Natural gas production at Fort Worth-based XTO Energy Inc. jumped 26% in the third quarter compared with the same period a year ago, with the company averaging 536 MMcf/d versus 426 MMcf/d in 2001. XTO also expects its fourth quarter production to be higher, management said Tuesday, averaging 540-545 MMcf/d — more than XTO had forecast in July.

XTO’s production is on the increase, but returns were brought down by low prices. Third-quarter earnings (before the derivative fair value gain) were $48.5 million, or 39 cents a share, down from the same period a year ago of $70.3 million, or 57 cents a share. Excluding the derivative fair value gain last year, earnings in 2001’s third quarter were $58.6 million, or 47 cents a share. Cash flow from operations (before changes in operating assets and liabilities and exploration expense) was $129.5 million, or $1.03 per share in the third quarter, compared with year-ago operating cash flow of $131.7 million, or $1.07 a share.

CEO Bob R. Simpson said XTO was focused on “matching great gas price realizations with low-risk projects.” Steffen E. Palko, XTO’s president, added that the company’s volumes were increasing, development inventory was expanding and the economic margins are “exceptional.” XTO’s average gas price in the quarter was down 20%, to $3.26/Mcf, compared with $4.08/Mcf a year earlier. However, NGL prices averaged $14/bbl in the quarter, up 4% over the third quarter a year ago, when prices were averaging $13.43.

Along with natural gas production going up in the fourth quarter, XTO also expects to average 5,000 bbl/d of NGL production. Realized natural gas prices are expected to be 20-30 cents below the Nymex Henry Hub price, before hedging considerations. XTO has hedged more than 90% of its production for the quarter at a Nymex price between $3.64-$3.84. NGL prices are expected to be about 50-60% of the average Nymex crude oil price in the final quarter; XTO has 6,000 bbl/d on average hedged at a price of $26.30/bbl.

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