XTO Energy’s operations chief said Wednesday that the key to his company’s U.S.-based natural gas production success is not keyed toward exploring for new properties, but instead concentrated on acquiring and exploiting assets that other producers don’t want.
Keith Hutton, vice president/operations, was joined by CFO Louis Baldwin on Wednesday at the Lehman Brothers CEO Energy/Power Conference.
“We’re an acquire and exploit company,” said Hutton. “Our company has grown very consistently by acquiring properties and making them better. It’s a strategy that works in all cycles, and it will work very well going forward.”
Baldwin added, “we don’t make acquisitions, we make acquisitions better.”
XTO’s strategy, said Hutton, is keyed toward acquiring the “right” assets. Acknowledging that the Fort Worth-based producer pays a premium for properties, Hutton said, “we don’t make a lot of money typically with acquisitions. [But] then we add new reserves and new production. Only a slight percentage of producers have these properties, and we want to buy them and make them better.”
XTO only operates onshore in the United States, in coalbed methane/shale and tight gas plays. It has built its property base on large “hydrocarbon in place” targets that are hand-picked by the management team, including Hutton, who is a geologist. By 2003, the company had added 6,282 Bcfe in development reserves, compared with 3,180 Bcfe in 1986. Its average development cost in 2003 was 59 cents/Mcfe.
“We look for a big resource potential…a big hydrocarbon potential,” he said. “We pick property, not companies, and we pick properties that have a big upside. It’s all low risk, high margin. We’re not a big exploration company…we spend abut 5% [of the capital budget] on that. We work on development at a very low cost.”
However, Hutton said there remain hurdles in increasing gas production in the United States. Even with gas rigs at an “all-time high,” domestic producers are “having a hard time shoring up production. We don’t see any place where we are going to make up for this,” he added.
As XTO’s team reviews the U.S. production landscape, it sees only four strong gas plays remaining onshore: East Texas, the Barnett Shale area near Fort Worth, the Powder River Basin and the Jonah/Pinedale region. Because of the declining gas regions, “there’s no way gas can’t stay in the $5-6 dollar range,” Hutton said.
XTO will see a lot of growth in the future, said Hutton, from the acquisitions it already has made. “We have a lot of free cash flow to grow,” he said. “These are the best cash returns on drilling wells I’ve seen in my career. There are other acquisitions…opportunities in the United States.”But he added, “we don’t need to go overseas and we don’t need to go offshore.”
Â©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |