Equity Investments

9 Months Ended

Sep. 30, 2011

15.

Equity investments

We hold equity investments in four entities with BG Group, which are described below. We use the equity method of accounting for each investment.

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We have a 50% ownership in TGGT, which holds interests in midstream assets in East Texas and North Louisiana. During the first quarter of 2011, TGGT closed on its credit facility and used a majority of the proceeds from the initial draw to make a return of capital distribution to both us and BG Group of $250.0 million, $125.0 million net to each partner. On May 28, 2011, an incident occurred at a TGGT amine treating facility which resulted in the immediate shut-down of two treating facilities and the recognition of a $12.0 million impairment ($6.0 million net to us) in the second quarter of 2011. During the third quarter of 2011, TGGT collected an initial insurance reimbursement of approximately $6.2 million ($3.1 million net to us) in insurance recoveries related to the damaged facility. The insurance recoveries were mostly offset by losses arising from write-downs of equipment. One of the treating facilities resumed operations in October 2011.

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We own a 50% interest in OPCO, which operates the Appalachia JV properties, subject to oversight from a management board having equal representation from EXCO and BG Group. During the first nine months of 2011, EXCO and BG Group each contributed $2.7 million to OPCO, which is equal to OPCO's 0.5% interest in the 2011 property acquisitions, plus all related working capital items and other fixed assets that will be used to service the properties acquired, and capital contributions for OPCO's drilling and operating budget needs.

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We own a 50% interest in the Appalachia Midstream JV, through which we and BG Group will pursue the construction and expansion of gathering systems for anticipated future production from the Marcellus shale. During the third quarter of 2011, EXCO and BG Group each contributed $3.5 million to the Appalachia Midstream JV to fund their capital budget and operation needs.

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We own a 50% interest in an entity that manages certain surface acreage.

The following tables present summarized consolidated financial information of our equity investments and a reconciliation of our investment to our proportionate 50% interest.


(in thousands)	September 30, 2011		December 31, 2010
Assets:
Total current assets	$	173,540	$	120,475
Property and equipment, net		1,060,064		873,228
Other assets		3,929		6,143

Total assets	$	1,237,533	$	999,846

Liabilities and members' equity:
Total current liabilities	$	141,116	$	145,006
Total long-term debt		432,142		—
Total long-term liabilities		4,386		10,092
Total members' equity		659,889		844,748

Total liabilities and members' equity	$	1,237,533	$	999,846


	Three months ended				Nine months ended
(in thousands)	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Revenues:
Oil and natural gas	$	130	$	69	$	386	$	94
Midstream		64,180		39,133		179,820		114,485

Total revenues		64,310		39,202		180,206		114,579

Costs and expenses:
Oil and natural gas production		17		120		21		162
Midstream operating		29,010		18,916		80,320		69,800
Other expenses		6,979		2,905		35,041		10,483
Depreciation, depletion, and amortization		7,511		4,971		21,022		12,651

Total costs and expenses		43,517		26,912		136,404		93,096

Income before income taxes		20,793		12,290		43,802		21,483
Income tax expense		399		87		1,118		246

Net income	$	20,394	$	12,203	$	42,684	$	21,237

EXCO's share of equity income before amortization	$	10,197	$	6,102	$	21,342	$	10,619

Amortization of the difference in the historical basis of our contribution		469		573		1,407		1,435

EXCO's share of equity income after amortization	$	10,666	$	6,675	$	22,749	$	12,054


(in thousands)	September 30, 2011			December 31, 2010
Equity investments	$	287,979		$	379,001
Basis adjustment (1)		45,755			45,755
Cumulative amortization of basis adjustment (2)		(3,789	)		(2,382	)

EXCO's 50% interest in equity investments	$	329,945		$	422,374

(1)

Our equity in TGGT and OPCO, at inception, exceeded the book value of our investments by an aggregate of $45.8 million, comprised of an aggregate of $57.2 million difference in the historical basis of our contribution and the fair value of BG Group's contribution, offset by $11.4 million of goodwill included in our investment in TGGT.

(2)	The aggregate $57.2 million basis difference is being amortized over the estimated life of the associated assets.

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

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