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Just like Chesapeake, XTO's oil and gas production is largely hedged for 2009. Specifically, 80% of production is hedged at $10.70 per million cubic feet on a natural gas equivalent basis. On account of its Bakken acquisition, XTO is a bit oilier than Chesapeake, and those triple-digit oil hedges do wonders for the overall take.
So did XTO just have a flash of brilliance in 2008, prompting its skillful hedging? Not really. This has been part of the program for a long time. As explained in this piece, "management is comfortable with hedging one-half to two-thirds of its production" in order to minimize distractions from volatile commodity prices. XTO locked in about 50% of 2009 volumes by early September, and has continued to ratchet up the protection as prices have plunged. There was no prescience here -- just a levelheaded response to observable deterioration. Now we observe the fruits of XTO's wisdom, to borrow a phrase from the informative conference call.
As with Pioneer Natural Resources (NYSE: PXD ) and Breitburn Energy Partners (Nasdaq: BBEP ) , hedging has provided XTO an added benefit beyond the ability to project record cash flows in 2009. The firm has been able to monetize a portion of these derivative positions, freeing up $1.7 billion for debt reduction purposes. So even after a monster year of acquisitions, XTO's net debt position is comparable to that of the prior year's end.
No E&P is impervious to the current depressed environment, of course. Like EOG Resources (NYSE: EOG ) , XTO is dialing back in the Bakken, to a level just adequate to maintain leasehold acreage and keep production within hedged oil volumes. The firm is also reducing work in places like the Barnett shale.
At the same time, however, XTO is picking up activity in the other "big four" shale plays, as Chesapeake has dubbed them. This will allow the firm to figure out just what it's sitting on, so it will be ready to rock and roll when gas prices take their next rocket ride.