Exxon Mobil - XTO Energy - Part II

Another part of the Outlook for Energy: A View to 2030, released by Exxon Mobil a week before the XTO Energy deal really bothers me.

"ExxonMobil technologies have unlocked vast new resources of natural gas that previously were trapped in dense rock formations, as well as other types of so-called “unconventional” natural gas. These technologies have resulted in a significant upswing in U.S. natural gas production, and may have similar applications in other parts of the world."

How about this instead:

"Exxon Mobil sat around and watched smaller companies enter these new plays and drill circles around us because we thought that they were too risky, and that North America was too mature an area to be bothered with."

or

"We had the technology to unlock these unconventional shale resources, but didn't have the balls to use it on a large scale, and sat around and bought back stock instead. Now we have to pay up for these resources."

Full Publication

Exxon Mobil - XTO Energy

Exxon Mobil released a publication entitled Outlook for Energy: A View to 2030, about a week before the XTO Energy purchase. There was one part that caught my attention and gave a little hint of what they were planning:

"Natural gas supply to expand, particularly in the U.S. where unconventional gas supplies are expected to meet more than 50 percent of gas demand by 2030."

and later on:

"There will be an expansion of natural gas supply, particularly in the United States where unconventional gas supplies are expected to satisfy more than 50 percent of gas demand by 2030."


Full Publication

XTO Energy (XTO) at Howard Weil

XTO Energy

Went public in 1993 – stock up 70 times since then. Strategy is to buy assets and exploit them.

20% growth projected in 2008 – company decline rate is only 15% versus 30% for industry.

30% of cash is needed to maintain production (reserve replacement) and the rest to grow production.

XTO does not have a lot of properties that are sensitive to gas prices – most are economic at $4-5 gas.

Sold stock in February 2008 to fund an acquisition – believes that the fourth quarter will have many opportunities to buy properties.

2008 Goals

15 TCF reserves – 15% annual growth - 1/3 by acquisition and 2/3 by drillbit. Feels that this will lead to a $75 price on stock.

Cycles have been longer and stronger – it is possible to have a cycle of 15 years and we are in year 6. Intrinsic value of oil to gas is 6 to 1, and we are at 10 to 1. That makes gas too cheap relative to oil – makes the case that if you believe in high oil price then gas should move up to bring ratio back to 6.

XTO is comfortable buying oil properties, but is still focused on gas mainly.