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XTO Doing More With Less

XTO Energy Inc.'s natural gas-weighted production jumped 23% in 3Q2009 from a year ago even with fewer rigs in operation and spending down 5%, the company said last week. The independent now expects annual output will be up by the same amount, 23%, from 2008.

"It was a great quarter for us from a production standpoint, from the fact that we were running 100 rigs last year, [and were] down to 47 rigs in this quarter," CEO Keith Hutton told analysts during a quarterly earnings conference call. "So, less than half the rigs we started this year with and about a 14% growth target, 4% organic, we're going to end the year with a 23% growth target and 13% organic for the drillbit. That just really points to the wells and property that we bought over the last couple of years and how good they really are."

XTO, like many of the recent quarterly reports from other independents operating onshore, was able to boost its production by 23% from a year ago to 2.95 Bcfe/d even with some voluntary shut-ins and by delaying the completion of some of its wells. New fracturing techniques used in shale operations have increased initial production rates in almost all of the shale plays.

"We are beating our estimates in every one of the basins," said Hutton. "We have had increasing the efficiencies both from lower operating costs and capital costs...We have 47 rigs running today, and 27 of those rigs are drilling in the shale basins." XTO has a position in most of the big shale and tight gas plays in North America, including the Barnett, Fayetteville, Haynesville, Woodford, Marcellus, Bakken and Deep Bossier Sands.

XTO was running 19 gas rigs in the Barnett Shale in 3Q2008. "We're currently running eight rigs and even with that drop in rig count, our production has actually been maintained, and we still have a pretty good backlog of wells to complete in the Barnett," Hutton said. Another six rigs are running "constantly" in the Fayetteville, and three more are in operation in the Woodford play, where "we have been able to increase our production all year with just three rigs."

In the Haynesville Shale, "there was some talk maybe that we didn't have as high-quality acreage position [but] we currently have five rigs running," said Hutton. "We're making about 45 MMcf/d and we'll exit at 60-70 MMcf/d on an operated gross standpoint. We will have six rigs running here in the next month and by the start of the first quarter, we'll have at least double-digit rigs in the Haynesville going forward for our 2010 budget."

Six wells are currently being drilled by XTO in the Marcellus Shale with two rigs in operation, and "next year, we will push that up to at least four rigs," he said.

XTO plans to "push more rigs toward drilling horizontals" both in the Bossier and Cotton Valley Lime...throughout the Freestone Trend," said Hutton of the company's holdings in East Texas. In the Texas portion of the Haynesville play, XTO averaged "almost 8-9 MMcf/d, first-month average" over 30 days, and in Louisiana, he said the first well averaged 14.5 MMcf/d over a two-week period.

XTO reported that its 3Q2009 profits fell 4% from a year ago to $500 million (86 cents/share) from $521 million (94 cents). Revenue was up 8% to $2.29 billion from $2.13 billion. Average realized gas prices fell 18% from the year-ago period to $6.93/Mcf; natural gas liquids prices fell 43% to average $30.59/bbl. Crude oil prices were up 16% from a year ago to average $108.04/bbl.

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