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XTO Energy to cool it on big deals, says property acquisition market getting expensive
Ray Tyson Petroleum News Houston correspondent
Deal-minded independent XTO Energy, whose production and earnings soared in the 2004 second quarter, says it likely won’t do any more gargantuan property acquisitions this year, due in part to a pricey market.
With a little over half the year gone, XTO already has done 46 deals amounting to more than $1.8 billion. That’s nearly three times the $650 million the company had planned to spend on acquisitions this year.
But a few plums came along that XTO just couldn’t pass up: $1.1 billion worth of ChevronTexaco oil and gas properties spread across seven states, including Texas and New Mexico, and $340 million worth of ExxonMobil onshore assets.
XTO chief executive Bob Simpson said it was “the best set of properties” he had seen in a decade.
“But we do have to digest these large acquisitions,” he said in a July 20 conference call with industry analysts. “We are behind on hiring people. And I think I need to be careful in terms of being too aggressive. If you did too much this year you get the base so large that our growth rate might be impaired a little bit.”
For now, XTO intends to buy properties at an annual pace of $600 million to $800 million, Simpson said. But the company hasn’t entirely ruled out another large acquisition this year.
“I just don’t think it’s likely that we do another big acquisition this year,” he added. “But I tell you that if it’s the correct asset at the right price, we would buy it.” Properties today pricey Still, properties today are pricey because of the surge in oil and gas prices, Simpson noted, adding that the $1.8 billion in acquisitions XTO has done this year averaged just $25 per barrel of oil and $4 per thousand cubic feet of natural gas.
“So the market appears to be trending to somewhat overheated in my estimation,” he said. “That means people are starting to pay for (today’s) commodity price. I think what we’ll do now is worry about the year after next. We always try to stay a year or two ahead.”
As for “cleaning up” ChevronTexaco acquisition, XTO’s largest deal ever, Simpson said the company may sell about 5 percent of the properties and trade another 20 to 25 percent in areas not operated by XTO.
“So I would say two-thirds of the acquisition are already known to be strategic long-term, really a great asset to own and those are secure in the position,” he said. “The other third would be sold or traded perhaps.” Production to record levels Excluding benefits from the ChevronTexaco acquisition, which is expected to close Aug. 16, XTO’s oil and gas production climbed to record levels during the 2004 second quarter versus the year-ago period. Natural gas output increased 27 percent to 803 million cubic feet per day, while oil jumped 38 percent to 17,682 barrels per day and natural gas liquids increased 17 percent to 12,847 barrels per day.
Earnings for the 2004 second quarter were $99.1 million or 41 cents per share, up a hefty 73 percent compared with second quarter 2003 earnings of $57.3 million, or 25 cents per share.
Second quarter 2004 earnings included the effects of a liberal employee stock-based incentive compensation program amounting to $37.7 million, $30.6 million of which was non-cash, and a one-time bonus of $11.7 million relating to the $1.4 billion acquisitions from ChevronTexaco and ExxonMobil.
Excluding those items, the company’s earnings were $134.6 million or 55 cents per share, compared to second quarter 2003 adjusted earnings of $74.4 million or 33 cents per share.
Operating cash flow during the 2004 second quarter was a record $285.6 million, up 59 percent from 2003 second quarter comparable operating cash flow of $179.6 million.
Total revenues for the second quarter were $444.7 million, 58 percent above second quarter 2003 revenues of $282.2 million. Operating income for the quarter was $187.8 million, a 65 percent increase from second quarter 2003 operating income of $113.9 million.
To reflect future production gains from the ChevronTexaco deal, XTO revised its production forecast for the remainder of this year. In the third quarter, the company said it expects to produce 860-865 million cubic feet of natural gas per day and 26,500- 27,000 barrels of oil per day. In the fourth quarter, natural gas output is expected to jump to 925-930 million cubic feet per day and oil to 33,000-33,500 barrels of oil per day.
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