XTO's Ongoing Excellence

If you're trying to figure out whose incremental demand is going to help prop up ailing land drillers like Patterson-UTI (Nasdaq: PTEN  ) and Grey Wolf (AMEX: GW  ) , don't look to XTO Energy (NYSE: XTO  ) for help. It's not that the natural gas-focused firm is slowing down -- it's just that it doesn't want to grow so fast it exceeds the build-out of compressor stations and other necessary infrastructure.

Production for the third quarter was anything but sluggish. Output rose a robust 24% and surged 14% sequentially. A little more than half of that quarter-on-quarter boost came from the company's large Dominion (NYSE: D  ) acquisition, but the rest came the old-fashioned way -- through the application of elbow grease (and the drill bit).

After tacking on sales price gains across gas, natural gas liquids, and oil, we're looking at a 30% rise in revenue. Expenses took quite a bite and pared the earnings-per-share gain to 13%.

Looking at lifting costs, though, we come up with a $0.93/mcfe figure, which is nothing to fret about. That's akin to an oil producer like Arena Resources (NYSE: ARD  ) or Denbury Resources (NYSE: DNR  ) paying about five and a half dollars to pump a barrel of oil out of the ground. Arena, which has the lowest costs of any oil-oriented producer I know of, pays about $10/BOE in lifting costs.

Natural gas gunners like XTO and Southwestern Energy (NYSE: SWN  ) may have an advantage when it comes to keeping costs down, but their pricing has been weaker than that of the oil barons. XTO mitigates quite a bit of downside by hedging. About half of expected gas sales for this quarter are locked in at roughly $9, well above the futures price. That should give anyone antsy about a warm winter a certain degree of solace.

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Related Tickers

6/25/2010 4:02 PM
XTO.DL $41.81 Down +0.00 +0.00%
XTO Energy, Inc. CAPS Rating: *****
D $73.11 Down -0.10 -0.14%
Dominion Resources CAPS Rating: ***
DNR $2.90 Up +0.03 +1.05%
Denbury Resources CAPS Rating: ***
GW $3.41 Down +0.00 +0.00%
Grey Wolf CAPS Rating: *****
PTEN $24.10 Down -0.49 -1.99%
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SWN $12.65 Up +0.17 +1.36%
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