XTO Energy poised for large acquisition

Independent looking at deals, anticipates exceeding its acquisition budget

Ray Tyson

Petroleum News Houston Correspondent

Fast-growing Fort Worth, Texas-based independent XTO Energy, which now anticipates exceeding its acquisition budget for 2004, says it is working on several property deals and might even buy a company outright before the end of the year.

“If we could do the size of a fairly large company this year through a direct acquisition, I would do it, if they were good numbers and good properties,” said Bob Simpson, XTO’s chief executive officer.

Simpson also told industry analysts in an April 20 conference call on 2004 fourth-quarter earnings that XTO is “very likely” to spend more than the $650 million it planned on acquisitions this year.

“We’re two-thirds into that in the first quarter of the year,” he said. “But I will tell you that we’re working on multiple deals and it’s very likely we’ll exceed the $650 (million) in terms of budget.”

Less than two months into 2004, XTO already had shelled out some $450 million for U.S. oil and gas properties and said then it planned to spend at least another $200 million on acquisitions this year. In its latest deals, XTO paid $120 million for its first Barnett Shale properties in East Texas, plus $80 million for additional properties in the Arkoma Basin, a major core area for the gas-weighted producer.

XTO not predicting it will buy a company

Simpson said XTO likely would use company stock for a large acquisition, a strategy he concedes is out of character for a company that generally pays for its properties from cash flow.

Despite the high cost of quality properties today, he added, “the risk is sitting out this market rather than participating in it.”

Production gained through property acquisitions, together with drill bit successes and high commodity prices, served to propel XTO’s 2004 first-quarter profit to $94.1 million or 40 cents a share, compared to net income of $66.2 million or 31 cents a share for the same period last year. Excluding special items, the company’s 2004 first-quarter profit was $119.1 million or 51 cents per share, which was on par with analysts’ expectations.

Total revenues for the first quarter were $394.8 million, 56 percent above first quarter 2003 revenues of $253.5 million. Operating income for the quarter was $169 million, a 48 percent increase from first quarter 2003 operating income of $114.2 million. XTO also reported record first quarter natural gas production of 771 million cubic feet of natural gas per day, a 30 percent increase from the first quarter 2003 level of 591 million cubic feet per day.

The company said daily gas production of 790-795 million cubic feet is expected in the 2004 second quarter, 810-815 million cubic feet in the third quarter, and 830-835 million cubic feet in the fourth quarter. Over the three quarters, oil production is expected to average 13,000-13,500 barrels per day and natural gas liquids between 6,000 and 6,500 barrels per day.

“The company’s consistent performance highlights our predictable growth profile substantiated by our rich exploitation inventory and disciplined focus on acquiring the right rock to develop,” XTO President Steffen Palko said. “As a result, we are building on our successful programs by increasing current ownership positions and by expanding into new core areas.”