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XTO Ups 2009 Budget Despite Challenges

Even with the global economic downturn, XTO Energy Inc. said late last week that its board of directors has approved a 2009 capital budget for development and exploration expenditures of $3.3 billion and an additional $500 million has been budgeted for the construction of pipeline infrastructure and compression and processing facilities.

The 2009 budget is $800 million more than the 2008 budget, which allotted $2.6 billion for development and exploration and another $400 million to construct pipeline infrastructure and compression and processing facilities (see NGI, Nov. 19, 2007).

In late 2007, XTO said it planned to boost 2008 production volumes by 17% over 2007 levels, and on Thursday the company said it hopes to boost 2009 production volumes by 18% over 2008 levels.

"The budget approved today will provide for activity levels consistent with 2008 and positions us to take advantage of organizational efficiencies and falling costs," said XTO CEO Bob R. Simpson. "Moreover, combined with our expansive hedging program, XTO should have 18% production growth and record cash flow, with free cash flow approximating $2 billion. As a result, we will dedicate at least $1.25 billion to debt reduction."

As battered as the natural gas and oil business is from falling commodity prices and the credit market turmoil, it was worse 10 years ago when fuel prices bottomed in 1998, Simpson said Thursday. "We've seen challenges before. Everyone wants to say it's the worst it's ever been, but it isn't."

Still, in light of the current situation, the acquisitive Fort Worth, TX-based independent will veer away from its take-no-prisoners approach to building its North American gas-prone portfolio and spend the next three-to-six months paying down debt, Simpson said. He presided over a conference call to discuss the company's spending plans for the coming year, plans that will be carried out by newly promoted Keith A. Hutton, who assumes the CEO post.

Hutton, 49, president since 2005, will take over on Dec. 1. Vaughn O. Vennerberg II, 54, now XTO's chief of staff, will assume the president's role. And Simpson, 59, who founded XTO in 1986 and who has served as the hard-charging CEO since 1993, will retain his title as chairman -- and chief promoter.

"Going forward, my efforts will remain focused and dedicated to XTO," said Simpson. "Our team leads the company into an era of drill-bit growth unlike any before. Our prolific property base, significantly strengthened by the record acquisitions of 2008, provide visibility for growth and economic strength for years to come. We, as an executive team, will forge ahead together building XTO and creating value for all of us shareholders."

Hutton added, "In these challenging times, the strength of our property base allows XTO to continue to create shareholder value through volume growth and strong economic margins. With this managed growth strategy, the company expects to average utilizing 90 drilling rigs for 2009. Activities will include drilling 1,250 new wells and conducting 800 workover events."

Breaking down the 2009 budget, the eastern region will be allocated $1 billion with the Barnett Shale region utilizing about $800 million. The Arkoma Basin and Midcontinent properties will be allocated $500 million. The Bakken, Gulf Coast and Gulf of Mexico areas will be allocated $350 million. Programs in the Permian District are expected to utilize another $300 million. The San Juan, Raton, Uinta and Piceance basins combined will be allocated $250 million. Finally, the company will target $100 million for "exploration events."

XTO also updated its price hedges for future sales of natural gas and oil production for 2009 and 2010. In 2009, the company said it has 1,745 MMcf of gas hedged at $8.83/Mcf. For 2010, XTO has 730 MMcf of gas hedged at $8.67/Mcf.

"We have now hedged approximately 77% of our expected production in 2009," Simpson said. "XTO anticipates record cash flow and production volumes with the financial strength to reduce debt by at least $1.25 billion next year. With our focus on delivering performance, particularly in these challenging times, we will continue to look for opportunities to increase our hedge position."

XTO's properties are concentrated in Texas, New Mexico, Arkansas, Oklahoma, Kansas, Wyoming, Colorado, Alaska, Utah, Louisiana, Mississippi, Montana, North Dakota, Pennsylvania, New York, West Virginia and Kentucky.

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