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With Shale Backbone, XTO on Pace to Double Gas Output in 4 Yrs.

XTO Energy Inc.'s massive accumulation of natural gas properties in producing shale basins across the United States should allow it to double its gas production by the end of 2011 and could lift the independent to the top of the heap among domestic gas producers, CEO Bob Simpson said last week.

Undeterred by some energy analysts who voiced concerns that the Fort Worth, TX-based producer has overextended itself with its $10 billion-plus in acquisitions since the beginning of the year (see NGI, June 16), the company's long-term plan gives it running room to build a reserves base of 22 Tcf within four years, Simpson said. He and his management team presided over a conference call Tuesday to discuss 2Q2008 results and to unveil about $2 billion more of bolt-on acquisitions in several natural gas regions across the United States.

Among its latest purchases is the addition of 12,900 net acres in the Barnett Shale. XTO paid $800 million to an undisclosed seller for acreage that is adjacent to its existing operations. XTO's engineers estimate proved reserves in the new properties to be "in excess of 300 Bcfe," with about 25% proved developed. The acquisition initially would add 35 MMcfe/d to XTO's production. XTO's "overall position in the Barnett Shale play now includes about 280,000 net acres," said President Keith A. Hutton. About 55%, or 155,000 acres, "is situated in the premier core area of the play where the geology offers the best productivity. This bolt-on acquisition is perfectly situated in the fairway of our ongoing development in the core."

XTO also spent $1.3 billion to add acreage in East Texas, the San Juan Basin, Fayetteville Shale and the emerging Marcellus and Haynesville shales. The sellers were not disclosed.

"These properties are located right in the heart of our operations and provide for more of the same," said Simpson. "Given our extensive knowledge of the shale in this region, we anticipate ultimate recovery from these assets will be more than 1 Tcf of natural gas over time." The bolt-on assets "will allow us to double the size of the company from last year by the end of 2011. We'll double our production, double our reserves. Production last year was 1.8 Bcf/d. Now we have assets in place to take us to 3.6 Bcf/d by the end of 2011."

Simpson explained why XTO has been so acquisition-minded since the beginning of this year.

"We do not want to build a company that hits a wall at 22 Tcf," he said. "The job is the same as always. Have a vision, rate the potential beyond that. This process allows that to happen. It's not just to hit the one spot, 'high five and it's over' plan..." When shareholders ask what XTO is doing, "the answer is, what we're doing is taking advantage of this environment, and yes, we have a plan."

The "opportunities are there," the CEO said, "and we have these fields that are unlike anything in my career being discovered. It's an exciting time, like the '40s and '50s in West Texas. We recognize it, we're acting on it, and it's exciting and fun.

"At some point, the majors will notice it, and come back and play it too," said Simpson. BP plc, he noted, agreed to pay $1.75 billion in cash earlier this month to acquire all of Chesapeake Energy Corp.'s Woodford Shale assets (see NGI, July 21). Royal Dutch Shell plc and ExxonMobil Corp. also added to their gas positions in North America this month.

"The majors are starting to come back to the shale play," Simpson said. "It' really like a new time...There will be more shales [in North America], more shales around the world. The advent of shales is here."

XTO posted quarterly earnings of $575 million ($1.11/share), 33% higher than the $432 million (91 cents) in 2Q2007. Production rose 29% in the quarter to 2.2 billion boe/d. Gas production was 1.8 Bcf/d, compared with 1.33 Bcf/d a year earlier. Oil production rose 11% to 51,300 b/d from 46,100 b/d. Production is expected to grow "at least" 29% through the rest of 2008 and 22% in 2009. For the year, XTO increased its capital budget to $3.5 billion from $3 billion. The 2009 development budget is set at $4.6 billion.

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