XTO Energy Inc. built its position in the Barnett Shale of Texas by 24,000 net acres last week in a private $550 million acquisition. Initially the properties, with estimated proved reserves of more than 200 Bcfe, will add about 25 MMcfe/d to XTO’s production base, but company engineers have identified another 300-350 drilling locations, which offer the potential to more than double the holdings’ reserves.
Speaking during a conference call with analysts to discuss quarterly results, President Keith Hutton said that in the past three years XTO has grown its Barnett gas output “at better than a 50% compounded rate, which continues to drive our ambitions to build out XTO’s footprint in the region.” The Barnett operating region was again XTO’s “outperformer” in the quarter, with gas output at about 500 MMcf/d. “We’ve crossed the half a B[cf/d] production limit. Every quarter in the Barnett exceeds what we thought, and that’s the reason we are aggressive in acquiring it.”
With 60% of its gas production hedged, Hutton said the only issue XTO has in the Barnett is finding ways to take its growing gas volumes out. The funding to “lay compressors is a little higher than we anticipated, but the volumes are higher too. We are building bigger pipes, and we’re building them faster than we anticipated because the volumes are up.”
About half of XTO’s entire Barnett acreage, 240,000 net acres, is situated in the core area around Fort Worth, TX. The company recently moved some of its noncore Barnett rigs into the core because the costs are lower — but Hutton said that is no sign that XTO intends to slow down.
“We intend to operate about 20 drilling rigs to consistently and continuously develop our shale acreage,” he said. “This year we have invested over $300 million in compression, processing and pipeline infrastructure to establish a dominant position in the play, which will grow for years to come. These properties immediately add to our production, and we are now targeting 17% growth in 2008 for the company.”
The independent set an 18% annual production growth target this year and is aiming for 17% growth in 2008. XTO estimated that its average daily production for the rest of 2007 will be 2,028-2,038 MMcfe/d, which includes 1,650-1,660 MMcf/d of gas production, 15,000 b/d of natural gas liquids (NGL) production and 48,000 b/d of crude oil production.
In 3Q2007, XTO reported record production of 1.928 Bcfe/d, 24% higher than 3Q2006’s 1.553 Bcfe/d and 14% higher sequentially from 2Q2007’s 1.698 Bcfe/d. Gas output averaged 1.561 Bcf/d, a 29% gain from the 1.213 Bcf/d in 3Q2006. Daily oil production averaged 47,603 bbl, up 7% from 3Q2006. NGL output grew 12% from a year ago to 13,674 b/d from 12,198 b/d.
Total revenues jumped 30% from a year ago to $1.42 billion from $1.10 billion, and earnings grew 12% to $412 million ($1.07/share) from $367 million ($1.00). After adjusting for the after-tax effects of a derivative fair value loss, adjusted earnings for 3Q2007 were $416 million ($1.08/share), compared with $349 million (95 cents) in 3Q2006.
XTO’s average realized quarterly gas prices increased 3% to $7.20/Mcf from $6.97 in 3Q2006. NGL prices averaged $45.29/bbl in the quarter, 10% higher than the $41.13 a year ago. Average quarterly oil prices were $70.73/bbl, an 11% increase from last year’s $64.00.
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