XTO Energy Inc. has sliced more than $1 billion from its 2009 capital expenditure (capex) plans because of low commodity prices and the oversupplied natural gas markets, the company said Tuesday. However, even with the cuts, 2009 gas-weighted production volumes are predicted to jump 14% over 2008 levels.

The Fort Worth, TX-based independent said it now plans to spend $2.75 billion in 2009, which is down from an earlier budget that provided $3.3 billion for exploration and $500 million for pipeline infrastructure, compression and processing facilities.

“Given the continuing weakness in commodity prices, XTO is taking the opportunity to further reduce the drilling activity and reset our volume growth target to 14%,” said Chairman Bob R. Simpson. “Increasing production too rapidly into the currently oversupplied natural gas markets is not a prudent use of our shareholders’ resources. Instead, we look to capitalize on our extraordinary hedge position, which represents 80% of our expected sales volumes, to further fortify the company’s financial strength.”

CEO Keith A. Hutton said XTO “is always positioned to be a growth leader, but it is not the time to push aggressively on growth. Now is the time to maximize cash flow and economic returns. With our 14% growth projections, free cash flow is expected to exceed $2 billion.

“As drilling activity across the industry collapses, we will concentrate on managing falling costs to maximize returns and unit margins. Operationally, our team will focus on the full integration and optimization of our 2008 acquisitions, while utilizing an average of 65 drilling rigs in the field. Looking ahead, the XTO growth machine is positioned to deliver our ongoing double-digit value growth in 2010.”

This year XTO’s Eastern Region, which includes properties in East Texas and northwestern Louisiana — generally the Bossier Sands and Haynesville Shale region — will be allocated $875 million. Holdings in the Barnett Shale region of North Texas will be allotted around $725 million. In the Arkoma Basin of Oklahoma and other Midcontinent properties, around $375 million is expected to be spent.

For the emerging Bakken Shale properties in North Dakota and Montana, as well as its Gulf Coast and offshore areas, XTO plans to spend $250 million this year. Programs in the Permian Basin will have $275 million budgeted. Other assets located in the San Juan, Raton, Uinta and Piceance basins combined will be allocated $175 million. Another $75 million is set aside for “exploration events.”

XTO said it has entered into early settlement and reset arrangements since mid-January to hedge an additional 33% of its 2009 commodity volumes. Because of the early settlements, XTO said it realized about $1.3 billion in proceeds ($800 million after-tax), which will be used to reduce outstanding debt. XTO is targeting year-end debt to be between $10 billion and $10.5 billion.

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