On track to grow its natural gas reserves 25% this year, XTO Energy Inc.’s CEO on Wednesday said the company will continue its strategy to uncover quality natural gas assets in key legacy basins of North America.

CEO Bob Simpson, speaking at the Lehman Brothers CEO Energy Conference, said the Fort Worth-based independent will maintain a strategy of “measured growth,” which to date has multiplied its gas-heavy reserves more than 12 times since the company went public in May 1993.

Since 1998, XTO’s compound annual growth rate has been 32%, with proved reserves in 1998 of 1,639 Bcfe compared with its end-of-2002 total of 3,730 Bcfe. Average development costs are $0.54/Mcfe.

“The best acquisition company is also the best exploiter,” said Simpson. The company co-founder noted that nearly half of XTO’s growth has come through acquisitions while the other half has been organic. “It’s very balanced growth, but without acquisitions, we wouldn’t have the strong organic growth every year. They are both important.”

This year, XTO expects gas production to average 650 MMcf/d, up from 514 MMcf/d in 2002. And in 2004, the company is forecasting a 10-12% growth in gas production.

Simpson said XTO management also has uncovered a “great surprise” with increased efficiencies in its proved reserves — there may be more to them than previously estimated, and each year the potential “upsides” to its reserves have been expanding. In 2000, proved reserves were estimated at 2,252 Bcfe, but the potential upside added 1,500 Bcfe. Last year, proved reserves totaled 3,730; the potential upside from improved operations added 2,180 Bcfe.

XTO’s 2003 drill well inventory is concentrated in East Texas, the San Juan, Raton, Arkoma and Permian basins, Alaska and the Midcontinent. Like last year, the East Texas Freestone trend will see the most wells, with 800-1,000, while another 400-500 are scheduled in the San Juan Basin. Total estimated reserve potential from the drilling is 3,180 Bcfe net, which includes proved undeveloped reserves of about 1,000 Bcfe, Simpson said.

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