18.

Condensed consolidating financial statements

As of September 30, 2011, the majority of EXCO's subsidiaries are guarantors under the EXCO Resources Credit Agreement and the indenture governing the 2018 Notes. All of our non-guarantor subsidiaries are considered unrestricted subsidiaries under the 2018 Notes, with the exception of our equity investment in OPCO. As of and for the nine months ended September 30, 2011:

•

Our equity method investment in OPCO represented $2.8 million of equity method investments and contributed $0.3 million of equity method losses; and

•

Our interests in jointly held entities with BG Group, with the exception of OPCO, represented $285.2 million of equity method investments, or 7.4% of our total assets and contributed $23.0 million of equity method income.

Set forth below are condensed consolidating financial statements of EXCO, the guarantor subsidiaries and the non-guarantor subsidiaries. The 2010 condensed consolidating financial statements have been restated to reflect the consolidation of the EOC credit agreement into the EXCO Resources Credit Agreement, which occurred on April 30, 2010. The 2018 Notes, which were issued by EXCO Resources, Inc., are jointly and severally guaranteed by some of our subsidiaries (referred to as Guarantor Subsidiaries). Each of the Guarantor Subsidiaries are wholly-owned subsidiaries of Resources (defined below), and the guarantees are unconditional as it relates to the assets of the Guarantor Subsidiaries. For purposes of this footnote, EXCO Resources, Inc. is referred to as Resources to distinguish it from the Guarantor Subsidiaries.

The following financial information presents consolidating financial statements, which include:

•

Resources;

•

the Guarantor Subsidiaries on a combined basis;

•

the Non-Guarantor Subsidiaries;

•

elimination entries necessary to consolidate Resources, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries; and

•

EXCO on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method of accounting. The financial information for the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries is presented on a combined basis. The elimination entries primarily eliminate investments in subsidiaries and intercompany balances and transactions.

EXCO

RESOURCES, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(Unaudited)

September 30, 2011


(in thousands)	Resources			Guarantor subsidiaries			Non-Guarantor subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	79,299		$	(22,881	)	$	0		$	0		$	56,418
Restricted cash		0			117,339			0			0			117,339
Other current assets		133,990			302,418			0			0			436,408

Total current assets		213,289			396,876			0			0			610,165

Equity investment		0			0			287,979			0			287,979
Oil and natural gas properties (full cost accounting method):
Unproved oil and natural gas properties and development costs not being amortized		25,311			721,820			0			0			747,131
Proved developed and undeveloped oil and natural gas properties		444,887			2,898,074			0			0			3,342,961
Accumulated depletion		(314,659	)		(1,237,515	)		0			0			(1,552,174	)

Oil and natural gas properties, net		155,539			2,382,379			0			0			2,537,918

Gas gathering, office and field equipment, net		28,808			123,657			0			0			152,465
Investments in and advances to affiliates		1,092,098			0			0			(1,092,098	)		0
Deferred financing costs, net		31,518			0			0			0			31,518
Derivative financial instruments		17,229			6,127			0			0			23,356
Goodwill		38,100			180,156			0			0			218,256
Other assets		3			7,845			0			0			7,848

Total assets	$	1,576,584		$	3,097,040		$	287,979		$	(1,092,098	)	$	3,869,505


Liabilities and shareholders' equity
Current liabilities	$	67,651		$	297,849		$	0		$	0		$	365,500
Long-term debt		1,712,555			0			0			0			1,712,555
Deferred income taxes		0			0			0			0			0
Other liabilities		7,721			55,930			0			0			63,651
Payable to parent		(1,939,142	)		1,945,298			(6,156	)		0			0
Total shareholders' equity		1,727,799			797,963			294,135			(1,092,098	)		1,727,799

Total liabilities and shareholders' equity	$	1,576,584		$	3,097,040		$	287,979		$	(1,092,098	)	$	3,869,505

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2010


(in thousands)	Resources			Guarantor subsidiaries			Non-Guarantor subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	76,763		$	(32,534	)	$	0	$	0		$	44,229
Restricted cash		0			161,717			0		0			161,717
Other current assets		83,913			230,590			11		0			314,514

Total current assets		160,676			359,773			11		0			520,460

Equity investment		0			0			379,001		0			379,001
Oil and natural gas properties (full cost accounting method):
Unproved oil and natural gas properties and development costs not being amortized		37,818			561,591			0		0			599,409
Proved developed and undeveloped oil and natural gas properties		385,357			1,985,605			0		0			2,370,962
Accumulated depletion		(295,453	)		(1,016,763	)		0		0			(1,312,216	)

Oil and natural gas properties, net		127,722			1,530,433			0		0			1,658,155

Gas gathering, office and field equipment, net		28,837			131,276			16,193		0			176,306
Investments in and advances to affiliates		964,806			92,973			0		(1,057,779	)		0
Deferred financing costs, net		30,704			0			0		0			30,704
Derivative financial instruments		13,665			10,057			0		0			23,722
Goodwill		38,100			180,156			0		0			218,256
Other assets		3			470,813			0		0			470,816

Total assets	$	1,364,513		$	2,775,481		$	395,205	$	(1,057,779	)	$	3,477,420


Liabilities and shareholders' equity
Current liabilities	$	50,654		$	228,332		$	6,712	$	0		$	285,698
Long-term debt		1,588,269			0			0		0			1,588,269
Deferred income taxes		0			0			0		0			0
Other liabilities		10,234			52,667			0		0			62,901
Payable to parent		(1,825,196	)		1,821,530			3,666		0			0
Total shareholders' equity		1,540,552			672,952			384,827		(1,057,779	)		1,540,552

Total liabilities and shareholders' equity	$	1,364,513		$	2,775,481		$	395,205	$	(1,057,779	)	$	3,477,420

EXCO

RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

For the three months ended September 30, 2011


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Oil and natural gas	$	22,725		$	184,549		$	0		$	0		$	207,274

Costs and expenses:
Oil and natural gas production		4,987			22,767			0			0			27,754
Gathering and transportation		1			22,278			0			0			22,279
Depreciation, depletion and amortization		11,609			88,733			149			0			100,491
Accretion of discount on asset retirement obligations		113			825			0			0			938
General and administrative		10,059			19,816			0			0			29,875
Gain (loss) on divestitures and other operating items		15,753			5,568			(276	)		0			21,045

Total costs and expenses		42,522			159,987			(127	)		0			202,382

Operating income (loss)		(19,797	)		24,562			127			0			4,892
Other income (expense):
Interest expense		(15,089	)		(1	)		0			0			(15,090	)
Gain on derivative financial instruments		74,063			10,221			0			0			84,284
Other income (expense)		77			116			0			0			193
Equity income		0			0			10,666			0			10,666
Equity in earnings of subsidiaries		45,691			0			0			(45,691	)		0

Total other income (expense)		104,742			10,336			10,666			(45,691	)		80,053

Income (loss) before income taxes		84,945			34,898			10,793			(45,691	)		84,945
Income tax expense		0			0			0			0			0

Net income (loss)	$	84,945		$	34,898		$	10,793		$	(45,691	)	$	84,945

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

For the three months ended September 30, 2010


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Oil and natural gas	$	17,025		$	108,362		$	5,603	$	0		$	130,990

Costs and expenses:
Oil and natural gas production		3,833			20,755			552		0			25,140
Gathering and transportation		0			11,254			307		0			11,561
Depreciation, depletion and amortization		8,540			43,071			2,076		0			53,687
Accretion of discount on asset retirement obligations		87			742			1		0			830
General and administrative		6,468			17,566			0		0			24,034
Gain on divestitures and other operating items		5,652			605			0		0			6,257

Total costs and expenses		24,580			93,993			2,936		0			121,509

Operating income (loss)		(7,555	)		14,369			2,667		0			9,481
Other income (expense):
Interest expense		(8,439	)		(1	)		0		0			(8,440	)
Gain on derivative financial instruments		30,427			25,782			0		0			56,209
Other income (expense)		16			51			0		0			67
Equity method income		0			0			6,675		0			6,675
Equity in earnings of subsidiaries		49,543			0			0		(49,543	)		0

Total other income (expense)		71,547			25,832			6,675		(49,543	)		54,511

Income (loss) before income taxes		63,992			40,201			9,342		(49,543	)		63,992
Income tax expense (benefit)		(904	)		0			0		0			(904	)

Net income (loss)	$	64,896		$	40,201		$	9,342	$	(49,543	)	$	64,896

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

For the nine months ended September 30, 2011


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Oil and natural gas	$	70,115		$	505,215		$	0		$	0		$	575,330

Costs and expenses:
Oil and natural gas production		14,334			65,209			0			0			79,543
Gathering and transportation		1			59,068			0			0			59,069
Depreciation, depletion and amortization		25,379			227,501			953			0			253,833
Accretion of discount on asset retirement obligations		321			2,407			0			0			2,728
General and administrative		19,375			57,061			(1	)		0			76,435
Gain (loss) on divestitures and other operating items		20,355			6,098			(1,282	)		0			25,171

Total costs and expenses		79,765			417,344			(330	)		0			496,779

Operating income (loss)		(9,650	)		87,871			330			0			78,551
Other income (expense):
Interest expense		(42,326	)		(1,259	)		0			0			(43,585	)
Gain on derivative financial instruments		113,670			17,308			0			0			130,978
Other income (expense)		262			293			0			0			555
Equity method income		0			0			22,749			0			22,749
Equity in earnings of subsidiaries		127,292			0			0			(127,292	)		0

Total other income (expense)		198,898			16,342			22,749			(127,292	)		110,697

Income (loss) before income taxes		189,248			104,213			23,079			(127,292	)		189,248
Income tax expense		0			0			0			0			0

Net income (loss)	$	189,248		$	104,213		$	23,079		$	(127,292	)	$	189,248

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

For the nine months ended September 30, 2010


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Oil and natural gas	$	50,747		$	320,250		$	9,331	$	0		$	380,328

Costs and expenses:
Oil and natural gas production		11,684			70,625			913		0			83,222
Gathering and transportation		0			34,948			599		0			35,547
Depreciation, depletion and amortization		21,387			113,135			3,322		0			137,844
Accretion of discount on asset retirement obligations		255			2,663			2		0			2,920
General and administrative		20,725			55,594			0		0			76,319
Gain (loss) on divestitures and other operating items		7,816			(576,912	)		0		0			(569,096	)

Total costs and expenses		61,867			(299,947	)		4,836		0			(233,244	)

Operating income (loss)		(11,120	)		620,197			4,495		0			613,572
Other income (expense):
Interest expense		(26,814	)		(6,736	)		0		0			(33,550	)
Gain on derivative financial instruments		64,369			91,696			0		0			156,065
Other income (expense)		10,345			(10,161	)		0		0			184
Equity method income		0			0			12,054		0			12,054
Equity in earnings of subsidiaries		711,545			0			0		(711,545	)		0

Total other income (expense)		759,445			74,799			12,054		(711,545	)		134,753

Income (loss) before income taxes		748,325			694,996			16,549		(711,545	)		748,325
Income tax expense		3,548			0			0		0			3,548

Net income (loss)	$	744,777		$	694,996		$	16,549	$	(711,545	)	$	744,777

EXCO

RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

For the nine months ended September 30, 2011


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating Activities:
Net cash provided by operating activities	$	61,069		$	293,094		$	1,171		$	0	$	355,334

Investing Activities:
Additions to oil and natural gas properties, gathering systems and equipment and property acquisitions		(51,201	)		(1,436,396	)		(4,253	)		0		(1,491,850	)
Proceeds from disposition of property and equipment		3,128			425,204			0			0		428,332
Investment in equity investments		0			(13,969	)		0			0		(13,969	)
Return of investment in equity investments		0			125,000			0			0		125,000
Restricted cash		0			44,378			0			0		44,378
Advances (to) from Appalachia JV		0			3,306			0			0		3,306
Deposit on pending acquisitions		0			464,151			0			0		464,151
Other		0			(5,750	)		0			0		(5,750	)
Advances/investments with affiliates		(113,717	)		110,635			3,082			0		0

Net cash used in investing activities		(161,790	)		(283,441	)		(1,171	)		0		(446,402	)

Financing Activities:
Borrowings under credit agreement		521,000			0			0			0		521,000
Repayments under credit agreement		(397,500	)		0			0			0		(397,500	)
Proceeds from issuance of common stock		11,776			0			0			0		11,776
Payment of common stock dividends		(25,673	)		0			0			0		(25,673	)
Deferred financing costs and other		(6,346	)		0			0			0		(6,346	)

Net cash used in financing activities		103,257			0			0			0		103,257

Net increase (decrease) in cash		2,536			9,653			0			0		12,189
Cash at the beginning of the period		76,763			(32,534	)		0			0		44,229

Cash at end of period	$	79,299		$	(22,881	)	$	0		$	0	$	56,418

EXCO RESOURCES, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

For the nine months ended September 30, 2010


(in thousands)	Resources			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating Activities:
Net cash provided by (used in) operating activities	$	56,229		$	228,216		$	(8,449	)		0	$	275,996

Investing Activities:
Additions to oil and natural gas properties, gathering systems and equipment		(50,366	)		(599,808	)		(237,904	)		0		(888,078	)
Proceeds from dispositions		8,896			986,677			0			0		995,573
Investment in equity investments		0			(100,000	)		0			0		(100,000	)
Restricted cash		0			(41,340	)		0			0		(41,340	)
Advances (to) from Appalachia JV		0			(10,318	)		0			0		(10,318	)
Advances/investments with affiliates		292,494			(538,847	)		246,353			0		0

Net cash provided by (used in) investing activities		251,024			(303,636	)		8,449			0		(44,163	)

Financing Activities:
Borrowings under credit agreements		1,352,437			49,962			0			0		1,402,399
Repayments under credit agreements		(1,870,582	)		(24,981	)		0			0		(1,895,563	)
Proceeds from issuance of 2018 Notes		738,975			0			0			0		738,975
Repayment of 2011 Notes		(444,720	)		0			0			0		(444,720	)
Proceeds from issuance of common stock, net		9,776			0			0			0		9,776
Payment of common stock dividends		(21,238	)		0			0			0		(21,238	)
Payment for common shares repurchased		(7,479	)		0			0			0		(7,479	)
Settlement of derivative financial instruments with a financing element		(907	)		0			0			0		(907	)
Deferred financing costs and other		(30,359	)		0			0			0		(30,359	)

Net cash provided by (used in) financing activities		(274,097	)		24,981			0			0		(249,116	)

Net increase (decrease) in cash		33,156			(50,439	)		0			0		(17,283	)
Cash at beginning of period		47,412			20,995			0			0		68,407

Cash at end of period	$	80,568		$	(29,444	)	$	0		$	0	$	51,124