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XTO becoming major player in Barnett Shale $685M acquisition part of plan to double Barnett production by year-end 2006 Ray Tyson Petroleum News Houston Correspondent
Deal-minded XTO Energy, less than a year after gaining a small foothold in the hot Barnett Shale gas play, would be elevated to the second largest producer in the huge East Texas field should the company’s announced plan to acquire privately held Antero Resources for $685 million in cash and stock be approved by regulators.
The deal would give fast-growing XTO combined Barnett gross production of 130 million cubic feet of gas per day, still well short of the 550 million cubic feet produced daily by fellow independent Devon Energy, by far the largest producer in the Barnett.
Nonetheless, Fort Worth-based XTO has big plans that include doubling its Barnett net production by year-end 2006. Moreover, the company also made it clear in a Jan. 11 conference call with industry analysts that it would be looking for more deals in the Barnett.
“We’re going to be active and try to expand this position,” said Bob Simpson, XTO’s chief executive officer. “Antero has done an excellent job of hustling the basin and we intend to capture that momentum.”
Simpson said that XTO also may bid on Antero’s Barnett pipeline system, which he said could cost his company an additional $100 million to $150 million. As part of its agreement with Antero, XTO has the right to match the high bid on the 80 miles of pipelines that make up the daily 125-million cubic foot capacity system, he added.
The Barnett Shale has evolved into one of the most productive unconventional gas plays in the United States. Geologists believe the play, located in the Dallas-Fort Worth area, could hold more than 100 trillion cubic feet of gas reserves, 20 tcf of which may be recoverable with new technologies.
Since 2002, XTO has acquired roughly $3.7 billion in oil and gas properties, an effort that along with a successful drilling program has produced double-digit growth and moved XTO to the top of the list among its peers. With the Antero acquisition, the company upped its estimated production growth rate for 2005 to 21-23 percent over 2004 from a previously forecasted 18-20 percent.
XTO entered the Barnett in February 2004 with a modest $120 million investment in 11,000 acres containing an estimated 97.6 billion cubic feet of gas reserves and just 15 million cubic feet per day of production. Antero properties adjoin XTO acreage The Antero properties, which adjoin XTO’s acreage, would significantly increase the company’s production and leasehold acreage in the core area of the Barnett in Tarrant County, and also would expand the company’s high potential acreage in Parker and Johnson counties.
Antero’s proved reserves in the Barnett were pegged at 440 billion cubic feet of natural gas, 41 percent of which are proved developed, with an estimated upside reserve potential of an additional 400 to 500 bcf. The evaluation, conducted by XTO engineers, was based on Antero’s 61,000 net acres and well spacing of 100 acres. Production from the properties totals 60 million cubic feet per day.
“With this acquisition, XTO becomes a leading Barnett Shale producer for all the right reasons,” Simpson said. “We are purchasing an established base of production and reserves, while securing a unique acreage position in the core area that adjoins XTO’s properties.”
Keith Hutton, XTO’s executive vice president of operations, said that given the company’s 148,000-acre position in the play, “we can now see 1 to 1.5 trillion cubic feet of reserve potential captured for the company in the Barnett Shale.”
By the end of 2006, he added, XTO expects to raise its total production rate in the Barnett to a net 160 million cubic feet of gas per day. The company, which plans to run 14 drilling rigs in the Barnett, including Antero’s 10 rigs, said it would invest about $100 million in undeveloped leasehold acreage and seismic data. Combined properties have 195 producing wells Together, XTO and Antero would have 65 horizontal wells and 130 vertical wells producing. XTO is looking to increase the total well count to 500, 400 of which would be located in the core area and 100 outside the core area.
Under terms of the agreement, XTO would pay Antero owners $337.5 million in cash, 10 million shares of XTO common stock and warrants to purchase another 1.5 million shares of XTO stock.
Denver-based Antero was formed in 2002 by former officers of Pennaco Energy, an upstart independent which was sold to Marathon Oil for $500 million in cash in 2001, just three years after the company formed. Antero chief executive Paul Rady served in the same position at Pennaco.
As part of its deal with XTO, Antero officers, including Rady, agreed not to compete with XTO in the Barnett for a period of two to three years. The company will continue to do business as Antero Resources II.
“I told Paul that he was just too good (and) that we had to get him out of here,” Simpson quipped. However, he said Antero management has agreed to assist XTO during the transition phase. The deal is expected to close April 1, subject to government approvals.
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