended March 31,2007.  Unamortized deferred financingcosts of $9.0 million, an unamortized original issue discount of $3.0 millionassociated with the EPOP Senior Term Credit Agreement and $6.9 million of bankfees associated with a commitment letter arrangement entered into to ensuresufficient financing to complete acquisitions from Anadarko were also writtenoff and reported as a component of interest expense as a result of theretirement of this debt.

*EXCO Resources Credit Agreement*

On March 17, 2006,EXCO Resources and certain of its subsidiaries entered into an amended andrestated credit agreement, or the EXCO Resources Credit Agreement, with certainlenders, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. MorganSecurities Inc., as sole book runner and lead arranger.  This amendmentestablished a new borrowing base of $750.0 million under the EXCO ResourcesCredit Agreement reflecting the addition of the assets of TXOK.  TXOK andits subsidiaries became

16

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guarantors of the EXCOResources Credit Agreement.  The amendment also provided for an extensionof the credit agreement maturity date to December 31, 2010.  The borrowingbase will be re-determined each November 1 and May 1, beginningNovember 1, 2006.  The borrowing base is determined based on a number offactors including commodity prices.  We use derivative financialinstruments to lessen the impact of volatility in commodity prices. Financial covenants under the EXCO Resources Credit Agreement require that we:

·      maintaina consolidated current ratio (as defined under the EXCO Resources CreditAgreement) of at least 1.0 to 1.0 at the end of any fiscal quarter; and

·      notpermit our ratio of consolidated indebtedness to consolidated EBITDAX (as definedunder the EXCO Resources Credit Agreement) to be greater than 3.5 to 1.0 at theend of each fiscal quarter.

Borrowings underthe EXCO Resources Credit Agreement are collateralized by a first lien mortgageproviding a security interest in 90% of our oil and natural gasproperties. None of the assets of EXCO Partners, including EPOP can beused as collateral for the EXCO Resources Credit Agreement. As of March 17,2006, our borrowings are collateralized by a first lien mortgage providing asecurity interest in the value of our Proved Reserves which is at least 125% ofthe aggregate commitment.  The aggregate commitment is the lesser of (i)$1.25 billion and (ii) the borrowing base; however, the initial aggregatecommitment is $300.0 million.  This aggregate commitment minimum of $300.0million can be raised, from time to time, up to the borrowing base of $750.0million at our sole discretion. Effective May 11, 2006, we increased theaggregate commitment to $500.0 million.

At our option,borrowings under the EXCO Resources Credit Agreement accrue interest at one ofthe following rates:

·      thesum of (i) the greatest of the administrative agent’s prime rate, the base CDrate plus 1.0% or the federal funds effective rate plus 0.50% and (ii) anapplicable margin, which ranges from 0.0% up to 0.75% depending on ourborrowing base usage; or

·      thesum of (i) LIBOR multiplied by the statutory reserve rate and (ii) anapplicable margin, which ranges from 1.0% up to 1.75% depending on ourborrowing usage.

Additionally, theEXCO Resources Credit Agreement contains a number of other covenants regardingour liquidity and capital resources, including restrictions on our ability toincur additional indebtedness, restrictions on our ability to pledge assets,and a prohibition on the payment of dividends on our common stock.  As of March 31, 2007, we were incompliance with the covenants contained in the EXCO Resources Credit Agreement.

At December 31, 2006and March 31, 2007, the six month LIBOR rates were 5.37% and 5.33%, respectively,which would result in interest rates of approximately 6.62% and 6.58%,respectively, on any new indebtedness we may incur under the credit agreement.At December 31, 2006 and March 31, 2007, we had $339.0 and $55.0 millionrespectively, of outstanding indebtedness under the EXCO Resources CreditAgreement.

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

On January 20, 2004,EXCO completed the private placement of $350.0 million aggregate principalamount of 71⁄4% senior notes dueJanuary 15, 2011, or senior notes, pursuant to Rule 144A andRegulation S under the Securities Act of 1933, or Securities Act, at aprice of 100% of the principal amount. The net proceeds of the offering wereused to acquire North Coast, pay down debt under our credit facilities andNorth Coast’s credit facility, repay a senior term loan in full and pay feesand expenses associated with those transactions.

On April 13, 2004,EXCO completed a private placement of an additional $100.0 millionaggregate principal amount of the senior notes pursuant to Rule 144A,having the same terms and governed by the same indenture as the notes issued onJanuary 20, 2004. The notes issued on April 13, 2004 were issued at aprice of 103.25% of the principal amount plus interest accrued sinceJanuary 20, 2004. The net proceeds of the April 13, 2004 offeringwere used to repay substantially all of our outstanding indebtedness under ourCanadian credit agreement and pay fees and expenses associated therewith.

On May 28,2004, EXCO concluded an exchange offer of $450.0 million aggregateprincipal amount of our senior notes, which were privately placed inJanuary and April 2004, for $450.0 million aggregate principalamount of our senior notes that have been registered under the Securities Act.Holders of all but $0.3 million of the senior notes elected to accept ourexchange offer.

Interest is payable onthe senior notes semi-annually in arrears on January 15 and July 15of each year. The senior notes

17

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mature on January 15, 2011. We may redeem some orall of the senior notes beginning on January 15, 2007 for the redemptionprice set forth in the senior notes.

On October 3, 2005, EXCOHoldings, then our privately held parent, closed on an equity buyouttransaction that resulted in a change of control.  As a result of this change in control, thesenior notes were recorded at their fair value which resulted in a premium of$18.0 million in excess of the aggregate principal amount.

The indenture governingthe senior notes contains covenants which limit our ability and the ability ofour subsidiaries to:

·      incuror guarantee additional debt and issue certain types of preferred stock;

·      paydividends on our capital stock or redeem, repurchase or retire our capitalstock or subordinated debt;

·      makeinvestments;

·      createliens on our assets;

·      enterinto sale/leaseback transactions;

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

·      engagein transactions with our affiliates;

·      transferor issue shares of stock of subsidiaries;

·      transferor sell assets; and

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

As of March 31, 2007,$444.7 million in principal remained outstanding on the senior notes and theunamortized premium was $13.3 million. The estimated fair value of our senior notes at March 31, 2007 was$446.4 million.  The fair value of thesenior notes is estimated based on quoted market prices for the senior notes.

**12.****          Preferred stock**

The following table presents the carrying value foreach of the series of our 7.0% Preferred Stock and the Hybrid Preferred Stock:

**(inthousands, except shares)**
| Series                   | ** ** | **Number of  issued shares** | ** ** | **Purchase price** | ** ** | **Issuance costs** | ** ** | **Balance as of  March 31, 2007** | ** ** |
|--------------------------|------------|----------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------------------------------------|------------|
| 7.0% Preferred  Stock:   | ** ** | ** **                             | ** ** | ** **              | ** ** | ** **              | ** ** | ** **                                            | ** ** |
| Series A-1               |       | 23,408                                 |       | $                       | 234,080    |                    | $          | (884                                                  | )          | $ | 233,196 |   |
| Series A-2               |       | 975                                    |       | 9,750                   |       | (37                     | )          | 9,713                                                 |       |
| Series B                 |       | 11,700                                 |       | 117,000                 |       | (443                    | )          | 116,557                                               |       |
| Series C                 |       | 2,925                                  |       | 29,250                  |       | (110                    | )          | 29,140                                                |       |
| Subtotal                 |       | 39,008                                 |       | 390,080                 |       | (1,474                  | )          | 388,606                                               |       |
| Hybrid Preferred  Stock: |       |                                   |       |                    |       |                    |       |                                                  |       |
| Series A-1               |       | 149,441                                |       | 1,494,410               |       | (5,648                  | )          | 1,488,762                                             |       |
| Series A-2               |       | 11,551                                 |       | 115,510                 |       | (437                    | )          | 115,073                                               |       |
| Subtotal                 |       | 160,992                                |       | 1,609,920               |       | (6,085                  | )          | 1,603,835                                             |       |
| Total preferred stock    |       | 200,000                                |       | $                       | 2,000,000  |                    | $          | (7,559                                                | )          | $ | 1,992,441 |   |

 

In addition, accrued dividends of $1.1 million areincluded with other long-term liabilities at March 31, 2007.

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**13.****         ****Subsequent events**

Effective May 2, 2007, we completed thepurchase of oil and natural gas properties and related assets, includingderivative financial instruments covering a significant portion of estimatedproduction for 2007, 2008 and 2009 from entities affiliated with Anadarko inmultiple fields primarily located in Oklahoma, Texas and Louisiana forapproximately $748.9 million in cash, net of preliminary purchase price adjustments, orthe Southern Gas Acquisition.

Effective May 2, 2007, inconnection with the Southern Gas Acquisition, we amended and restated our existingEXCO Resources Credit Agreement. The amended and restated EXCO Resources CreditAgreement increased the borrowing base from $750.0 million to $1.0 billion. Theborrowing base will be redetermined on a semi-annual basis, with EXCO Resourcesand the lenders having the right to interim unscheduled redeterminations incertain circumstances.  Scheduledredeterminations will be made on March 1 and September 1 of each year,beginning September 1, 2007.  Borrowingsunder the EXCO Resources Credit Agreement will be collateralized by a firstlien mortgage providing a security interest in our oil and natural gasproperties.  The financial covenantsunder the amended and restated EXCO Resources Credit Agreement are similar tothose contained in the previous EXCO Resources Credit Agreement.

In connection with the Southern Gas Acquisition, thefollowing derivative financial instruments covering estimated production for2007, 2008 and 2009 were entered into by the seller and were assumed by us:
| **(in thousands, except prices)** | ** ** | **Natural gas  volume  Mmbtus** | ** ** | **Weighted  average strike  price per Mmbtu** | ** ** | **Oil  volume  Bbls** | ** ** | **Weighted  average strike  price per Bbl** | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------|------------|------------------------------------------------------------|------------|
| Swaps NYMEX:                                     | ** ** | ** **                           | ** ** | ** **                                                   | ** ** | ** **            | ** ** | ** **                                                 | ** ** |
| Q2 2007                                          |       | 4,270                                |       | 7.43                                                         |       | 183                   |       | 56.03                                                      |       |
| Q3 2007                                          |       | 5,520                                |       | 7.58                                                         |       | 184                   |       | 57.51                                                      |       |
| Q4 2007                                          |       | 5,520                                |       | 8.28                                                         |       | 184                   |       | 58.67                                                      |       |
| 2008                                             |       | 18,300                               |       | 8.14                                                         |       | 732                   |       | 59.60                                                      |       |
| 2009                                             |       | 14,600                               |       | 7.83                                                         |       | 730                   |       | 59.98                                                      |       |

 

On May 8, 2007, we completed the sale of oil andnatural gas properties and related assets in multiple fields primarily located in South Texasand South Louisiana to an entity affiliated with Crimson Exploration Inc., or Crimson,for an aggregate sale price of $245.4 million in cash, net of preliminary purchase price adjustments,and 750,000 shares of Crimson’s common stock. In connection with the closing of the Crimson sale, the borrowing baseon our amended and restated EXCO Resources Credit Agreement was reduced from$1.0 billion to $900.0 million.

**14.****          Condensed********consolidating financial statements**

Setforth below are condensed consolidating financial statements of EXCO, theguarantor subsidiaries and the non-guarantor subsidiaries. The senior notes arejointly and severally guaranteed by some of our subsidiaries (referred to asguarantor subsidiaries). Each of the guarantor subsidiaries are wholly-ownedsubsidiaries of EXCO Resources, or Resources, and the guarantees areunconditional as it relates to the assets of the guarantor subsidiaries. OnFebruary 14, 2006, concurrent with the closing of our IPO, TXOK and itssubsidiaries became restricted subsidiaries under and guarantors of the seniornotes. On May 4, 2006, PGMT became a guarantor of the senior notes. Inconjunction with the formation of EXCO Partners and the Winchester acquisitionon October 2, 2006, certain of our existing subsidiaries, specificallyROJO Pipeline, Inc. and those TXOK subsidiaries that hold direct orindirect interests in certain of our East Texas assets were released from theirguaranties under the senior notes and are now deemed unrestricted subsidiariesthereunder. EXCO Resources itself also contributed all of its directly heldEast Texas assets to EXCO Partners. EXCO Partners, its direct and indirectpartners, which are also subsidiaries of EXCO Resources, and all of EXCOPartners’ subsidiaries are deemed unrestricted subsidiaries under the Indenturegoverning the senior notes and are not guarantors of the senior notes.

Inconnection with the formation of EXCO Partners on October 2, 2006 and theresulting contribution of EXCO’s assets in East Texas, its ROJO subsidiary andthe East Texas subsidiaries of TXOK (collectively, the non-guarantor subsidiaries),the consolidating statements of operations and consolidating statements of cashflows for the three months ended March 31, 2006 have been restated to reflectthe non-guarantor subsidiaries as if they had been non-guarantor subsidiariesfor all periods presented.

Thefollowing financial information presents consolidating financial statements,which include:

·      Resources;

·      the guarantor subsidiaries on a combined basis;

·      the non-guarantor subsidiaries;

·      elimination entries necessary to consolidateResources, the guarantor subsidiaries and the non-guarantor subsidiaries; and

·      EXCO on a consolidated basis.

Investmentsin subsidiaries are accounted for using the equity method of accounting. Thefinancial information for the guarantor and non-guarantor subsidiaries arepresented on a combined basis. The elimination entries primarily eliminateinvestments in subsidiaries and intercompany balances and transactions.

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**EXCORESOURCES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**December31, 2006**
| **(in thousands)**                                          | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Assets**                                                       |       |          |       |                        |       |                              |       |             |       |             |       |
| Current assets:                                                  |       |          |       |                        |       |                              |       |             |       |             |       |
| Cash and cash  equivalents                                       |       | $             | (3,031     | )                           | $          | 15,786                            |       | $                | 10,067     |             | $          | — |   | $ | 22,822 |   |
| Other current assets                                             |       | 21,040        |       | 59,494                      |       | 133,354                           |       | —           |       | 213,888          |       |
| Total current assets                                             |       | 18,009        |       | 75,280                      |       | 143,421                           |       | —           |       | 236,710          |       |
| Oil and natural gas  properties (full cost accounting method):   |       |          |       |                        |       |                              |       |             |       |             |       |
| Unproved oil and  natural gas properties                         |       | 18,576        |       | 89,644                      |       | 189,699                           |       | —           |       | 297,919          |       |
| Proved developed and  undeveloped oil and natural gas properties |       | 129,925       |       | 1,296,394                   |       | 1,066,544                         |       | —           |       | 2,492,863        |       |
| Allowance for  depreciation, depletion and amortization          |       | (9,932        | )          | (77,191                     | )          | (55,468                           | )          | —           |       | (142,591         | )          |
| Oil and natural gas  properties, net                             |       | 138,569       |       | 1,308,847                   |       | 1,200,775                         |       | —           |       | 2,648,191        |       |
| Gas gathering, office  and field equipment, net                  |       | 5,193         |       | 34,085                      |       | 174,883                           |       | —           |       | 214,161          |       |
| Deferred financing  costs                                        |       | 946           |       | —                      |       | 14,983                            |       | —           |       | 15,929           |       |
| Deferred tax asset                                               |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Oil and natural gas  hedge derivatives                           |       | 1,868         |       | 9,522                       |       | 30,079                            |       | —           |       | 41,469           |       |
| Goodwill                                                         |       | 78,317        |       | 196,952                     |       | 194,808                           |       | —           |       | 470,077          |       |
| Investments in and  advances to affiliates                       |       | 1,771,588     |       | (308,606                    | )          | —                            |       | (1,462,982       | )          | —           |       |
| Advance on probable  acquisition                                 |       | 80,000        |       | —                      |       | —                            |       | —           |       | 80,000           |       |
| Other assets, net                                                |       | —        |       | 488                         |       | 32                                |       | —           |       | 520              |       |
| Total assets                                                     |       | $             | 2,094,490  |                        | $          | 1,316,568                         |       | $                | 1,758,981  |             | $          | (1,462,982 | ) | $ | 3,707,057 |   |
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Liabilities and shareholders’  equity**                   |       |          |       |                        |       |                              |       |             |       |             |       |
| Current liabilities                                              |       | $             | 56,691     |                        | $          | 35,266                            |       | $                | 98,967     |             | $          | — |   | $ | 190,924 |   |
| Long-term debt                                                   |       | 797,832       |       | —                      |       | 1,283,821                         |       | —           |       | 2,081,653        |       |
| Deferred income taxes                                            |       | 14,395        |       | 151,741                     |       | —                            |       | —           |       | 166,136          |       |
| Other liabilities                                                |       | 9,616         |       | 68,182                      |       | 10,696                            |       | —           |       | 88,494           |       |
| Payable to parent                                                |       | 36,106        |       | (36,106                     | )          | 16,385                            |       | (16,385          | )          | —           |       |
| Commitments and  contingencies                                   |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Shareholders’ equity                                        |       | 1,179,850     |       | 1,097,485                   |       | 349,112                           |       | (1,446,597       | )          | 1,179,850        |       |
| Total liabilities and shareholder’ equity                   |       | $             | 2,094,490  |                        | $          | 1,316,568                         |       | $                | 1,758,981  |             | $          | (1,462,982 | ) | $ | 3,707,057 |   |

 

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**EXCO RESOURCES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**(Unaudited)**

**March 31, 2007**
| **(in thousands)**                                          | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Assets**                                                       |       |          |       |                        |       |                              |       |             |       |             |       |
| Current assets:                                                  |       |          |       |                        |       |                              |       |             |       |             |       |
| Cash and cash  equivalents                                       |       | $             | 139,874    |                        | $          | 11,601                            |       | $                | 18,203     |             | $          | — |   | $ | 169,678 |   |
| Other current  assets                                            |       | 40,695        |       | 61,697                      |       | 81,367                            |       | —           |       | 183,759          |       |
| Total current  assets                                            |       | 180,569       |       | 73,298                      |       | 99,570                            |       | —           |       | 353,437          |       |
| Oil and natural  gas properties (full cost accounting method):   |       |          |       |                        |       |                              |       |             |       |             |       |
| Unproved oil and  natural gas properties                         |       | 19,847        |       | 88,693                      |       | 242,273                           |       | —           |       | 350,813          |       |
| Proved developed  and undeveloped oil and natural gas properties |       | (3,421        | )          | 1,336,390                   |       | 2,508,505                         |       | —           |       | 3,841,474        |       |
| Allowance for  depreciation, depletion and amortization          |       | (10,787       | )          | (97,204                     | )          | (83,016                           | )          | —           |       | (191,007         | )          |
| Oil and natural  gas properties, net                             |       | 5,639         |       | 1,327,879                   |       | 2,667,762                         |       | —           |       | 4,001,280        |       |
| Gas gathering,  office and field equipment, net                  |       | 4,934         |       | 34,158                      |       | 293,077                           |       | —           |       | 332,169          |       |
| Deferred  financing costs                                        |       | 1,233         |       | —                      |       | 15,120                            |       | —           |       | 16,353           |       |
| Deferred tax  asset                                              |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Oil and natural  gas hedge derivatives                           |       | 777           |       | 2,909                       |       | 6,964                             |       | —           |       | 10,650           |       |
| Goodwill                                                         |       | 78,317        |       | 196,952                     |       | 194,808                           |       | —           |       | 470,077          |       |
| Investments in  and advances to affiliates                       |       | 2,993,142     |       | 7,298                       |       | —                            |       | (3,000,440       | )          | —           |       |
| Advance on probable  acquisition                                 |       | 43,000        |       | —                      |       | —                            |       | —           |       | 43,000           |       |
| Other assets,  net                                               |       | —        |       | 471                         |       | —                            |       | —           |       | 471              |       |
| Total assets                                                     |       | $             | 3,307,611  |                        | $          | 1,642,965                         |       | $                | 3,277,301  |             | $          | (3,000,440 | ) | $ | 5,227,437 |   |
|                                                             |       |          |       |                        |       |                              |       |             |       |             |       |
| **Liabilities  and stockholders’ equity**                   |       |          |       |                        |       |                              |       |             |       |             |       |
| Current  liabilities                                             |       | $             | 37,856     |                        | $          | 40,849                            |       | $                | 131,524    |             | $          | — |   | $ | 210,229 |   |
| Long-term debt                                                   |       | 513,061       |       | —                      |       | 1,100,000                         |       | —           |       | 1,613,061        |       |
| Deferred income  taxes                                           |       | 14,507        |       | 168,056                     |       | —                            |       | —           |       | 182,563          |       |
| Other  liabilities                                               |       | 9,234         |       | 77,943                      |       | 47,855                            |       | —           |       | 135,032          |       |
| Payable to  parent                                               |       | (353,599      | )          | 346,282                     |       | 6,001                             |       | 1,316            |       | —           |       |
| Commitments and  contingencies                                   |       | —        |       | —                      |       | —                            |       | —           |       | —           |       |
| Preferred stock                                                  |       | 1,992,441     |       | —                      |       | —                            |       | —           |       | 1,992,441        |       |
| Stockholders’  equity                                       |       | 1,094,111     |       | 1,009,835                   |       | 1,991,921                         |       | (3,001,756       | )          | 1,094,111        |       |
| Total liabilities and  stockholders’ equity                 |       | $             | 3,307,611  |                        | $          | 1,642,965                         |       | $                | 3,277,301  |             | $          | (3,000,440 | ) | $ | 5,227,437 |   |

 

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**EXCO RESOURCES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**(Unaudited)**

**For the three months ended March 31, 2006**
| ** **                                             | ** ** | ** **    | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | ** **    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **(In thousands)**                                | ** ** | **Resources** | ** ** | **subsidiaries** | ** ** | **subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Revenues  and other income:**                        |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural  gas sales                             |       | $             | 7,320      |             | $          | 47,717           |       | $                | 14,701     |             | $          | — |   | $ | 69,738 |   |
| Derivative  financial instruments                      |       | 11,946        |       | 28,829           |       | —           |       | —           |       | 40,775           |       |
| Other income  (loss)                                   |       | 7,375         |       | 569              |       | 530              |       | (6,198           | )          | 2,276            |       |
| Equity in  earnings of subsidiaries                    |       | 36,998        |       | —           |       | —           |       | (36,998          | )          | —           |       |
| Total revenues  and other income                       |       | 63,639        |       | 77,115           |       | 15,231           |       | (43,196          | )          | 112,789          |       |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Costs  and expenses:**                               |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural  gas production                        |       | 2,506         |       | 5,887            |       | 2,735            |       | —           |       | 11,128           |       |
| Depreciation,  depletion and amortization              |       | 2,053         |       | 12,884           |       | 5,740            |       | —           |       | 20,677           |       |
| Accretion of  discount on asset retirement obligations |       | 29            |       | 243              |       | 30               |       | —           |       | 302              |       |
| General and  administrative                            |       | 4,118         |       | 1,080            |       | 711              |       | —           |       | 5,909            |       |
| Interest                                               |       | 15,670        |       | 3,892            |       | 2,981            |       | (6,198           | )          | 16,345           |       |
| Total costs and  expenses                              |       | 24,376        |       | 23,986           |       | 12,197           |       | (6,198           | )          | 54,361           |       |
| Equity in  earnings of TXOK Acquisition, Inc           |       | 1,593         |       | —           |       | —           |       | —           |       | 1,593            |       |
| Income (loss)  before income taxes                     |       | 40,856        |       | 53,129           |       | 3,034            |       | (36,998          | )          | 60,021           |       |
| Income tax expense  (benefit)                          |       | 3,704         |       | 19,165           |       | —           |       | —           |       | 22,869           |       |
| Net income (loss)                                      |       | $             | 37,152     |             | $          | 33,964           |       | $                | 3,034      |             | $          | (36,998 | ) | $ | 37,152 |   |

 

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**EXCORESOURCES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**(Unaudited)**

**For the three months ended March 31, 2007**
| ** **                                             | ** ** | ** **    | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | ** **    | ** ** | **Guarantor**    | ** ** | **guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
| **(In thousands)**                                | ** ** | **Resources** | ** ** | **subsidiaries** | ** ** | **subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Revenues  and other income:**                        |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural  gas sales                             |       | $             | 3,498      |             | $          | 54,584           |       | $                | 59,729     |             | $          | — |   | $ | 117,811 |   |
| Derivative financial  instruments                      |       | (6,103        | )          | (30,155          | )          | (59,761          | )          | —           |       | (96,019          | )          |
| Other income  (loss)                                   |       | 9,664         |       | (7,314           | )          | 4,375            |       | —           |       | 6,725            |       |
| Equity in  earnings of subsidiaries                    |       | (115,421      | )          | —           |       | —           |       | 115,421          |       | —           |       |
| Total revenues  and other income                       |       | (108,362      | )          | 17,115           |       | 4,343            |       | 115,421          |       | 28,517           |       |
|                                                   |       |          |       |             |       |             |       |             |       |             |       |
| **Costs  and expenses:**                               |       |          |       |             |       |             |       |             |       |             |       |
| Oil and natural  gas production                        |       | 2,322         |       | 9,971            |       | 17,922           |       | —           |       | 30,215           |       |
| Depreciation,  depletion and amortization              |       | 1,155         |       | 20,885           |       | 29,284           |       | —           |       | 51,324           |       |
| Accretion of  discount on asset retirement obligations |       | 20            |       | 702              |       | 221              |       | —           |       | 943              |       |
| General and  administrative                            |       | 5,941         |       | 4,132            |       | 4,102            |       | —           |       | 14,175           |       |
| Interest                                               |       | 16,699        |       | 3                |       | 60,007           |       | —           |       | 76,709           |       |
| Total costs and  expenses                              |       | 26,137        |       | 35,693           |       | 111,536          |       | —           |       | 173,366          |       |
| Income (loss)  before income taxes                     |       | (134,499      | )          | (18,578          | )          | (107,193         | )          | 115,421          |       | (144,849         | )          |
| Income tax  expense (benefit)                          |       | (46,802       | )          | (10,350          | )          | —           |       | —           |       | (57,152          | )          |
| Net loss                                               |       | (87,697       | )          | (8,228           | )          | (107,193         | )          | 115,421          |       | (87,697          | )          |
| Preferred stock  dividends                             |       | 1,136         |       | —           |       | —           |       | —           |       | 1,136            |       |
| Net income (loss)  available to stockholders           |       | $             | (88,833    | )                | $          | (8,228           | )          | $                | (107,193   | )                | $          | 115,421 |   | $ | (88,833 | ) |

 

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**EXCO RESOURCES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**(Unaudited)**

**For the three months ended March 31, 2006**
| **(in thousands)**                                                       | ** ** | **Resources** | ** ** | **Guarantor  subsidiaries** | ** ** | **Non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                    | ** ** | ** **    | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Operating  Activities:**                                                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Net cash  provided by operating activities                                    |       | $             | 744        |                        | $          | 49,241                            |       | $                | 12,895     |             | $          | — |   | $ | 62,880 |   |
| **Investing  Activities:**                                                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Additions to oil  and natural gas properties, gathering systems and equipment |       | (3,939        | )          | (16,663                     | )          | (12,047                           | )          | —           |       | (32,649          | )          |
| Advance to TXOK  Acquisition, Inc                                             |       | (158,750      | )          | —                      |       | —                            |       | —           |       | (158,750         | )          |
| Cash acquired in  acquisition of TXOK Acquisition, Inc                        |       | —        |       | 8,882                       |       | 23,379                            |       | —           |       | 32,261           |       |
| Proceeds from  dispositions of property and equipment                         |       | 92            |       | (700                        | )          | —                            |       | —           |       | (608             | )          |
| Advances/investments  with affiliates                                         |       | 73,705        |       | (77,511                     | )          | 3,806                             |       | —           |       | —           |       |
| Net cash  provided by (used in) investing activities                          |       | (88,892       | )          | (85,992                     | )          | 15,138                            |       | —           |       | (159,746         | )          |
| **Financing  Activities:**                                                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Borrowings under  credit agreement                                            |       | 184,500       |       | —                      |       | —                            |       | —           |       | 184,500          |       |
| Repayments under  credit agreement                                            |       | (584,751      | )          | —                      |       | —                            |       | —           |       | (584,751         | )          |
| Payments on  interm bank loan                                                 |       | (350,000      | )          | —                      |       | —                            |       | —           |       | (350,000         | )          |
| Proceeds from  issuance of common stock, net                                  |       | 656,331       |       | —                      |       | —                            |       | —           |       | 656,331          |       |
| Deferred  financing costs and other                                           |       | (745          | )          | —                      |       | —                            |       | —           |       | (745             | )          |
| Net cash  provided by (used in) financing activities                          |       | (94,665       | )          | —                      |       | —                            |       | —           |       | (94,665          | )          |
| Net increase  (decrease) in cash                                              |       | (182,813      | )          | (36,751                     | )          | 28,033                            |       | —           |       | (191,531         | )          |
| Cash at the  beginning of the period                                          |       | 191,500       |       | 35,453                      |       | —                            |       | —           |       | 226,953          |       |
| Cash at end of period                                                         |       | $             | 8,687      |                        | $          | (1,298                            | )          | $                | 28,033     |             | $          | — |   | $ | 35,422 |   |

 

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**EXCO RESOURCES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**(Unaudited)**

**For the three 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                          |       | $             | (16,508    | )                           | $          | 42,110                            |       | $                | 6,949      |             | $          | — |   | $ | 32,551 |   |
| **Investing  Activities:**                                                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Additions to oil  and natural gas properties, gathering systems and equipment |       | 2,846         |       | (32,718                     | )          | (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                                         |       | (1,645,930    | )          | (13,581                     | )          | 1,659,511                         |       |             |       | —           |       |
| Net cash  provided by (used in) investing activities                          |       | (1,556,523    | )          | (46,299                     | )          | 201,466                           |       | —           |       | (1,401,356       | )          |
| **Financing  Activities:**                                                    |       |          |       |                        |       |                              |       |             |       |             |       |
| Proceeds from  long-term debt                                                 |       | 68,000        |       | —                      |       | 1,130,000                         |       | —           |       | 1,198,000        |       |
| Payments on  long-term debt                                                   |       | (352,000      | )          | —                      |       | (1,320,532                        | )          | —           |       | (1,672,532       | )          |
| Proceeds from  issuance of common stock, net                                  |       | 817           |       | —                      |       | —                            |       | —           |       | 817              |       |
| Proceeds from  issuance of preferred stock, net                               |       | 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                                              |       | 142,912       |       | (4,189                      | )          | 8,133                             |       | —           |       | 146,856          |       |
| Cash at the  beginning of the period                                          |       | (3,031        | )          | 15,786                      |       | 10,067                            |       | —           |       | 22,822           |       |
| Cash at end of period                                                         |       | $             | 139,881    |                        | $          | 11,597                            |       | $                | 18,200     |             | $          | — |   | $ | 169,678 |   |

 

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***Item2*.  *Management’s Discussion andAnalysis of Financial Condition and Results of Operations***

**Forward-LookingStatements**

This quarterlyreport contains forward-looking statements, as defined in Section 27A ofthe Securities Act of 1933, or the Securities Act, and Section 21E of theSecurities Exchange Act of 1934, or the Exchange Act. These forward-lookingstatements relate to, among other things, the following:

·      our futurefinancial and operating performance and results;

·      our businessstrategy;

·      market prices;

·      our futurederivative financial instrument activities; and

·      our plans andforecasts.

We have basedthese forward-looking statements on our current assumptions, expectations andprojections about future events.

We use the words “may,”“expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget”and other similar words to identify forward-looking statements. You should readstatements that contain these words carefully because they discuss futureexpectations, contain projections of results of operations or of our financialcondition and/or state other “forward-looking” information. We do not undertakeany obligation to update or revise publicly any forward-looking statements,except as required by law. These statements also involve risks anduncertainties that could cause our actual results or financial condition tomaterially differ from our expectations in this quarterly report, including,but not limited to:

·      fluctuations in prices of oil and natural gas;

·      future capital requirements and availability offinancing;

·      estimates of reserves and economic assumptionsused in connection with our acquisitions;

·      geological concentration of our reserves;

·      risks associated with drilling and operatingwells;

·      risks associated with the operation of naturalgas pipelines and gathering systems;

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

·      cash flow and liquidity;

·      impactsof our recent private placement of preferred stock and the impact of dividendson our resources and liquidity;

·      timing and amount of future production of oil andnatural gas;

·      availability of drilling and productionequipment;

·      marketing of oil and natural gas;

·      developments in oil-producing and naturalgas-producing countries;

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·      title toour properties;

·      litigation;

·      competition;

·      general economic conditions, including costsassociated with drilling and operations of our properties;

·      governmental regulations;

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

·      hedging decisions, including whether or not toenter into derivative financial instruments;

·      events similar to those of September 11,2001;

·      actions of third party co-owners of interests inproperties in which we also own an interest;

·      fluctuations in interest rates; and

·      our ability to effectively integrate companiesand properties that we acquire.

Webelieve that it is important to communicate our expectations of futureperformance to our investors. However, events may occur in the future that weare unable to accurately predict, or over which we have no control. You arecautioned not to place undue reliance on a forward-looking statement. Whenconsidering our forward-looking statements, keep in mind the risk factors andother cautionary statements in this quarterly report, and the risk factorsincluded in the Annual Report on Form 10-K for the year ended December 31,2006.

Ourrevenues, operating results, financial condition and ability to borrow funds orobtain additional capital depend substantially on prevailing prices for oil andnatural gas. Declines in oil or natural gas prices may materially adverselyaffect our financial condition, liquidity, ability to obtain financing andoperating 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 and/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 anindependent oil and natural gas company engaged in the acquisition, developmentand exploitation of onshore North American oil and natural gas properties. Weexpect to continue to grow by leveraging our management team’s experience,exploiting our multi-year inventory of development drilling locations andexploitation projects, and selectively pursuing acquisitions that meet ourstrategic and financial objectives. We employ the use of debt and equity alongwith a comprehensive derivative financial instrument program to support ouracquisition strategy.  This approachenhances our ability to execute our business plan over the entire commodityprice cycle, protect our returns on investment, and manage our capitalstructure.

As oil and naturalgas prices have increased, we have seen an increase in demand for drillingrigs, field supplies and other related field services.  This has resulted in increases in the costsof these goods and services and some difficulty in timely scheduling ofdrilling rigs and other field services required to perform operations on ourproperties.  To date, however, we havenot encountered any significant operational problems or delays as a result ofthe difficulty in scheduling these services. We have budgeted approximately $314.7 million in 2007, excluding theacquisitions of Vernon and Southern Gas. We have also budgeted approximately$10.0 million for our additional corporate and acquisition-relatedexpenditures.  We do not budget forproperty acquisitions as these transactions are opportunistic in nature.  Our future earnings and cash flows aredependent upon our ability to manage our overall cost structure to a level thatallows for profitable production.  As aresult of our 2007 acquisition activity to date, we expect our capital budgetfor drilling and exploration and midstream operations will increase toapproximately $500.0 million.

Like all oil andnatural gas production companies, we face the challenge of natural productiondeclines. Oil and natural gas

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production from a givenwell naturally decreases over time. We attempt to overcome this natural declineby drilling to develop and identify additional reserves and by acquisitions.Our future growth will depend upon our ability to continue to add oil andnatural gas reserves in excess of production at a reasonable cost. We willmaintain our focus on the costs of adding reserves through drilling andacquisitions as well as the costs necessary to produce such reserves.

On March 30, 2007, we completed a private placement, or Private Placement, of an aggregate of $390.0 million of 7.0% Cumulative Convertible Perpetual Preferred Stock, or 7.0% Preferred Stock, and $1.61 billion of Hybrid Preferred Stock, or Hybrid Preferred Stock, to accredited investors pursuant to the terms and conditions of a Preferred Stock Purchase Agreement dated March 28, 2007.  The purchase price for each share was $10,000 (which equals the liquidation preference per share on March 30, 2007).  The net proceeds of the Private Placement were used to fund the purchase price of approximately $1.5 billion for the Vernon Acquisition and to repay certain outstanding indebtedness. The issuance and sale of the shares in the Private Placement was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder. For more information about the Private Placement and the terms of the 7.0% Preferred Stock and the Hybrid Preferred Stock, see “—Our liquidity, capital resources and capital commitments—Preferred Stock.”

On March 30, 2007, EXCO Partners OperatingPartnership, LP, or EPOP, a wholly-owned subsidiary of EXCO Partners LP,completed the purchase of substantially all of the oil and gas properties andrelated assets related to the Vernon and Ansley Fields located in JacksonParish, Louisiana from entities affiliated with Anadarko for approximately $1.5billion in cash, net of preliminary purchase price adjustments, or the VernonAcquisition.  Our preliminary allocationof value to the Vernon Acquisition, which includes the assumption of derivativefinancial contracts covering a significant portion of estimated production for2007, 2008 and 2009 was approximately $1.39 billion to proved properties, $57.0million to unproved properties and $117.0 million to gathering and treatingfacilities, respectively.  The fair valueof the assumed derivative financial instruments was a liability ofapproximately $60.0 million.

Effective May 2, 2007, we completed the purchase ofoil and natural gas properties and related assets, including derivative financial instruments in respectof a significant portion of estimated production for 2007, 2008 and 2009 fromentities affiliated with Anadarko in multiple fields primarily located inOklahoma, Texas and Louisiana for approximately $748.9 million in cash, net ofpreliminary purchase price adjustments, or the Southern Gas Acquisition.

Effective May 8, 2007, we completed the sale of oiland natural gas properties and related assets in multiple fields primarily located in South Texasand South Louisiana to an entity affiliated with Crimson Exploration Inc., orCrimson, for an aggregate sale price of $245.4 million in cash, net of preliminarypurchase price adjustments, and 750,000 shares of Crimson’s commonstock.

We also face thechallenge of financing future acquisitions. In connection with the Vernon Acquisition and issuance of the 7.0%Preferred Stock and Hybrid Preferred Stock, we amended our borrowing capacitythrough various facilities from $2.1 billion to an aggregate of $2.2 billion asof May 10, 2007.  EPOP’s creditagreement, as amended, provides for an aggregate borrowing base of$1.3 billion, of which $1.1 billion is drawn as of March 31, 2007.  The EXCO Resources Credit Agreement wasamended and restated on May 2, 2007 to reflect the Southern Gas Acquisitionwhich increased the borrowing base to $1.0 billion. On May 8, 2007, inconnection with the sale of assets to Crimson, the borrowing base on the amendedand restated EXCO Resources Credit Agreement was reduced from $1.0 billion to$900.0 million.  As of May 10, 2007,outstanding borrowings on the amended and restated EXCO Resources CreditAgreement were $394.0 million. With these credit agreements, we believe we willhave adequate unused borrowing capacity in addition to cash flow fromoperations, to fund capital development and working capital needs for the next12 months.  Funding for futureacquisitions may require additional sources of financing, which may not beavailable.

**Criticalaccounting policies**

We consider accountingpolicies related to 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 critical accounting policies. When we acquire oil and natural gasproperties, the application of purchase accounting is also a criticalaccounting policy. The policies include significant estimates made bymanagement using information available at the time the estimates are made.However, these estimates could change materially if different information orassumptions were used. These policies are summarized in Management’s Discussionand Analysis of Financial Condition and Results of Operations in our annualreport on Form 10-K for the year ended December 31, 2006.

**Recent accounting pronouncements**

In****July 2006,the Financial Accounting Standards Board, or FASB, issued FinancialInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”, orFIN 48. FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in a company’s financial statements in accordance with Statement ofFinancial Accounting Standards No. 109, “Accounting for Income Taxes”. FIN48 provides guidance on recognizing, measuring, presenting and disclosing inthe financial statements uncertain tax positions that a

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company has taken orexpects to take on a tax return. We adopted FIN 48 on January 1, 2007. Theadoption of FIN 48 did not have a material impact on our consolidated financialposition or results of operations.

The FinancialAccounting Standards Board (FASB) issued FASB Staff Position EITF 00-19-2 “Accountingfor Registration Payment Arrangements” (FSP 00-19-2) on December 21, 2006.  FSP 00-19-2 requires contingent obligationsto make future payments under a registration payment arrangement to berecognized separately in accordance with Statement of Financial Accounting StandardsNo. 5, “Accounting for Contingencies” (SFAS No. 5).  SFAS No. 5 requires that an estimated lossfrom a loss contingency be accrued if the loss is probable and can reasonablybe estimated.  Our 7.0% Preferred Stock andHybrid Preferred Stock contain requirements for EXCO to register shares onbehalf of the preferred stockholders.  Ifsuch registration dates are not met, or a prior registration statement ceasesto remain effective, we may be obligated to pay liquidation damages in the formof increased dividend rates.  We adoptedFSP 00-19-2 upon issuance of the 7.0% Preferred Stock and the Hybrid PreferredStock.  We do not believe any of thecontingencies associated with the registration rights of the preferredstockholders exist as of March 31, 2007 and therefore are not valued separatelyat March 31, 2007.

**Ourresults of operations**

Asummary of key financial data for the three months ended March 31, 2006 and2007 related to our results of operations is presented below:
|                                                                                         | ** ** | **Three months ended** | ** ** | **Quarter to**     | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                              | ** ** | **March 31,**               | ** ** | **quarter change** | ** ** |
| **(dollars in thousands)**                                                    | ** ** | **2006**                         | ** ** | **2007**                | ** ** | **2006 - 2007** | ** ** |
| **Production:**                                                                         |       |                             |       |                    |       |   |   |
| Oil (Mbbls)                                                                             |       | 148                              |       | 275                     |       | 127 |   |
| Natural gas (Mmcf)                                                                      |       | 7,205                            |       | 15,663                  |       | 8,458 |   |
| Total production (Mmcfe)                                                                |       | 8,093                            |       | 17,313                  |       | 9,220 |   |
| **Oil and  natural gas revenues before derivative financial instrument activities:**    |       |                             |       |                    |       |   |   |
| Oil revenues                                                                            |       | $                                | 8,992      |                    | $          | 15,105 |   | $ | 6,113 |   |
| Natural gas sales                                                                       |       | 60,746                           |       | 102,706                 |       | 41,960 |   |
| Total oil and natural****gas  sales                                                     |       | $                                | 69,738     |                    | $          | 117,811 |   | $ | 48,073 |   |
| **Derivative  financial instruments:**                                                  |       |                             |       |                    |       |   |   |
| Cash settlements on derivative financial instruments                                    |       | $                                | (2,795     | )                       | $          | 32,073 |   | $ | 34,868 |   |
| Non-cash change in fair value of derivative  financial instruments                      |       | 43,570                           |       | (128,092                | )          | (171,662 | ) |
| Total derivative financial instrument activities                                        |       | $                                | 40,775     |                    | $          | (96,019 | ) | $ | (136,794 | ) |
| **Average  sales price (before cash settlements of derivative financial instruments):** |       |                             |       |                    |       |   |   |
| Oil (per Bbl)                                                                           |       | $                                | 60.76      |                    | $          | 54.93 |   | $ | (5.83 | ) |
| Natural gas (per Mcf)                                                                   |       | 8.43                             |       | 6.56                    |       | (1.87 | ) |
| Natural gas equivalent (per Mcfe)                                                       |       | 8.62                             |       | 6.80                    |       | (1.82 | ) |
| **Oil and  natural gas production costs:**                                              |       |                             |       |                    |       |   |   |
| Oil and natural gas operating costs                                                     |       | $                                | 6,928      |                    | $          | 21,839 |   | $ | 14,911 |   |
| Production and ad valorem taxes                                                         |       | 4,200                            |       | 8,376                   |       | 4,176 |   |
| Depreciation, depletion and amortization                                                |       | 20,677                           |       | 51,324                  |       | 30,647 |   |
| General and administrative                                                              |       | 5,909                            |       | 14,175                  |       | 8,266 |   |
| Interest expense                                                                        |       | 16,345                           |       | 76,709                  |       | 60,364 |   |
| **Expenses  (per Mcfe):**                                                               |       |                             |       |                    |       |   |   |
| Operating costs                                                                         |       | $                                | 0.86       |                    | $          | 1.26 |   | $ | 0.40 |   |
| Production and ad valorem taxes                                                         |       | 0.52                             |       | 0.48                    |       | (0.04 | ) |
| Depreciation, depletion and amortization                                                |       | 2.55                             |       | 2.96                    |       | 0.41 |   |
| General and administrative                                                              |       | 0.73                             |       | 0.82                    |       | 0.09 |   |
| **Income (loss) from continuing  operations**                                           |       | $                                | 37,152     |                    | $          | (87,697 | ) | $ | (124,849 | ) |

 

Thefollowing is a discussion of our financial condition and results of operationsfor the three months ended March 31, 2006 and 2007.

Thecomparability of our results of operations from period to period is impactedby:

·      the acquisitions of TXOK on February 14, 2006,Winchester on October 2, 2006 and Vernon on March 30, 2007;

·      property acquisitions and dispositions including thesale of Wattenberg in January 2007;

·      significant changes in the amount of our long-termdebt and the issuance of $2.0 billion of preferred stock related to theacquisitions of Winchester and Vernon;

·      changes in Proved Reserves and their impact ondepreciation, depletion and amortization;

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·      fluctuations due to the use of mark-to-marketaccounting for our derivative financial instruments; and

·      significant fluctuations for oil and natural gasprices which impact our oil and natural gas reserves and revenues and ourderivative financial instruments.

***General***

Theavailability of a ready market for oil and natural gas and the prices of oiland natural gas are dependent upon a number of factors that are beyond ourcontrol. These factors include, among other things:

·      the level of domestic production and economicactivity generally;

·      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 many uncertainties affecting the supply and demand for oil,natural gas and refined petroleum products, we cannot accurately predict theprices or marketability of the oil and natural gas from any producing well inwhich we have or may acquire an interest.

***Marketing arrangements***

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

Wesell the majority of the oil we produce under short-term contracts using marketsensitive 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 ouroil at F.O.B. field prices posted by the principal purchaser of oil where ourproducing 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 to purchasers andrefiners near the areas of our producing properties.

Wesell the majority of our natural gas under individually negotiated gas purchasecontracts using market sensitive pricing. Our sales contracts vary in lengthfrom spot market sales of a single day to term agreements that may extend for ayear or more. Our natural gas customers include utilities, natural gas marketingcompanies and a variety of commercial and industrial end users. The natural gaspurchase contracts define the terms and conditions unique to each of thesesales. The price received for natural gas sold on the spot market varies daily,reflecting changing market conditions. We also gather natural gas for otherproducers for which we are compensated.

We maynot be able to market all of the oil and natural gas we produce. If our oil andnatural gas can be marketed, we may not be able to negotiate favorable priceand contractual terms. Changes in oil or natural gas prices may significantlyaffect our revenues, cash flows, the value of our oil and natural gasproperties and the estimates of recoverable oil and natural gas contained inour properties. Further, significant declines in the prices of oil or naturalgas may have a material adverse effect on our business and on our financialcondition.

Weengage in oil and natural gas production activities in geographic regionswhere, from time to time, the supply of oil or natural gas available fordelivery exceeds the demand. In this situation, companies purchasing oil ornatural gas in these areas reduce the amount of oil or natural gas that theypurchase from us. If we cannot locate other buyers for our production or forany of our newly discovered oil or natural gas reserves, we may shut-in our oilor natural gas wells for periods of time. If this occurs, we may incuradditional payment obligations under our oil and natural gas leases and, undercertain circumstances, the oil and natural gas leases

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might beterminated.

**Summary**

Forthe three months ended March 31, 2007, we reported a net loss of $87.7 millioncompared with net income of $37.2 million for the quarter ended March 31,2006.  Oil and natural gas revenues,before the impact of derivative financial instruments increased from $69.7million to $117.8 million, an increase of 68.9%, for the three months endedMarch 31, 2006 and 2007, respectively. Our equivalent production of natural gas was 8.1 Bcfe for the quarterended March 31, 2006, while equivalent natural gas production for the quarterended March 31, 2007 increased to 17.3 Bcfe. Our operating costs also increased from $6.9 million ($0.85 per Mcfe)for the three months ended March 31, 2006 to $21.8 million ($1.26 per Mcfe) forthe three months ended March 31, 2007. The increases from the prior year’s quarter in revenues, production andoperating costs are attributable to our significant 2006 acquisitions,primarily TXOK and Winchester.  Derivativefinancial instruments also had a significant impact on our results ofoperations as we do not designate our derivative financial instruments ashedges.  As a result, we mark the changein the fair value of our derivatives to market at the end of each reportingperiod.  For the three months ended March31, 2006, we recognized gains from our derivative financial instruments of$40.8 million, of which $43.6 million was unrealized.  For the three months ended March 31, 2007, weincurred losses on our derivative financial instruments of $96.0 million,representing income from cash settlements of $32.1 million and $128.1 millionof unrealized losses.

***Oil and natural gas sales, production and prices***

Total oil andnatural gas sales, excluding the impact of derivative financial instruments,for the three months ended March 31, 2007 increased by $48.1 million, or 68.9%over the three months ended March 31, 2006 due to higher equivalentproduction volumes, which increased by 9,220 Mmcfe, or 113.9%, offset by adecrease of $1.82 per equivalent Mmcfe in our average sales price, whichdecreased revenues by $14.6 million.  Thehigher volumes resulted in increased revenues of $62.7 million.  Our TXOK, PGMT and Winchester acquisitionsaccounted for 8,358 Mmcfe, or 90.7% of the increase in volumes.  The increase in the March 31, 2007 quarterproduction volumes is due primarily to:

·      the acquisition of TXOK on February 14, 2006 whichcontributed a full quarter of production for three months ended March 31, 2007compared to only a partial quarter for the same period in 2006, resulting in anincrease of 1,938 Mmcfe;

·      the acquisition of Winchester on October 2, 2006which accounted for a 6,005 Mmcfe increase from the same period in 2006; and

·      other acquisitions completed in 2006 which accountedfor a 415 Mmcfe increase from the same period in 2006.

Prices,excluding the impact of derivative financial instruments, for both oil andnatural gas decreased during the three months ended March 31, 2007 compared tothe prior year’s quarter.  The oil pricesdecreased by $5.83 per Bbl (to $54.93 from $60.76) or 9.6%.  Natural gas prices averaged $6.56 per Mcf forthe three months ended March 31, 2007 compared with $8.43 per Mcf for the threemonths ended March 31, 2006, a decrease of $1.87 per Mcf, or 22.2%.

***Derivativefinancial instruments***

Ourcash settlements from derivative financial instruments increased revenue by$32.1 million for the three months ended March 31, 2007 compared with $2.8million of cash payments, which decreased revenue for the three months endedMarch 31, 2006.

Forthe three months ended March 31, 2007 and 2006, we recognized a decrease inrevenue of $128.1 million and an increase in revenue of $43.6 million,respectively, from the change in the fair value of our derivative financialinstruments.  We expect that our revenueswill continue to be significantly impacted in future periods by changes in thefair value of our derivative financial instruments as a result of thevolatility in oil and natural gas prices and the volume of future oil andnatural gas sales covered under our derivative financial instrumentprogram.  For the three months endedMarch 31, 2007, 66.0% and 76.0% of oil and natural gas production,respectively, were subject to derivative contracts.

***Otherincome***

Ourother income increased to $6.7 million for the three months ended March 31,2007 from $2.3 million in the previous year’s quarter. The increase isprimarily due to transportation activities related to the Winchesteracquisition and higher interest income in the three months ended March 31, 2007as a result of higher cash balances, reflecting the proceeds received from thesale of our Colorado properties, as compared to the three months ended March31, 2006.  Our income from transportationactivities increased

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approximately $4.6million when compared to prior year, which is due primarily to mid-streamactivities from the Winchester acquisition in October 2006.

***Oil and natural gas production costs***

Ouroil and natural gas operating costs for the three months ended March 31,2007 increased $14.9 million, or 215.7%, from the same period in 2006. Theincrease in oil and natural gas operating costs was primarily attributable to:

·      the acquisition of TXOK on February 14, 2006 whichcontributed a full quarter of production expenses for the three months ended March 31, 2007 andonly a partial quarter for the same period in 2006;

·      the acquisition ofWinchester on October 2, 2006 which contributed a full quarter of productionexpenses for the three months ended March 31, 2007 when compared to the sameperiod in 2006;

·      the Vernon Acquisition onMarch 30, 2007, which contributed two days of production expenses for the threemonths ended March 31, 2007 when compared to the same period in 2006;

·      a general increase in thecost of goods and services used in our oil and natural gas operations during2007; and

·      new wells added throughour development and exploitation capital program.

Theoil and natural gas operating cost per unit increased from $0.86 per Mcfe forthe three months ended March 31, 2006 to $1.26 per Mcfe, or 48.2%, for thethree months ended March 31, 2007 which reflects the general increase in thecosts of goods and services used in our operations and an increase in workoveractivities. Oil and natural gas operating costs increased primarily due toacquisitions made during 2006 and 2007 that were not included in first quarter2006 operations.  During the three monthsended March 31, 2007, notable increases in operating expenses occurred insub-surface repair and maintenance costs, saltwater disposal fees (particularlyin assets acquired in the Winchester Acquisition), compression expenses androad repairs.

***Productionand ad valorem taxes***

Productionand ad valorem taxes for the three months ended March 31, 2007 increased by$4.2 million, or 99.4%, over the same period in 2006. These increases areprimarily attributable and correspond to the increase in oil and natural gasrevenues resulting from 2006 and 2007 acquisitions and the related increase insales volumes.  On a percentage ofrevenue basis, production and ad valorem taxes were 7.1% of gross oil andnatural gas sales for the three months ended March 31, 2007 compared with 6.0%during the prior year’s quarter.  Theincrease in the overall rate is the result of higher percentages of ourrevenues being derived from properties in Texas and Louisiana and a lowerpercentage of total sales being derived from our Appalachia regionproduction.  Production and ad valorem taxestend to be lower in Appalachia than in the Texas and Louisiana areas.Production taxes are set by the state and local governments and vary as to thetax rate and the value to which that rate is applied. Further, ad valorem taxesin Texas and other states are based partially on the value of oil and naturalgas reserves, which have increased significantly in 2007 as compared with 2006due to acquisitions made during 2006 and 2007. These taxes are generally based upon the price received for production.

***Depreciation,depletion and amortization***

Our depreciation,depletion and amortization costs for the three months ended March 31, 2007increased by $30.6 million, or 148.2%, from the same period in 2006.  The primary reasons for this increase werefrom a 113.9% increase in oil and natural gas sales volumes, directly relatedto the acquisitions made during 2006 and 2007, and an increase in the per unitdepletion rate from $2.55 per Mcfe for the three months ended March 31, 2006 to$2.96 per Mcfe for the three months ended March 31, 2007.

***Generaland administrative***

Our general andadministrative costs for the three months ended March 31, 2007 increasedby $8.3 million, or 139.9%, over the same period in 2006, which was primarilyattributable to:

·      increased personnel costs of $3.3 million due toadditional headcount of 130 employees related primarily to our acquisitions andan overall increase in our accounting activities due to being a public company;

·      an increase in stock-based compensation costs of $1.3 million;

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·      increased consulting and contract labor costs of$1.2 million due to the acquisitions and systems conversion discussed above;

·      increased IT related costs of $1.0 million due toour information systems conversion and training costs that do not qualify forcapital treatment;

·      increased legal fees of $1.0 million;

·      increased audit and tax fees of approximately $0.6million;

·      increased occupancy costs of $0.2 million resultingfrom expansion of corporate facilities; and

·      other increases totaling $1.4 million due to theincrease in our business resulting from our acquisitions.

Partiallyoffsetting the above increases in general and administrative costs wereincreased operator overhead recoveries of $2.9 million, a $1.7 million increasefrom the same period in the prior year, primarily resulting from theacquisitions mentioned above.

***Interest expense***

Our interestexpense for the three months ended March 31, 2007 increased $60.4 millionfrom the same period in 2006. The increase is primarily due to interest expenseassociated with the amended credit agreements used to fund the acquisitions ofTXOK, Winchester, PGMT and Vernon, which increased our outstanding debt,excluding our senior notes, from $108.5 million at March 31, 2006 to $1.2billion at March 31, 2007.  Interestexpense for the three months ended March 31, 2007 includes non-recurringcharges totaling $32.1 million attributable to (a) redemption premium of $13.0million from retirement of the EPOP Senior Term Credit Agreement, (b) write-offof $12.2 million for deferred financing costs and unamortized original issuediscount on the EPOP Senior Term Credit Agreement and (c) expensed fees of $6.9million associated with commitment letters from members of our banking groupwhich were not utilized as a result of the Private Placement on March 30, 2007.

***Incometaxes***

Oureffective tax rate on income from continuing operations for the three monthsended March 31, 2007 was 39.5%.  Oureffective tax rate on net income from continuing operations for the threemonths ended March 31, 2006 was 38.1%. A substantial portion of our stock-basedcompensation included in our quarter ended March 31, 2007 results are in theform of incentive stock options which are not deductible for tax purposes untila disqualifying event occurs. The non-deductible portion of stock compensationdecreased our effective rate benefit by approximately 0.3% during the threemonths ended March 31, 2007.  Thisdecrease is due to a net benefit from a book loss for the three months ended March31, 2007.  The remainder of the tax rateincrease over the prior year is a result of the state tax rate increaseresulting from the increased presence in Louisiana.

**Ourliquidity, capital resources and capital commitments**

***General***

Mostof our growth has resulted from acquisitions and our development andexploitation program. Consistent with our strategy of acquiring and developingreserves, we have an objective of maintaining 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.  Ourgeneral financial strategy is to use a combination of cash flow fromoperations, bank financing, cash received from the sale of oil and natural gasproperties and the sale or issuance of equity and debt securities to fund ouroperations, conduct development and exploitation activities and to fundacquisitions.  As of May 10, 2007, theaggregate of our credit facilities total a $2.2 billion borrowing base. We donot have a set budget for acquisitions as these tend to be opportunitydriven.  Historically, we have used theproceeds from the issuance of equity and debt securities and borrowings underour credit agreements to raise cash to fund acquisitions.  Our ability to borrow from sources other thanour credit agreement is subject to restrictions imposed by our lenders. Inaddition, our indenture governing our senior notes and the terms of ourpreferred stock contain restrictions on incurring indebtedness and pledging ourassets.

On March 30, 2007,we issued 200,000 shares of preferred stock for $2.0 billion in cash inconnection with the Vernon Acquisition. Additionally, in conjunction with the Vernon Acquisition and inpreparation for the Southern Gas Acquisition, we initiated new credit facilitiesand amended existing credit facilities to increase our aggregate borrowing baseto $2.3 billion. On May 8, 2007, as a result of the sale of oil and natural gasassets, our borrowing base was reduced to $2.2 billion.

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Netcash provided by operating activities was $32.6 million for the three monthsended March 31, 2007, which is attributable primarily to the non-cashchange in fair value of our derivatives of $128.1 million.  At March 31, 2007, our cash and cashequivalents balance was $169.7 million, an increase of $146.9 million fromDecember 31, 2006 primarily as a result of proceeds from the sale of ourWattenberg fields.  On January 16, 2007,we made an interest payment on our 71⁄4% senior notes in the amount of $16.1million.

***Acquisitions and capital expenditures***

Thefollowing table presents our capital expenditures for the three months endedMarch 31, 2006 and 2007.  Our acquisitionof TXOK did not result in any property acquisition expenditures as theacquisition was consummated by the redemption of TXOK’s preferred stock and forthe assumption of TXOK’s debt.  Thecapital expenditures for the three months ended March 31, 2006 include capitalexpenditures of TXOK during the February 14, 2006 to March 31, 2006 period.
|                                                                              | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,**               | ** ** |
| **(unaudited, in thousands)**                                      | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| **Capital  expenditures:**                                                   |       |                             |       |   |   |
| Property  acquisitions excluding TXOK Acquisition, Inc                       |       | $                                | (169       | ) | $ | 1,447,281 |   |
| Acquisition of  TXOK Acquisition, Inc. preferred stock, net of cash acquired |       | 126,489                          |       | — |   |
| Lease purchases                                                              |       | 451                              |       | 7,619 |   |
| Development  capital expenditures                                            |       | 31,990                           |       | 75,892 |   |
| Other                                                                        |       | 1,792                            |       | 3,037 |   |
| Total capital  expenditures                                                  |       | $                                | 160,553    |   | $ | 1,533,829 |   |

 

On March 30, 2007, we finalized the purchaseof substantially all of the oil and gas properties and related assets relatedto the Vernon and Ansley Fields located in Jackson Parish, Louisiana fromAnadarko.

We acquired substantially all of the oil andgas properties and related assets at the Vernon and Ansley Fields properties inexchange for $1.5 billion in cash, net of preliminary purchase priceadjustments.  The assets includeproducing and undeveloped acreage in Jackson Parish, Louisiana.  The acquisition was financed by our privateplacement of preferred stock along with EPOP’s amended and restated creditagreement, or EPOP Credit Agreement, with certain lenders, JPMorgan Chase Bank,N.A., as administrative agent and J.P. Morgan Securities Inc., as sole bookrunner and lead arranger.

For the year 2007,we have budgeted approximately $314.7 million, excluding recentacquisitions from Anadarko, for our development, exploitation and explorationactivities.  As of March 31, 2007, wewere contractually obligated to spend $98.2 million for our development and exploitationactivities for the remainder of 2007.  Asa result of acquisitions closed in the first quarter of 2007 and the SouthernGas Acquisition on May 2, 2007, we expect our 2007 capital budget for drillingand exploitation to increase to more than $500.0 million.

We expect toutilize our current cash balance, cash flow from operations and available fundsunder our credit agreements to fund our acquisitions, capital expenditures andworking capital.  In order to meetstrategic objectives, we may sell non-strategic assets during the remainder of2007.

We believe thatour capital resources from existing cash balances, cash flow from operatingactivities and borrowing capacity under our credit agreements are adequate tomeet the cash requirements of our business. However, future cash flows are subject to a number of variablesincluding production volumes and oil and natural gas prices.  If cash flows decline we may be required toreduce our capital expenditure budget which in turn may affect our production infuture periods.  Our operations and othercapital resources may not provide cash in sufficient amounts to maintain orinitiate planned levels of capital expenditures. We have experienced increasedcosts for tubular goods and for certain services during 2006 and 2007.  Further, we have encountered difficulties incontracting for drilling rigs and other services due to high demand. Currently,we do not believe that these conditions have had a significant impact upon ourcapital expenditures programs or our results of operations. If the conditionscontinue, however, projects may be delayed due to lack of services or materialsor we may have to delay projects to stay within our capital budget.

***Private placement of preferred stock***

On March 30, 2007, we completed the private placement, or Private Placement, of an aggregate of $390.0 million of 7.0% Cumulative Convertible Perpetual Preferred Stock and $1.61 billion of Hybrid Preferred Stock to accredited investors pursuant to the terms and conditions of a Preferred Stock Purchase Agreement dated March 28, 2007.  The purchase price for each share was $10,000 (which equals the liquidation preference per share on March 30, 2007).  The issuance and sale of the shares in the Private Placement

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was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder. The net proceeds of the Private Placement were used to fund the net purchase price of approximately $1.5 billion for the Vernon Acquisition and to repay certain outstanding indebtedness.

The 7.0% Preferred Stock is convertible into shares of our common stock at an initial conversion price of $19.00 per share, subject to anti-dilution adjustments, which equates to each share of 7.0% Preferred Stock being initially convertible into approximately 526.3 shares of our common stock, subject to adjustment for fractional shares.  The Hybrid Preferred Stock is not currently convertible into shares of our common stock.  Under applicable New York Stock Exchange, or NYSE, rules, shareholder approval is required to issue common stock, or securities convertible into or exercisable for common stock, if (i) such common stock has, or will have upon issuance, 20.0% or more of the voting power outstanding before the issuance, (ii) the number of shares of common stock to be issued is, or will be upon issuance, equal to 20.0% or more of the number of shares of common stock outstanding before the issuance, (iii) such common stock, or securities convertible into or exercisable for common stock, will be issued to a director, officer or substantial security holder of a company and such securities exceed either a threshold of one percent or, if issued to a substantial security holder who is not a director or officer at a price that is not less than the book and market value of the common stock, five percent of the number of shares of common stock or the voting power outstanding before the issuance or (iv) such issuance will result in a change of control of a company.

Absent NYSE rules, we likely would have issued 200,000shares of 7.0% Preferred Stock to fund the Vernon Acquisition and to repaycertain outstanding indebtedness.  As aresult of the limited time period to fund the Vernon Acquisition and the timerequired to organize a special meeting of shareholders, we were unable to holda special meeting of our shareholders to approve the issuance of 200,000 sharesof 7.0% Preferred Stock prior to the Vernon Acquisition.  Therefore, in the interim, we issued (i)39,008 shares of 7.0% Preferred Stock, consisting of 23,408 shares of SeriesA-1 7.0% Preferred Stock, 975 shares of Series A-2 7.0% Preferred Stock, 11,700shares of Series B 7.0% Preferred Stock and 2,925 shares of Series C 7.0%Preferred Stock, which shares by their terms are convertible into 19.7% of thenumber of shares of common stock outstanding before the preferred stockissuance and (ii) 160,992 shares of Hybrid Preferred Stock, consisting of149,441 shares of Series A-1 Hybrid Preferred Stock and 11,551 shares of SeriesA-2 Hybrid Preferred Stock, which shares are not currently convertible intocommon stock and which do not have general voting rights.

We agreed with the preferred stock investors to seek the shareholder approval required by the NYSE, or NYSE Shareholder Approval, to transform the terms of the Hybrid Preferred Stock into the same terms as the 7.0% Preferred Stock.  If NYSE Shareholder Approval is obtained, the designations, preferences, limitations and relative voting rights of the Series A-1 Hybrid Preferred Stock and Series A-2 Hybrid Preferred Stock will become identical to the designations, preferences, limitations and relative voting rights of the Series A-1 7.0% Preferred Stock and the Series A-2 7.0% Preferred Stock, respectively, including the right to dividends and the right to convert into shares of our common stock at an initial conversion price of $19.00 per share, subject to anti-dilution adjustments.

If NYSEShareholder Approval is not obtained prior to September 26, 2007, the HybridPreferred Stock will remain outstanding and the 11.0% per annum dividend ratewill be increased by 0.5% per annum for the first 90-day period thereafter andby an additional rate of 0.5% per annum for each subsequent 90-day periodthereafter, up to a maximum rate of 18.0% per annum until NYSE ShareholderApproval is obtained.  In addition, theHybrid Preferred Stock will continue to have the terms described below under “—Principal Terms of the Hybrid PreferredStock,” including restrictive covenants on our right to incur additionalindebtedness, the requirement for us to repurchase the shares following certainasset dispositions and a mandatory redemption by us on April 18, 2011 at 125%of the liquidation preference plus accumulated dividends.

## **Principalterms of the 7.0% Preferred Stock**

The following summarizes the principal terms of the 7.0% Preferred Stock. This discussion is not complete and is qualified in its entirety by, and should be read in conjunction with, the Statements of Designation establishing each series of the 7.0% Preferred Stock, which are filed as exhibits to our Current Report on Form 8-K dated March 28, 2007 and filed with the SEC on April 2, 2007 and are incorporated by reference herein.

## Series A-17.0% Preferred Stock

The Series A-17.0% Preferred Stock has an initial liquidation preference equal to $10,000 pershare and is convertible into common stock at a price of $19.00 per share, asmay be adjusted in accordance with the terms of the Series A-1 7.0% PreferredStock. We may force the conversion of the Series A-1 7.0% Preferred Stock atany time if the common stock trades for 20 days within a period of 30consecutive days at a price, above 175% of the then effective conversion price($33.25 per share at the current conversion price of $19.00 per share) at anytime during the 24 months after issuance, above 150% of the then effectiveconversion price ($28.50 per share at the current conversion price of $19.00per share) thereafter through the 48th month after issuance and above 125% of thethen effective conversion price ($23.75 per share at the current conversionprice of $19.00 per share) at any time thereafter.  Cash

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dividends willaccrue at the rate of 7.0% per annum prior to March 30, 2013 and at the rate of9.0% per annum thereafter.  In lieu ofpaying cash dividends, we may, under certain circumstances prior to March 30,2013, pay such dividend at a rate of 9.0% per annum by adding the dividend tothe liquidation preference of the shares of Series A-1 7.0% PreferredStock.  Upon the occurrence of a changeof control, holders of the Series A-1 7.0% Preferred Stock may require us torepurchase their shares for cash at the liquidation preference plus accumulateddividends.  Holders of the Series A-17.0% Preferred Stock have the right to vote with the holders of common stock,the holders of other series of 7.0% Preferred Stock and, if NYSE ShareholderApproval is obtained, the holders of Hybrid Preferred Stock, together as asingle class, on all matters submitted to our shareholders (except the electionof directors) on an as-converted basis. Holders of Series A-1 7.0% Preferred Stock, Series B 7.0% PreferredStock, Series C 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, Series A-1 Hybrid Preferred Stock have the right to separately electup to four directors, subject to the rights of the holders of Series B 7.0%Preferred Stock and Series C 7.0% Preferred Stock to vote as separate classesto each elect one of such preferred directors. In addition, upon the occurrence of specified defaults in the Statementsof Designation for the 7.0% Preferred Stock and the Hybrid Preferred Stock, theholders of the 7.0% Preferred Stock and Hybrid Preferred Stock, voting togetheras a class, have the right to elect four additional directors, or DefaultDirectors, until such default is cured.

## Series A-27.0% Preferred Stock

The Series A-27.0% Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that holders of Series A-2 7.0% Preferred Stock do nothave the right to elect directors (other than the Default Directors) and do nothave any registration rights under the 7.0% Registration Rights Agreement.  Shares of Series A-2 7.0% Preferred Stockautomatically convert into shares of Series A-1 7.0% Preferred Stock when theholder thereof has provided the Company with a certificate certifying thateither no filing is required under the Hart-Scott-Rodino Antitrust ImprovementsAct of 1976, as amended, or HSR Act, with respect to such holder’s acquisitionof the shares of Series A-1 7.0% Preferred Stock or the waiting periodapplicable to such holder under the HSR Act has expired.

## Series B 7.0%Preferred Stock

The Series B 7.0%Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that the holders of Series B 7.0% Preferred Stock havethe right to designate one of the preferred directors and do not haveregistration rights under the registration rights agreement with the 7.0%Preferred Stock investors, or 7.0% Registration Rights Agreement.  The Series B 7.0% Preferred Stock isconvertible into Series A-1 7.0% Preferred Stock at any time at the election ofthe holder and will automatically convert into Series A-1 7.0% Preferred Stockwhen such holder ceases to own an aggregate of 10,000 shares of Series B 7.0%Preferred Stock and/or Hybrid Preferred Stock.

## Series C 7.0%Preferred Stock

The Series C 7.0%Preferred Stock has substantially the same rights as the Series A-1 7.0%Preferred Stock, except that the holders of Series C 7.0% Preferred Stock havethe right to designate one of the preferred directors and do not have anyregistration rights under the 7.0% Registration Rights Agreement.  The Series C 7.0% Preferred Stock isconvertible into Series A-1 7.0% Preferred Stock at any time at the election ofthe holder and will automatically convert into Series A-1 7.0% Preferred Stockwhen such holder ceases to own an aggregate of 10,000 shares of Series C 7.0%Preferred Stock and/or Hybrid Preferred Stock.

## **Principalterms of the Hybrid Preferred Stock**

The following summarizes the principal terms of the Hybrid Preferred Stock. This discussion is not complete and is qualified in its entirety by, and should be read in conjunction with, the Statements of Designation establishing each series of the Hybrid Preferred Stock, which are filed as exhibits to our Current Report on Form 8-K dated March 28, 2007 and filed with the SEC on April 2, 2007 and are incorporated by reference herein.

Series A-1 HybridPreferred Stock

Initially, theSeries A-1 Hybrid Preferred Stock is not convertible into common stock.  If NYSE Shareholder Approval is obtained,then the designations, preferences, limitations and relative voting rights ofthe Series A-1 Hybrid Preferred Stock will become identical to thedesignations, preferences, limitations and relative voting rights of the SeriesA-1 7.0% Preferred Stock, including the right to dividends and the right toconvert into our common stock.

If NYSEShareholder Approval is not obtained prior to September 26, 2007, cashdividends will continue to accrue on the Series A-1 Hybrid Preferred Stock at arate of 11.0% per annum and the annual dividend rate will increase by 0.5% perquarter (up to a maximum rate of 18.0% per annum) until NYSE ShareholderApproval is obtained.  Prior to theearlier of September 26, 2007 and the date that NYSE Shareholder Approval isobtained, the Series A-1 Hybrid Preferred Stock may be redeemed only with theconsent

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of the holders ofthe Hybrid Preferred Stock at a redemption price equal to 100.0% of theliquidation preference plus accrued dividends. After September 26, 2007 and prior to the date that NYSE ShareholderApproval is obtained, the Series A-1 Hybrid Preferred Stock is redeemable atour option at any time, and must be redeemed on April 18, 2011, for cashat 125.0% of the liquidation preference plus accrued dividends.  Upon the occurrence of a change of control,holders of Series A-1 Hybrid Preferred Stock may require us to repurchase theirshares for cash at 101.0% of the liquidation preference plus accrueddividends.  In addition, upon theoccurrence of specified defaults in the Statements of Designation for theHybrid Preferred Stock, the holders of 7.0% Preferred Stock and HybridPreferred Stock, voting together as a class, have the right to elect fourdefault directors until such default is cured. Prior to obtaining NYSE Shareholder Approval, the Series A-1 HybridPreferred Stock contains covenants that restrict our ability to incuradditional indebtedness and require us to repurchase the shares followingcertain asset dispositions.

## Series A-2Hybrid Preferred Stock

The Series A-2Hybrid Preferred Stock has substantially the same rights as the Series A-1Hybrid Preferred Stock, except that holders of Series A-2 Hybrid PreferredStock do not have any registration rights. Initially the Series A-1 Hybrid Preferred Stock is not convertible intoour common stock.  If NYSE ShareholderApproval is obtained, then the designations, preferences, limitations andrelative voting rights of the Series A-2 Hybrid Preferred Stock will becomeidentical to the designations, preferences, limitations and relative votingrights of the Series A-2 7.0% Preferred Stock, including the right to dividendsand the right to convert into our common stock. Shares of Series A-2 Hybrid Preferred Stock automatically convert intoshares of Series A-1 Hybrid Preferred Stock when the holder thereof hasprovided us with a certificate certifying that either no filing is requiredunder the HSR Act with respect to such holder’s acquisition of the shares ofSeries A-1 Hybrid Preferred Stock or the waiting period applicable to suchholder under the HSR Act has expired.

**7.0%Preferred Stock Registration Rights Agreement**

In connection withthe Private Placement, we entered into the 7.0% Registration Rights Agreementwith the 7.0% Preferred Stock investors. The 7.0% Registration Rights Agreementcontemplates the registration of the resale of the shares of common stockunderlying the 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, the Hybrid Preferred Stock. The 7.0% Registration Rights Agreementcontains customary terms and conditions for a transaction of this type. We agreed to file with the SEC, not later than September 26, 2007, aregistration statement to register the offer and sale of the common sharesissuable upon conversion of the 7.0% Preferred Stock and to use our bestefforts to have the registration statement declared effective by March 24,2008.  If any shares of 7.0% Preferred Stock are outstanding on March 30,2011, we agreed 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 weare unable to meet the deadlines described above, if a registration statementceases to remain effective or if we restrict sales under a registrationstatement under certain “blackout provisions” for longer than the contractuallypermitted period, we must pay liquidated damages at a rate of 0.5% per annum ofthe 7.0% Preferred Stock liquidation preference for the first 90 days andthereafter for each subsequent 90-day period at an additional rate of 0.25% upto a maximum of 2.0% per annum during any default period.  We also agreedto indemnify holders against certain liabilities under the Securities Act of1933 in respect of any such resale registration.

**Hybrid Preferred StockRegistration Rights Agreement**

In connection withthe Private Placement, we entered into a registration rights agreement, orHybrid Registration Rights Agreement, with the Hybrid Preferred Stockinvestors. The Hybrid Registration Rights Agreement contemplates theregistration of the resale of the shares of Series A-1 Hybrid PreferredStock.  If NYSE Shareholder Approval is not obtained by September 26,2007, we agreed to file a registration statement with the SEC by December 24,2007, covering the resale prior to such shareholder approval of shares ofHybrid Preferred Stock and to use our best efforts to have the registrationstatement declared effective by March 24, 2008.  The Hybrid RegistrationRight Agreement contains liquidated damages payment provisions andindemnification obligations similar to those contained in the 7.0% RegistrationRights Agreement.

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

On January 20, 2004,EXCO completed the private placement of $350.0 million aggregate principalamount of 71⁄4% senior notes dueJanuary 15, 2011, or senior notes, pursuant to Rule 144A andRegulation S under the Securities Act of 1933, or Securities Act, at aprice of 100% of the principal amount. The net proceeds of the offering wereused to acquire North Coast, pay down debt under our credit facilities andNorth Coast’s credit facility, repay a senior term loan in full and pay feesand expenses associated with those transactions.

On April 13, 2004,EXCO completed a private placement of an additional $100.0 millionaggregate principal amount of the senior notes pursuant to Rule 144A,having the same terms and governed by the same indenture as the notes issued onJanuary 20,

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2004. The notes issued on April 13, 2004 wereissued at a price of 103.25% of the principal amount plus interest accruedsince January 20, 2004. The net proceeds of the April 13, 2004offering were used to repay substantially all of our outstanding indebtednessunder our Canadian credit agreement and pay fees and expenses associatedtherewith.

On May 28,2004, EXCO concluded an exchange offer of $450.0 million aggregateprincipal amount of our senior notes, which were privately placed inJanuary and April 2004, for $450.0 million aggregate principalamount of our senior notes that have been registered under the Securities Act.Holders of all but $0.3 million of the senior notes elected to accept ourexchange offer.

Interest is payable onthe senior notes semi-annually in arrears on January 15 and July 15of each year. The senior notes mature on January 15, 2011. We may redeemsome or all of the senior notes beginning on January 15, 2007 for the redemptionprice set forth in the senior notes.

On October 3, 2005, EXCOHoldings, then our privately held parent, closed on an equity buyouttransaction that resulted in a change of control.  As a result of this change in control, thesenior notes were recorded at their fair value which resulted in a premium of$18.0 million in excess of the aggregate principal amount.

The indenture governingthe senior notes contains covenants which limit our ability and the ability ofour subsidiaries to:

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

·      pay dividends on our capitalstock or redeem, repurchase or retire our capital stock or subordinated debt;

·      make investments;

·      create liens on our assets;

·      enter into sale/leasebacktransactions;

·      create restrictions on theability of our restricted subsidiaries to pay dividends or make other paymentsto us;

·      engage in transactions withour affiliates;

·      transfer or issue shares ofstock of subsidiaries;

·      transfer or sell assets; and

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

As of March 31,2007, $444.7 million in principal remained outstanding on the senior notes andthe unamortized premium was $13.3 million. The estimated fair value of our seniornotes at March 31, 2007 was $446.4 million.  The fair value of the senior notes isestimated based on quoted market prices for the senior notes.

***Credit agreements***

In connection with the Private Placement of $2.0 billion of preferredstock, we contributed $1.75 billion of the net proceeds to EPOP, ofwhich approximately $1.5 billion was used to close the Vernon Acquisition andapproximately $150.0 million was used to refinance EPOP’s debt agreements.  The EPOP Senior Term Credit Agreement waspaid in full and terminated in connection with the recapitalization.  We usedthe remaining $250.0 million of the net proceeds of the preferred stock to restructure and repay indebtednessunder the EXCO Resources Credit Agreement and pay fees and expenses associatedwith the offering.

*EPOP Credit Agreement*

The amended andrestated EPOP Credit Agreement has an initial borrowing base of $1.3 billionand $1.1 billion drawn as of March 31, 2007. The borrowing base will beredetermined on a semi-annual basis, with EPOP and the lenders having the rightto interim unscheduled redeterminations in certain circumstances. Scheduledredeterminations will be made on or about April 1 and October 1 of each year,beginning October 1, 2007.  The EPOPCredit Agreement is secured by a first priority lien on the assets of EPOP,including 100% of the equity of EPOP’s subsidiaries, and is guaranteed by allexisting and future subsidiaries of EPOP. Financial covenants under this

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credit agreement requirethat we:

·      maintain a consolidated current ratio (as definedunder the EPOP Credit Agreement) of at least 1.0 to 1.0 at the end of anyfiscal quarter, beginning with the quarter ending June 30, 2007;

·      not permit our ratio of consolidated indebtednessto consolidated EBITDAX (as defined under the EPOP Credit Agreement) to begreater than 3.5 to 1.0 at the end of each fiscal quarter, beginning with thequarter ending June 30, 2007; and

·      not permit our interest coverage ratio (asdefined under the EPOP Credit Agreement) to be less than 2.5 to 1.0 at the endof each fiscal quarter, beginning with the quarter ending June 30, 2007.

The EPOP CreditAgreement contains representations, warranties, covenants, events of default,and indemnities customary for agreements of this type. The EPOP Credit Agreementmatures March 30, 2012 and has an initial drawn interest rate ofLIBOR + 150 basis points (“bps”) and an undrawn commitment fee of37.5 bps.

*EPOP Senior Term Credit Agreement*

In connection with theWinchester acquisition, EPOP entered into the EPOP Senior Term Credit Agreementdated October 2, 2006 (as amended and restated as of October 13, 2006) withJPMorgan Chase Bank, N.A., as administrative agent.  On March 30, 2007, in connection with the$1.75 billion capital contribution from EXCO and the amendments to the EPOPCredit Agreement, the EPOP Senior Term Credit Agreement was paid in full. Totalcosts to retire the debt was $668.7 million consisting of $650.0 million ofprincipal, $5.7 million of accrued interest and $13.0 million representing a 2.0%redemption premium pursuant to terms of the EPOP Senior Term CreditAgreement.  The $13.0 million redemptionpremium is reported as a component of interest expense in the condensedconsolidated statement of operations for the three months ended March 31,2007.  Unamortized deferred financingcosts of $9.0 million and an unamortized original issue discount of $3.0million associated with the EPOP Senior Term Credit Agreement were also writtenoff and reported as a component of interest expense as a result of theretirement of this debt.

*EXCO Resources Credit Agreement*

On March 17,2006, EXCO Resources, Inc. and certain of its subsidiaries entered into anamended and restated credit agreement, or the EXCO Resources Credit Agreement,with certain lenders, JPMorgan Chase Bank, N.A., as administrative agent, andJ.P. Morgan Securities Inc., as sole bookrunner and lead arranger. Thisamendment established a new borrowing base of $750.0 million under theEXCO Resources Credit Agreement reflecting the addition of the assets of TXOK.TXOK and its subsidiaries became guarantors of the EXCO Resources CreditAgreement. The amendment also provided for an extension of the EXCO ResourcesCredit Agreement maturity date to December 31, 2010. The borrowing base isredetermined each November 1 and May 1, beginning November 1,2006. Our borrowing base is determined based on a number of factors includingcommodity prices. We use derivative financial instruments to lessen the impactof volatility in commodity prices. Financial covenants under the amended creditagreement require that we:

·      maintaina consolidated current ratio (as defined under the EXCO Resources CreditAgreement) of at least 1.0 to 1.0 at the end of any fiscal quarter; and

·      notpermit our ratio of consolidated indebtedness to consolidated EBITDAX (asdefined under the EXCO Resources Credit Agreement) to be greater than 3.5 to1.0 at the end of each fiscal quarter.

Borrowings underthe EXCO Resources Credit Agreement are collateralized by a first lien mortgageproviding a security interest in 90% of our oil and natural gasproperties. None of the assets of EXCO Partners, including EPOP can beused as collateral for the EXCO Resources Credit Agreement. As of March 17,2006, our borrowings are collateralized by a first lien mortgage providing asecurity interest in the value of our Proved Reserves which is at least 125% ofthe aggregate commitment.  The aggregate commitment is the lesser of (i)$1.25 billion and (ii) the borrowing base; however, the initial aggregate commitmentis $300.0 million.  This aggregate commitment minimum of $300.0 millioncan be raised, from time to time, up to the borrowing base of $750.0 million atour sole discretion. Effective May 11, 2006, we increased the aggregatecommitment to $500.0 million.

At our option,borrowings under the EXCO Resources Credit Agreement accrue interest at one ofthe following rates:

·      thesum of (i) the greatest of the administrative agent’s prime rate, the baseCD rate plus 1.0% or the federal funds effective rate plus 0.50% and(ii) an applicable margin, which ranges from 0.0% up to 0.75% depending onour borrowing usage; or

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·      thesum of (i) LIBOR multiplied by the statutory reserve rate and (ii) anapplicable margin, which ranges from 1.0% up to 1.75% depending on ourborrowing usage.

Additionally, theEXCO Resources Credit Agreement contains a number of other covenants regardingour liquidity and capital resources, including restrictions on our ability toincur additional indebtedness, restrictions on our ability to pledge assets,and a prohibition on the payment of dividends on our common stock. As of March31, 2007, we were in compliance with the covenants contained in the EXCOResources Credit Agreement.

At December 31, 2006and March 31, 2007, the six month LIBOR rates were 5.37% and 5.33% which wouldresult in interest rates of approximately 6.62% and 6.58%, respectively, on anynew indebtedness we may incur under the credit agreement. At December 31,2006 and March 31, 2007, we had $339.0 million and $55.0 millionrespectively, of outstanding indebtedness under the EXCO Resources CreditAgreement.

Effective May 2,2007, in connection with the Southern Gas Acquisition, we amended the existingEXCO Resources Credit Agreement, which increased the face amount and borrowingbase from $750.0 million to $1.0 billion. On May 8, 2007, as a result of the sale of oil and natural gas assets toCrimson, the borrowing base on the EXCO Resources Credit Agreement, as amended,was reduced to $900.0 million, of which $394.0 million was drawn as of May 10,2007.  The borrowing base will bere-determined on a semi-annual basis, with EXCO Resources and the lendershaving the right to interim unscheduled re-determinations in certaincircumstances. Scheduled re-determinations will be made on March 1 andSeptember 1 of each year, beginning September 1, 2007.  Borrowings under the amended EXCO ResourcesCredit Agreement are collateralized by a first lien mortgage providing asecurity interest in our oil and natural gas properties. The financialcovenants under the amended EXCO Resources Credit Agreement are similar tothose contained in the previous EXCO Resources Credit Agreement, including:

·      maintaina consolidated current ratio (as defined under the amended EXCO ResourcesCredit Agreement) to be less than 1.0 to 1.0 at the end of any fiscal quarter,beginning with the quarter ending September 30, 2007;

·      notpermit our ratio of consolidated indebtedness to consolidated EBITDAX (asdefined under the amended EXCO Resources credit agreement) to be greater than3.5 to 1.0 at the end of each fiscal quarter, beginning with the quarter endingSeptember 30, 2007; and

·      notpermit our interest coverage ratio (as defined under the amended EXCO ResourcesCredit Agreement) to be less than 2.5 to 1.0 at the end of each fiscal quarter,beginning with the quarter ending September 30, 2007.

OnMay 8, 2007, in connection with the sale of oil and natural gas propertieslocated primarily in South Texas and Louisiana to Crimson, the borrowing baseof the amended EXCO Resources Credit Agreement was reduced from $1.0 billion to$900.0 million.

The amended andrestated EXCO Resources Credit Agreement contains representations, warranties,covenants, events of default, and indemnities customary for agreements of thistype. The amended EXCO Resources Credit Agreement matures five years from theclosing date and has an initial drawn interest rate of LIBOR + 125basis points (“bps”) and an undrawn commitment fee of 30.0 bps.

Additionally, theamended and restated EXCO Resources Credit Agreement contains a number of othercovenants regarding our liquidity and capital resources, including restrictionson our ability to incur additional indebtedness, restrictions on our ability topledge assets, and a prohibition on the payment of dividends on our commonstock.

***Derivative financial instruments***

We use derivativefinancial instruments to manage exposure to commodity prices and interest raterisks. Our objectives for holding derivatives are to minimize risks using themost effective methods to eliminate or reduce the impacts of these exposures.

Our production isgenerally sold at prevailing market prices. However, we periodically enter intoderivative financial instrument contracts for a portion of our production whenmarket conditions are deemed favorable and oil and natural gas prices exceedour minimum internal price targets.

Our objective inentering into derivative financial instruments is to manage price fluctuationsand achieve a more predictable cash flow associated with our acquisitionactivities and borrowings under our credit agreements. These transactions limitexposure to declines in prices, but also limit the benefits we would realize ifprices increase.

As of May 10,2007, we had contracts in place for the volumes and prices shown in the tablebelow, which includes contracts

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we entered into orassumed since March 31, 2007, including contracts assumed related to theSouthern Gas Acquisition.
| **(in thousands, except prices)** | ** ** | **Natural gas  volume  Mmbtus** | ** ** | **Weighted  average strike  price per Mmbtu** | ** ** | **Oil  volume  Bbls** | ** ** | **Weighted  average strike  price per Bbl** | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------|------------|------------------------------------------------------------|------------|
| Swaps NYMEX:                                     |       |                                 |       |                                                         |       |                  |       |                                                       |       |
| Q2 2007                                          |       | 28,944                               |       | $                                                            | 7.80       |                  | 366        |                                                       | $          | 62.89 |   |
| Q3 2007                                          |       | 30,388                               |       | 7.83                                                         |       | 369                   |       | 63.46                                                      |       |
| Q4 2007                                          |       | 30,388                               |       | 8.06                                                         |       | 369                   |       | 63.83                                                      |       |
| 2008                                             |       | 99,870                               |       | 8.36                                                         |       | 1,059                 |       | 60.55                                                      |       |
| 2009                                             |       | 73,155                               |       | 7.90                                                         |       | 850                   |       | 60.09                                                      |       |
| 2010                                             |       | 6,985                                |       | 6.63                                                         |       | 108                   |       | 59.85                                                      |       |
| 2011                                             |       | 1,825                                |       | 4.51                                                         |       | —                |       | —                                                     |       |
| 2012                                             |       | 1,830                                |       | 4.51                                                         |       | —                |       | —                                                     |       |
| 2013                                             |       | 1,825                                |       | 4.51                                                         |       | —                |       | —                                                     |       |
|                                                  |            |                                      |            |                                                              |            |                       |            |                                                            |            |  |  |

 

We occasionallyenter into fixed-price physical delivery contracts as well as commodity priceswap derivatives to manage price risk with regard to a portion of our oil andnatural gas production.

***Off-balance sheet arrangements***

None.

***Contractual obligations and commercial commitments***

The followingtable presents a summary of our contractual obligations at March 31, 2007:
|                                                            | ** ** | **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) |       | —                      |       | —                     |       | 55,000                      |       | —                       |       | 55,000     |       |
| EPOP Credit  Agreement (3)                                 |       | —                      |       | —                     |       | —                      |       | 1,100,000                    |       | 1,100,000  |       |
| Operating leases                                           |       | 8,275                       |       | 20,174                     |       | 13,725                      |       | 1,999                        |       | 44,173     |       |
| Deferred  compensation (4)                                 |       | —                      |       | 1,200                      |       | 1,200                       |       | —                       |       | 2,400      |       |
| Hybrid Preferred  Stock (5)                                |       | —                      |       | —                     |       | —                      |       | 1,609,920                    |       | 1,609,920  |       |
| Drilling/work  commitments                                 |       | 35,986                      |       | 37,981                     |       | —                      |       | —                       |       | 73,967     |       |
| Total contractual cash  obligations                        |       | $                           | 44,261     |                       | $          | 59,355                      |       | $                            | 514,645    |       | $          | 2,711,919 |   | $ | 3,330,180 |   |

 

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(1)   Our senior notes are due onJanuary 15, 2011.  The annual interestobligation is $32.2 million.

(2)   The amended EXCO ResourcesCredit Agreement executed on May 2, 2007, matures on March 30, 2012.

(3)   The EPOP Credit Agreementmatures on October 2, 2012.

(4)   Deferred compensationrepresents a Rabbi Trust for an officer of one of our subsidiaries.  This obligation vests 20% each year and willfully vest on December 31, 2011.

(5)   Accrued dividends of $1.1million are included with other long-term liabilities at March 31, 2007.  Annual dividends for the 7.0% Preferred Stockand Hybrid Preferred Stock are $27.3 and $177.1 million, respectively.

***Item 3****. **Quantitativeand qualitative disclosure about market risk***

Some of theinformation below contains forward-looking statements. The primary objective ofthe following information is to provide forward-looking quantitative andqualitative information about our potential exposure to market risks. The term “marketrisk” refers to the risk of loss arising from adverse changes in oil andnatural gas prices, interest rates charged on borrowings and earned on cashequivalent investments, and adverse changes in the market value of marketablesecurities. The disclosure is not meant to be a precise indicator of expectedfuture losses, but rather an indicator of reasonably possible losses. Thisforward-looking information provides an indicator of how we view and manage ourongoing market risk exposures. Our market risk sensitive instruments wereentered into for hedging and investment purposes, not for trading purposes.

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***Commodity pricerisk***

Our major marketrisk exposure is in the pricing applicable to our oil and natural gas production.Realized pricing is primarily driven by the prevailing worldwide price forcrude oil and spot market prices for natural gas. Pricing for oil and naturalgas production is volatile.

The following table sets forth our commodity price risk managementactivities as of March 31, 2007.
|                                                  | ** ** | ** **     | ** ** | **Weighted**            | ** ** | ** **                   | ** ** |
|--------------------------------------------------|------------|----------------|------------|-------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **Volume**     | ** ** | **average strike** | ** ** | **Fair value at**  | ** ** |
| **(in thousands, except prices)** | ** ** | **Mmbtu/Bbls** | ** ** | **price**               | ** ** | **March 31, 2007** | ** ** |
|                                             |       |           |       |                    |       |                         |       |
| **Natural  Gas:**                                |       |           |       |                    |       |                         |       |
| Swaps NYMEX:                                     |       |           |       |                    |       |                         |       |
| Remainder of  2007                               |       | 74,410         |       | $                       | 7.92       |                         | $          | (22,697 | ) |
| 2008                                             |       | 81,570         |       | 8.41                    |       | (22,172                      | )          |
| 2009                                             |       | 58,555         |       | 7.92                    |       | (22,275                      | )          |
| 2010                                             |       | 6,985          |       | 6.63                    |       | (8,062                       | )          |
| 2011                                             |       | 1,825          |       | 4.51                    |       | (4,753                       | )          |
| 2012                                             |       | 1,830          |       | 4.51                    |       | (4,295                       | )          |
| 2013                                             |       | 1,825          |       | 4.51                    |       | (3,957                       | )          |
| **Total  Natural Gas**                           |       | 227,000        |       |                    |       | (88,211                      | )          |
|                                             |       |           |       |                    |       |                         |       |
| **Oil:**                                         |       |           |       |                    |       |                         |       |
| Swaps:                                           |       |           |       |                    |       |                         |       |
| Remainder of  2007                               |       | 552            |       | 69.37                   |       | 323                          |       |
| 2008                                             |       | 327            |       | 62.67                   |       | (2,229                       | )          |
| 2009                                             |       | 120            |       | 60.80                   |       | (865                         | )          |
| 2010                                             |       | 108            |       | 59.85                   |       | (689                         | )          |
| **Total  Oil**                                   |       | 1,107          |       |                    |       | (3,460                       | )          |
| **Total Oil and Natural Gas**                    |       |           |       |                    |       | $                            | (91,671    | ) |
|                                                  |            |                |            |                         |            |                              |            |  |  |

 

At March 31, 2007,the average forward NYMEX oil prices per Bbl for the remainder of 2007 was$68.80 and $69.95 for 2008 and the average forward NYMEX natural gas prices perMmbtu for the remainder of 2007 and for calendar 2008 were $8.24 and $8.70,respectively.

Realized gains orlosses from the settlement of derivative financial instruments are recorded inour financial statements as increases or decreases in derivative financialinstrument activities.  For example,using the oil swaps in place at March 31, 2007, for the remainder of 2007, ifthe settlement price exceeded the actual weighted average strike price of$69.37, then a reduction in derivative financial instrument activities revenuewould have been recorded for the difference between the settlement price and$69.37 multiplied by the hedged volume of 552 Mbbls.  Conversely, if the settlement price was lessthan $69.37, then an increase in derivative financial instrument activitiesrevenue would have been recorded for the difference between the settlementprice and $69.37 multiplied by the hedged volume of 552 Mbbls.  For example, for a hedged volume of 552Mbbls, if the settlement price was $70.37, then derivative financial instrumentactivities revenue would have decreased by $0.6 million.  Conversely, if the settlement price was $68.37,derivative financial instrument activities revenue would have increased by $0.6million.

***Interestrate risk***

At March 31, 2007, our exposure to interest rate changes relatedprimarily to borrowings under our credit agreements and interest earned on ourshort-term investments.  The interestrate is fixed at 71/4% on the $444.7 million in senior notes wehave outstanding.  As of March 31, 2007,we were not using any derivatives to manage interest rate risk.  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, 2007, we had $1.2 billion in outstandingborrowings under our credit agreements. A 1% change in interest ratesbased on the borrowings as of March 31, 2007 would result in an increaseor decrease in our interest costs of $12.0 million per year. The interestwe pay on these borrowings is set periodically based upon market rates.

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***Preferred stock dividend risk***

We agreed to filewith the SEC, not later than September 26, 2007, a registration statement toregister the offer and sale of the common shares issuable upon conversion ofthe 7.0% Preferred Stock and to use our best efforts to have the registrationstatement declared effective by March 24, 2008.  If any shares of 7.0%Preferred Stock are outstanding on March 30, 2011, we agreed to file aregistration statement with the SEC by June 28, 2011 registering such sharesfor resale and to use our best efforts to have such registration statementdeclared effective by September 26, 2011.  If we are unable to meet thedeadlines described above, if a registration statement ceases to remain effectiveor 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 7.0% 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.  The annual dividend obligation on the 7.0%Preferred Stock is $27.3 million.  In theevent we become obligated to pay the aforementioned liquidated damagesassociated with registration rights, the initial 0.5% increase of liquidateddamages would be approximately $0.5 million for the first 90 days and anadditional $0.2 million for each successive 90 day period.  The maximum increase in the annual dividendobligation would total $7.8 million.

The Hybrid Preferred Stock accrues dividends at a rate of 11.0% perannum, which computes to an annual dividend obligation of $177.1 million.  Under terms of the Preferred Stock PurchaseAgreement, the dividend rate increases by 0.5% on September 26, 2007 if EXCOhas not obtained shareholder approval pursuant to NYSE requirements for theHybrid Preferred Stock to transform into Series A-1 7.0% Preferred Stock.  The dividend rate will continue to increaseby 0.5% per quarter until such time that (i) shareholder approval has beenobtained, or (ii) the dividend rate reaches 18.0%.  Assuming that shareholder approval is notreceived by September 26, 2007, the dividend accrual will increase byapproximately $2.0 million per quarter until such approval is received.

***Item4.***   ***Controls and procedures***

**Evaluation of disclosure controls and procedures**

We maintain “disclosure controls and procedures,” as suchterm is defined in Rule 13a-15(e) under the Securities Exchange Actof 1934, as amended, or the Exchange Act, that are designed to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized, and reported withinthe time periods specified in Securities and Exchange Commission’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer (CEO), Chief Financial Officer(CFO) and Chief Accounting Officer (CAO), as appropriate, to allow timelydecisions regarding required disclosure. In designing and evaluating ourdisclosure controls and procedures, management recognizes that disclosurecontrols and procedures, no matter how well conceived and operated, can provideonly reasonable assurance of achieving the desired control objectives and wenecessarily are required to apply our judgment in evaluating the cost-benefitrelationship of possible disclosure controls and procedures.

Ourmanagement evaluated, under the supervision and with the participation of ourCEO, CFO and CAO, the effectiveness of the design and operation of ourdisclosure controls and procedures as of March 31, 2007 and concluded ourcontrols were effective.

**Changes in internal control overfinancial reporting**

There have been nochanges during the quarter ended March 31, 2007 that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

The Vernon Acquisitionand Southern Gas Acquisition will significantly increase our number ofproperties that we operate and assets that we manage.  Management believes its controls are adequateto effectively integrate these assets into our existing control environment.

At the end of 2007,Section 404 of the Sarbanes-Oxley Act will require our management toprovide an assessment of the effectiveness of our internal control overfinancial reporting, and our independent registered public accountants will berequired to audit management’s assessment. We are in the process of performingthe system and process documentation, evaluation and testing required formanagement to make this assessment and for its independent registered publicaccountants to provide their attestation report. We have not completed thisprocess or its assessment, and this process will require significant amounts ofmanagement time and resources. In the course of evaluation and testing,management may identify deficiencies that will need to be addressed andremediated.

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**PART II—OTHER INFORMATION**

**Item 1. Legal Proceedings**

The information with respect to the case styled *PRC Holdings, LLC, et al. v. North Coast Energy, Inc.*set forth under Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2006 and filed with the SEC on March 19, 2007 is incorporated herein by reference in response to this item. As of the date of filing of this quarterly report, there have been no material developments in this legal proceeding.

In the ordinary course of business, we are periodically a party to lawsuits and claims. We do not believe that any resulting liability from existing legal proceedings, individually or in the aggregate, will have a materially adverse effect on our results of operations or financial condition.

**Item 1A. Risk Factors**

Our business has manyrisks. The risk factors noted in this section and other factors notedthroughout this report, including those risks identified in “Item 2. Management’sdiscussion and analysis of financial condition and results of operations,”describe examples of risks, uncertainties and events that may cause our actualresults to differ materially from those contained in any forward-lookingstatement. If one or more of these risks or uncertainties materialize, or ifunderlying assumptions prove incorrect, actual outcomes may vary materiallyfrom those included in this report. Additional factors that could materiallyand adversely affect our business, financial condition, operating results orliquidity and the trading price of our common stock are described under thecaption “Risk Factors” in Item 1A of our Annual Report on Form 10-K forthe year ended December 31, 2006, which was filed with the Securities andExchange Commission on March 19, 2007. This information should be consideredcarefully, together with other information in this report and other reports andmaterials we file with the Securities and Exchange Commission.

**Risks relating to our preferred stock**

***The holders of7.0% Preferred Stock and Hybrid Preferred Stock have rights that couldadversely affect an investment in our common stock.***

On March 30, 2007, wecompleted the Private Placement of an aggregate of $390.0 million of 7.0%Preferred Stock and $1.61 billion of Hybrid Preferred Stock to accreditedinvestors pursuant to the terms and conditions of a Preferred Stock PurchaseAgreement dated March 28, 2007. The purchase price for each share was $10,000(which equals the liquidation preference per share on March 30, 2007). The 7.0%Preferred Stock is convertible into shares of our common stock at an initialconversion price of $19.00 per share, subject to adjustment.  The Hybrid Preferred Stock is not convertibleinto shares of our common stock until NYSE Shareholder Approval isobtained.  If NYSE Shareholder Approvalis obtained, the designations, preferences, limitations and relative votingrights of the Hybrid Preferred Stock will become identical to the designations,preferences, limitations and relative voting rights of the 7.0% Preferred Stock,including the right to dividends and the right to convert into shares of ourcommon stock.

The initial $19.00per share conversion price of the 7.0% Preferred Stock equates to each share of7.0% Preferred Stock being initially convertible into approximately 526.3shares of our common stock, subject to adjustment for fractional shares.  The Statement of Designation for each seriesof the 7.0% Preferred Stock contains weighted average anti-dilution provisionsthat provide for an adjustment to the conversion price of the 7.0% PreferredStock upon (i) the issuance of stock, convertible securities or options at aprice below the then-current conversion price, (ii) the issuance of options toholders of common stock at less than the current market price, (iii) a dividendor distribution to holders of common stock in excess of $0.06 per share in anyquarter or (iv) an equity tender offer or share repurchase by us at a price inexcess of the current market price. The exact number of shares of common stockinto which the 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, the Hybrid Preferred Stock may ultimately be converted may vary overtime as a result of the effects of these anti-dilutive adjustments to theconversion price.  Assuming no adjustmentto the $19.00 conversion price, the 7.0% Preferred Stock is convertible into atotal of 20,530,487 shares of our common stock and, if NYSE ShareholderApproval is obtained, the Hybrid Preferred Stock will be convertible into atotal of 84,732,595 shares of our common stock.

The holders of7.0% Preferred Stock also have the right to receive cash dividends at the rateof 7.0% per annum prior to March 30, 2013 and at the rate of 9.0% per annumthereafter.  In lieu of paying cashdividends, we may, under certain circumstances prior to March 30, 2013, paysuch dividend at a rate of 9.0% per annum by adding the dividend to theliquidation preference of the shares of 7.0% Preferred Stock.  Upon the occurrence of a change of control,holders of 7.0% Preferred Stock may require us to repurchase their shares forcash at the liquidation preference plus accumulated dividends.  These anti-dilution, dividend and liquidationprovisions could substantially dilute our common shareholders’ interest and mayotherwise adversely affect an investment in our common stock.

44

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***The holders of 7.0% Preferred Stock and Hybrid Preferred Stock could restrict our ability to enter into various corporate transactions that may be beneficial to our business strategy.***

Without the prior consent of the holders of our 7.0% Preferred Stock and/or Hybrid Preferred Stock, we are generally prohibited from, among other things, the following:

·      issuing shares of senior, parity or disqualified junior stock;

·      amending our charter if the amendment would adversely affect any holder of 7.0% Preferred Stock or Hybrid Preferred Stock;

·      increasing the size of our board of directors;

·      entering into any merger or consolidation that is not permitted by our charter;

·      effecting a change of control;

·      distributing property or issuing dividends (other than as permitted by our charter) or engaging in an equity self-tender offer or share repurchase program; and

·      effecting a sale or transfer of substantially all of our assets.

In addition, the terms of the Hybrid Preferred Stock contain various restrictive covenants that are similar to certain covenants contained in the indenture governing our senior notes.  These covenants generally restrict us from, among other things, the following:

·      engaging in any business other than the oil and gas business;

·      incurring or guaranteeing additional indebtedness;

·      creating liens on our assets;

·      transferring or issuing shares of stock of subsidiaries; and

·      transferring or selling assets.

These restrictions may limit our ability to engage in activities which could expand our business, including obtaining future financing, making needed capital expenditures, or taking advantage of business opportunities such as strategic acquisitions and dispositions.

***If NYSE ShareholderApproval is not timely obtained,******the designations, preferences,limitations and relative rights of the Hybrid Preferred Stock will becomeincreasingly burdensome, which will likely have a material adverse effect onour cash flows and our ability to pursue our growth strategy.***

Cash dividends accrue on the Hybrid Preferred Stock ata rate of 11.0% per annum until September 26, 2007, at which time the annualdividend rate will increase by 0.5% per quarter (up to a maximum rate of 18.0%per annum) until NYSE Shareholder Approval has been obtained.  Prior to the earlier of September 26, 2007and the date NYSE Shareholder Approval is obtained, the Hybrid Preferred Stockmay be redeemed only with the consent of the holders of the Hybrid PreferredStock at a redemption price equal to 100.0% of the liquidation preference plusaccrued dividends.  After September 26,2007 and prior to obtaining NYSE Shareholder Approval, the Hybrid PreferredStock is redeemable at the our option at any time, and must be redeemed onApril 18, 2011, for cash at 125.0% of the liquidation preference plusaccrued dividends. Upon the occurrence of a change of control, holders ofHybrid Preferred Stock may require us to repurchase their shares for cash at101.0% of the liquidation preference plus accrued dividends. If NYSEShareholder Approval is not obtained, the covenants contained in the HybridPreferred Stock will continue to restrict our ability to, among other things,incur additional indebtedness and transfer or sell assets. These rights and restrictionswill likely have a material adverse effect on our cash flows and our ability topursue our growth strategy.

***The 7.0%Registration Rights Agreement and the Hybrid Registration Rights Agreementcontain liquidated damages, indemnity and other provisions that could adverselyaffect our cash flows or otherwise cause our stock price to decline.***

In connection withthe Private Placement, we entered into the 7.0% Registration Rights Agreementwith the 7.0% Preferred Stock investors. The 7.0% Registration Rights Agreementcontemplates the registration of the resale of the shares of common stockunderlying the 7.0% Preferred Stock and, if NYSE Shareholder Approval isobtained, the Hybrid Preferred Stock. We agreed to file with the SEC, not laterthan September 26, 2007, a registration statement to register the offer andsale of the common shares issuable upon conversion of the 7.0% Preferred Stockand to use our best efforts to have the registration statement declaredeffective by March 24, 2008.  If any shares of 7.0% Preferred Stock areoutstanding on March 30, 2011, we agreed to file a registration statement withthe SEC by June 28, 2011 registering such shares for resale and to use our bestefforts to have such registration statement declared effective by September 26,2011.  If we are unable to meet the deadlines described above, if aregistration statement ceases to remain effective or if we restrict sales undera registration statement under certain “blackout provisions” for longer thanthe contractually permitted period, we must pay liquidated damages at a rate of0.5% per annum of the 7.0% Preferred Stock liquidation preference for the first90 days and thereafter for each subsequent 90-day period at an additional rateof 0.25% up to a maximum of 2.0% per annum

45

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during any defaultperiod.  We also agreed to indemnify holders against certain liabilitiesunder the Securities Act of 1933 in respect of any such resale registration.

In connection withthe Private Placement, we also entered the Hybrid Registration Rights Agreementwith the Hybrid Preferred Stock investors. The Hybrid Registration RightsAgreement contemplates the registration of the resale of the shares of HybridPreferred Stock.  If NYSE Shareholder Approval is not obtained bySeptember 26, 2007, we agreed to file a registration statement with the SEC byDecember 24, 2007, covering the resale prior to such shareholder approval ofshares of Hybrid Preferred Stock and to use our best efforts to have theregistration statement declared effective by March 24, 2008.  The HybridRegistration Right Agreement contains liquidated damages payment provisions andindemnification obligations similar to those contained in the 7.0% RegistrationRights Agreement.

The sale of a significantamount of shares in the open market as a result of registering the resale ofshares under the 7.0% Registration Rights Agreement or the Hybrid RegistrationRights Agreement, or the perception that these sales may occur, could cause thetrading price of our common stock to decline or become highly volatile.

**Item 2.****    Unregistered sales of equitysecurities and use of proceeds.**

**(a)****           Salesof unregistered securities.**

On March 30, 2007,we completed the Private Placement of an aggregate of $390.0 million of 7.0%Preferred Stock and $1.61 billion of Hybrid Preferred Stock to accreditedinvestors pursuant to the terms and conditions of a Preferred Stock PurchaseAgreement dated March 28, 2007.  Thepurchase price for each share was $10,000 (which equals the liquidationpreference per share on March 30, 2007).  In connection with the Private Placement, we contributed $1.75billion of the net proceeds to EPOP, of which approximately $1.5 billion wasused to close the Vernon Acquisition and approximately $150.0 million of whichwas used to refinance EPOP’s debt agreements. The EPOP Senior Term Credit Agreement was paid in full and terminated inconnection with the Private Placement. We used the remaining $250.0million of the net proceeds of from thePrivate Placement to restructure and repay indebtedness under the EXCOResources Credit Agreement and pay fees and expenses associated with theoffering.

The issuance andsale of the shares in the Private Placement was exempt from registration underthe Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation Dpromulgated thereunder. For more information about the Private Placement andthe terms of the 7.0% Preferred Stock and the Hybrid Preferred Stock, see “—Our liquidity, capital resources and capitalcommitments—Preferred Stock.”

**Item 6. Exhibits**
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.1             |       | Agreement and Plan of Merger between EXCO Holdings  Inc. and EXCO Resources, Inc., dated February 9, 2006, filed as an  Exhibit to EXCO’s Current Report on Form 8-K, dated  February 8, 2006 and filed February 14, 2006 and incorporated by  reference herein.                                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.2             |       | 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.                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.3             |       | 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. |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.4             |       | 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 Form S-1, dated January 16, 2007, and filed  on January 16, 2007 and incorporated by reference herein.                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.5             |       | 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.            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.6             |       | First Amendment to Purchase and Sale Agreement and  Assignment of Partial Interest in the Purchase and Sale                                                                                                                                                                                                                                                                                                              |

 

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|        |   | 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.                                                                                                  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.7    |   | 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 May 2, 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.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.8    |   | 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.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.9    |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.10   |   | 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.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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  February 8, 2006 and filed on February 14, 2006 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                                                                                                                                                                                                                                  |

 

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|        |   | 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.                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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    |   | 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.                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.10   |   | 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.                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.11   |   | 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 7 1¤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.                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.7   |   | Letter Agreement, dated October 3, 2005,  between EXCO Resources, Inc. and JPMorgan Chase Bank, N.A., as agent for  certain lenders under the Credit Agreement by and among EXCO Holdings  II, Inc. (EXCO Holdings Inc. as successor by merger) as Borrower and  JPMorgan Chase Bank, N.A., as Administrative Agent for itself and the Lenders  defined therein, dated October 3, 2005, as filed as an Exhibit to  EXCO’s Quarterly Report on Form 10-Q for the Quarter ended September 30,  2005 filed November 14, 2005 and incorporated by reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.8   |   | Promissory Note in the maximum amount of  $10,000,000, dated October 7, 2005, made by EXCO Holdings Inc., payable  to EXCO Resources, Inc., filed as an Exhibit to EXCO’s Quarterly  Report on Form 10-Q for the Quarter ended September 30, 2005 filed  November 14, 2005 and incorporated by reference herein.                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.9   |   | 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.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.10  |   | Agreement and Plan of Merger between EXCO Holdings  Inc. and EXCO Resources, Inc., dated February 9, 2006, filed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

48

----

 
|        |   | as an Exhibit to EXCO’s Current Report on  Form 8-K, dated February 8, 2006 and filed February 14, 2006  and incorporated by reference herein.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.11  |   | Credit Agreement for Senior Secured Revolving Credit  Facility, dated as of September 27, 2005, by and among TXOK  Acquisition, Inc., as Borrower, certain subsidiaries of Borrower, as  Guarantors, the Lenders (as 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 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.12  |   | First Amendment to Revolving Credit Agreement, dated  as of December 15, 2005, by and among TXOK Acquisition, Inc., as  Borrower, certain subsidiaries of Borrower, as Guarantors, the Lenders (as  defined herein), 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. 1, dated February 8, 2006 and filed  on February 21, 2006 and incorporated by reference herein.                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.13  |   | Second Amendment to Revolving Credit Agreement, dated  as of February 6, 2006, by and among TXOK Acquisition, Inc., as  Borrower, certain subsidiaries of Borrower, as Guarantors, the Lenders (as  defined therein), 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. 1, dated February 8, 2006 and filed  on February 21, 2006 and incorporated by reference herein.                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.14  |   | Subsidiary Guaranty, dated February 14, 2006,  among TXOK Acquisition, Inc., TXOK Energy Resources Company, TXOK Energy  Holdings, L.L.C., TXOK Texas Energy Holdings, LLC and TXOK Texas Energy  Resources, L.P., as Subsidiary Guarantors, in favor of JPMorgan Chase Bank,  NA, as agent for itself and the Lenders defined therein, 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.                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.15  |   | 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.                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.16  |   | 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.*                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.17  |   | Form of Incentive Stock Option Agreement for  the EXCO Resources, Inc. 2005 Long-Term Incentive Plan, filed as an  Exhibit to EXCO’s Annual Report on Form 10-K filed on March 19,  2007 and incorporated by reference herein.*                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.18  |   | Form of Nonqualified Stock Option Agreement for  the EXCO Resources, Inc. 2005 Long-Term Incentive Plan, filed as an  Exhibit to EXCO’s Annual Report on Form 10-K filed on March 19,  2007 and incorporated by reference herein.*                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.19  |   | 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.*                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.20  |   | 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.                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.21  |   | 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.                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.22  |   | 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.                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.23  |   | 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.                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.24  |   | Senior Term 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.                                                                                                                                                             |

 

49

----

 
| 10.25  |   | 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.                                                                               |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.27  |   | 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.                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.28  |   | 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.                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.29  |   | Second Amended and Restated EXCO  Resources, Inc. Severance Plan, filed as an Exhibit to EXCO’s  Current Report on Form 8-K, dated November 8, 2006 and filed on  November 9, 2006 and incorporated by reference herein.*                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.30  |   | Amended and Restated 2007 Director Plan of EXCO  Resources, Inc., filed as an Exhibit to EXCO’s Current Report on  Form 8-K, dated January 15, 2007 and filed on January 16, 2007  and incorporated by reference herein.                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.31  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.32  |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.33  |   | 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.                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.34  |   | 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.                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.35  |   | 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.                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.36  |   | 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.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.37  |   | 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.*                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.38  |   | 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.                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.39  |   | 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                                                                                                                                |

 

50

----

 
|        |   | EXCO’s Form 8-K dated March 28, 2007 and  filed on April 2, 2007 and incorporated by reference herein.                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.40  |   | 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.                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.41  |   | 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.                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.42  |   | 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 May 2, 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.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.43  |   | Second Amended and Restated Credit Agreement, dated  as of May 2, 2007, 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 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.              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.44  |   | 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.                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.45  |   | 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.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.46  |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.47  |   | 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.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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 Form 8-K filed November 24, 2004 and incorporated by  reference herein.                                                                                                                                                                                                                                                                                                                                        |

 

----

*  These exhibits are management contracts.

51

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed in its behalf by the undersigned thereunto dulyauthorized.
|                    | ** ** | **EXCO RESOURCES, INC.** |
|--------------------|------------|-------------------------------|
| ** **         | ** ** | **(Registrant)**              |
| ** **         | ** ** | ** **                    |
| Date: May 14, 2007 |       | 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 |

 

52

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**Index to Exhibits**
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.1             |       | Agreement and Plan of Merger between EXCO Holdings  Inc. and EXCO Resources, Inc., dated February 9, 2006, filed as an  Exhibit to EXCO’s Current Report on Form 8-K, dated  February 8, 2006 and filed February 14, 2006 and incorporated by  reference herein.                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.2             |       | 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.                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.3             |       | 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.                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.4             |       | 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 Form S-1, dated January 16, 2007, and filed  on January 16, 2007 and incorporated by reference herein.                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.5             |       | 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.                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.6             |       | 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. |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.7             |       | 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 May 2, 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.                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.8             |       | 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.                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.9             |       | 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.            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.10            |       | 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.                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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 February 8, 2006 and filed on February 14,  2006 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.                                                                                                                                                                                                              |

 

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| 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 7 1¤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.                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 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    |   | 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.        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10   |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.11   |   | 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.                                                                   |

 

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| 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 7 1¤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.                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7   |   | Letter Agreement, dated October 3, 2005,  between EXCO Resources, Inc. and JPMorgan Chase Bank, N.A., as agent for  certain lenders under the Credit Agreement by and among EXCO Holdings  II, Inc. (EXCO Holdings Inc. as successor by merger) as Borrower and  JPMorgan Chase Bank, N.A., as Administrative Agent for itself and the Lenders  defined therein, dated October 3, 2005, as filed as an Exhibit to  EXCO’s Quarterly Report on Form 10-Q for the Quarter ended  September 30, 2005 filed November 14, 2005 and incorporated by  reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8   |   | Promissory Note in the maximum amount of  $10,000,000, dated October 7, 2005, made by EXCO Holdings Inc., payable  to EXCO Resources, Inc., filed as an Exhibit to EXCO’s Quarterly  Report on Form 10-Q for the Quarter ended September 30, 2005 filed  November 14, 2005 and incorporated by reference herein.                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.9   |   | 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.                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10  |   | Agreement and Plan of Merger between EXCO Holdings  Inc. and EXCO Resources, Inc., dated February 9, 2006, filed as an  Exhibit to EXCO’s Current Report on Form 8-K, dated  February 8, 2006 and filed February 14, 2006 and incorporated by  reference herein.                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.11  |   | Credit Agreement for Senior Secured Revolving Credit  Facility, dated as of September 27, 2005, by and among TXOK  Acquisition, Inc., as Borrower, certain subsidiaries of Borrower, as  Guarantors, the Lenders (as 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 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.                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.12  |   | First Amendment to Revolving Credit Agreement, dated  as of December 15, 2005, by and among TXOK Acquisition, Inc., as  Borrower, certain subsidiaries of Borrower, as Guarantors, the Lenders (as  defined herein), 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. 1, dated February 8, 2006 and filed on  February 21, 2006 and incorporated by reference herein.                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.13  |   | Second Amendment to Revolving Credit Agreement,  dated as of February 6, 2006, by and among TXOK Acquisition, Inc.,  as Borrower, certain subsidiaries of Borrower, as Guarantors, the Lenders (as  defined therein), 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. 1, dated February 8, 2006 and filed on  February 21, 2006 and incorporated by reference herein.                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.14  |   | Subsidiary Guaranty, dated February 14, 2006,  among TXOK Acquisition, Inc., TXOK Energy Resources Company, TXOK Energy  Holdings, L.L.C., TXOK Texas Energy Holdings, LLC and TXOK Texas Energy  Resources, L.P., as Subsidiary Guarantors, in favor of JPMorgan Chase Bank,  NA, as agent for itself and the Lenders defined therein, 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.                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15  |   | 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.                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.16  |   | 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.*                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17  |   | Form of Incentive Stock Option Agreement for  the EXCO Resources, Inc. 2005 Long-Term Incentive Plan, filed as an  Exhibit to EXCO’s Annual Report on Form 10-K filed on March 19,  2007 and incorporated by reference herein.*                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.18  |   | Form of Nonqualified Stock Option Agreement for  the EXCO Resources, Inc. 2005 Long-Term Incentive Plan, filed as an  Exhibit to EXCO’s Annual Report on Form 10-K filed on March 19,  2007 and incorporated by reference herein.*                                                                                                                                                                                                                                                                                                                                                   |

 

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| 10.19  |   | 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.*                                                                                                                                                                                                     |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20  |   | 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.                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22  |   | 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.                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.23  |   | 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.                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24  |   | Senior Term 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.                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.25  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.27  |   | 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.                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.28  |   | 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.                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.29  |   | Second Amended and Restated EXCO  Resources, Inc. Severance Plan, filed as an Exhibit to EXCO’s  Current Report on Form 8-K, dated November 8, 2006 and filed on  November 9, 2006 and incorporated by reference herein.*                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.30  |   | Amended and Restated 2007 Director Plan of EXCO  Resources, Inc., filed as an Exhibit to EXCO’s Current Report on  Form 8-K, dated January 15, 2007 and filed on January 16, 2007  and incorporated by reference herein.                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.31  |   | 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.                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.32  |   | 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. |

 

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| 10.33  |   | 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.                                                                                                                      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.34  |   | 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.                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.35  |   | 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.                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.36  |   | 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.                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.37  |   | 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.*                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.38  |   | 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.                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.39  |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.40  |   | 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.                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.41  |   | 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.                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.42  |   | 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 May 2, 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.                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.43  |   | Second Amended and Restated Credit Agreement, dated  as of May 2, 2007, 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 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.                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.44  |   | 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.                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.45  |   | 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.                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.46  |   | 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.        |

 

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| 10.47  |   | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 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 Form 8-K filed November 24, 2004 and incorporated by  reference herein.                                                                                                                                                                                    |

 

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*  These exhibits are management contracts.

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