XTO Energy Corp., which holds leases in some of the biggest natural gas prospects in the United States, is on the prowl for even more acquisitions, fueled by an expectation of $10/Mcf gas prices through at least the rest of the year.

During a conference call to discuss quarterly results late Wednesday, CEO Bob Simpson said XTO’s continued bullish view on gas prices has paid off handsomely. “We thought it would be stronger for longer,” Simpson said, and that philosophy has guided the company’s buying decisions in the past year.

The CEO said he senses even more “excitement” for gas markets over the short-term. “Now if it doesn’t happen, we are already very profitable, very robust, very dynamic…but we are just talking about what possibly could explode even further.”

The Fort Worth, TX-based producer this week increased its 2008 production guidance by 3% to 23% (see Daily GPI, April 24), a goal that should be easily met, said Simpson.

XTO has added a sizeable amount of gas shale acreage to its portfolio in the past 10 months, including producing properties in the Woodford, Fayetteville and Barnett shales (see Daily GPI, April 4; Feb. 13), as well as Marcellus Shale acreage in the Appalachian Basin (see Daily GPI, April 16). A $2.5 billion purchase from Dominion last June bulked up its prospects in the Rocky Mountains, along the Gulf Coast, in the San Juan Basin and in South Louisiana (see Daily GPI, June 5, 2007).

“The challenge is how do you balance all this,” Simpson said. “I have never seen this ability to grow this fast with this size. Certainly five years ago it just wasn’t possible. Now it is and if you’re minding the stores, it [promises] all kinds of things to do.” The trick “is to not throw up a bunch of air balls…So what you see with XTO is sort of an interesting balance of acquisitions that come heavy with exciting acreage…Now it’s going to take some capital, something that’s coming faster than you might think. It depends on what your target is.”

Even with its buff portfolio, XTO likely will spend “at least another couple of billion this year” for more properties, most likely bolt-ons to its current land positions. In the past four months the company already has spent almost $2.5 billion to buy assets. “What happens eventually is, will they all work? Our job is to stay away from those that don’t… And so it’s an interesting challenge; it’s an interesting time to be in the business.”

From the acquisition side, “we are seeing sort of a strange phenomenon,” said Simpson. “Credit prices dried up some of the easy money that comes into our business, particularly in the high yield area…and so we are finding excellent values in the deal market that are surprisingly good values, given the commodity environment…When you talk about cost pressures, I certainly think of the acquisition capital allocation as a cost pressure area. And for some reason… there is sort of an anomaly in the market that it will pass, and so we are going to be optimistic, go hard” for more purchases.

XTO is betting that gas prices remain in their current range at least through 2008.

“We’ve got storage at a five-year average, and if you look at last year, when we got over the five-year average, it was…isolated with the LNG [liquefied natural gas] imports…All of that got eaten this winter. Now…five-year average imports on LNG are less than 1 Bcf/d versus an average of over 2 Bcf/d last year.” There are reasons to be bullish, he said.

“I think, should we have an event this summer, like extreme heat or the hurricane bug, we really could see gas prices to $13 to $16/Mcf, which I hope we don’t have,” said Simpson. “But I do think there will be pressure on the strip up to $11 to $12 for next year. This summer I hope it’s not more spot than that. We don’t need those kind of prices to be prosperous, but it could happen…You can build theoretical $20/Mcf,” which he noted would be the historical 6:1 ratio with oil prices.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.