Appalachia

The Appalachian Basin includes portions of the states of Kentucky, Ohio, Pennsylvania, Virginia, West Virginia and Tennessee, and covers an area of over 185,000 square miles. It is the most mature oil and natural gas producing region in the United States, first establishing oil production in 1859. The Appalachian Basin is strategically located near high energy demand areas with limited supply. As a result, the natural gas produced from the area typically commands a higher wellhead price relative to other North American areas.

Although the Appalachian Basin has sedimentary formations indicating the potential for deposits of oil and natural gas reserves up to depths of 30,000 feet or more, most production in this area has traditionally been derived from relatively shallow, low porosity and permeability sand and shale formations at depths of 1,000 to 8,000 feet. Operations in the area are generally characterized by long reserve lives, high drilling success rates and a large number of low productivity wells in these shallow formations. In the Appalachian Basin, there are over 200,000 producing wells and more than 5,000 operators with most being relatively small, private enterprises. Our operations in the area have included maintaining our existing production base from our shallow wells. We believe that the number of wells and operators presents a significant consolidation opportunity. We also believe the Marcellus shale development presents a significant growth opportunity for us.

Marcellus Shale Resource Play

During 2009, we focused on testing and evaluating our Marcellus fairway acreage, which we define as being geologically over-pressured. Approximately 60% of our Marcellus shale fairway acreage is held by shallow production. We continue to hire technical personnel to support the development of this play.

We announced during the second quarter of 2010 a joint venture agreement with BG Group for cooperative development and operation of our Marcellus shale and related Appalachian assets located primarily in Pennsylvania and West Virginia.  EXCO and BG Group plan to increase the development program for the remainder of 2010 and in future years and aggressively pursue opportunities to acquire additional acreage in the Appalachian basin.

Pennsylvania Area

Our Pennsylvania area encompasses 23 of the counties in the state. Drilling, completion and production activities target the Marcellus shale and the Upper Devonian Venango, Bradford and Elk sandstone groups at depths of 1,800 to 8,100 feet.

West Virginia Area

Our West Virginia area includes 29 counties stretching from the northern to the southern areas of the state.  Drilling, completion and production activities target the Marcellus shale and the multiple, laterally stratified reservoirs of the Mississippian and Devonian formations found at depths ranging from 1,500 to 8,100 feet.