XTO Energy to buy Barnett Shale pipeline

$175 million acquisition elevates Antero deal to $860M in cash, stock

Ray Tyson

Petroleum News Houston Correspondent

XTO Energy has opted to buy Antero Resources’ pipeline system in the hot Barnett Shale gas field of East Texas for $175 million, roughly $25 million more than XTO had planned to spend on the pipeline.

“We were hoping to buy it for around $150 million,” XTO chief executive Bob Simpson conceded in a Feb. 9 conference call to discuss the company’s 2004 fourth-quarter earnings. “The last $25 million was not a gift. It was competitive pressure.”

That brings the total purchase price of Antero properties in the Barnett Shale to around $860 million in cash and stock. Last month XTO announced that it was buying Antero and its 440 billion cubic feet of gas reserves, a deal which would elevate fast-growing XTO to the second largest producer in the Barnett behind Devon Energy.

As part of its agreement with Antero, XTO had the right to match the high bid on the 80 miles of pipelines that make up the daily 300 million cubic foot capacity system. Simpson said then that XTO might buy the pipeline system for $100-to $150 million.

“They had three bids and all were clustered around this ($175 million) number,” Simpson said. “Rather than losing all the benefits of owning it, we sent ahead and paid it.”

Antero’s gas-gathering and compression pipeline system currently transports about 130 million cubic feet of gas per day, less than half the system’s capacity, Simpson said, adding that XTO has about 30 million cubic feet of daily production that could be tied into the system and that should result in a better price for its gas.

XTO also would benefit from “significant intangible value” by owning the pipeline and controlling third-party hookups to the system, Simpson said, adding that “all we know is that when we control our systems, our volume growth is better in the area.”

XTO entered Barnett in early 2004

The Antero deal gave XTO an additional 61,000 acres and 60 million cubic feet per day of production in the Barnett. And the company said it continues to add to its acreage position.

By the time the Antero transaction closes in April, XTO said it will have 14 to 17 drilling rigs operating in the Barnett Shale, resulting in the drilling of about 240 production wells per year.

“That will make us the busiest driller in the Barnett Shale, and we are continuing to add acreage,” said Keith Hutton, XTO’s executive vice president of operations.

By the end of 2006, XTO said it expects to raise its total production rate in the Barnett to a net 160 million cubic feet of gas per day, still well short of Devon’s roughly 550 million cubic feet per day.

Overall, the company reported average daily gas production in the 2004 fourth quarter of 916 million cubic feet of natural gas, up 24 percent compared to the same period last year, and record oil production of 33,494 barrels per day, up 161 percent from the prior year’s quarter. The company said it is looking for 21 percent to 23 percent production growth in 2005 vs. 2004.

Moreover, earnings for the fourth quarter of 2004 were a record $173.9 million or 67 cents per share, compared with fourth quarter 2003 earnings of $61.9 million or 27 cents per share, the company said. Total revenues for the quarter were $600.7 million, an 81 percent increase over fourth quarter 2003 revenues of $331.9 million.

“The 2004 producing property acquisitions of almost $2 billion have set the stage for both strong economic returns and a new tier of development opportunities,” Simpson said.