XTO on the Hunt

During the first-quarter conference call, XTO Energy's (NYSE: XTO  ) Chairman/CEO described the oil and gas environment as "a time to grab hold or sit and miss." This company has clearly chosen the former path.

First came XTO's courting of Mr. Marcellus, and then the firm busted in on the Bakken. The producer's latest move is far larger than those two acquisitions combined.

XTO is paying nearly $4.2 billion for privately held Hunt Petroleum, a big player in East Texas and Louisiana. XTO has had a remarkable run in the same region, and the firm has characterized its purchase of Hunt -- or at least, the 70% of its reserves in XTO's Eastern Region -- as a "super-charged bolt-on."

There are a lot of attractive plays in this area, so it would be oversimplifying things to characterize XTO's purchase as a move on the Haynesville shale. Still, this early-stage natural gas play has Chesapeake Energy (NYSE: CHK  ) salivating, and it's sending shares of smaller players like Goodrich Petroleum (NYSE: GDP  ) and Comstock Resources (NYSE: CRK  ) to the moon. You can't blame XTO for grabbing hold of a strong position in yet another highly prospective region.

As various analysts have pointed out, the Hunt acquisition looks a bit expensive in terms of proved reserves. On a cash flow basis, XTO is only paying a low single-digit multiple, and its cash flow expectations are enforced by a 28-month hedge on half of Hunt's natural gas production. Add in the fact that XTO sees the possibility of at least doubling reserves, and the acquisition doesn't look terribly pricey.

Another thing worth mentioning is the blistering pace of XTO's development plan. In 2009, the firm targets 20% production growth (a lowball, in my view), with 110 to 120 operated rigs running. At the midpoint, that's 37% higher than the first-quarter rig count. This oil patch percolation is part of what keeps me bullish on drillers like Nabors Industries (NYSE: NBR  ) and servicers like Baker Hughes (NYSE: BHI  ) .

XTO is rated a full five stars in Motley Fool CAPS. Where do you think the stock's headed?

Related Foolishness:

  • There's a new direction in oilfield service M&A.
  • Comstock leaped on these monster results.
  • This company has some Haynesville for sale.

Chesapeake is an Inside Value selection. Acquire a taste for any of our Foolish newsletters with a free 30-day trial.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 661886, ~/Articles/ArticleHandler.aspx, 10/25/2016 11:51:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,188.41 -34.62 -0.19%
S&P 500 2,145.76 -5.57 -0.26%
NASD 5,292.38 -17.44 -0.33%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

6/25/2010 4:02 PM
XTO.DL $41.81 Down +0.00 +0.00%
XTO Energy, Inc. CAPS Rating: *****
BHI $54.70 Up +2.55 +4.89%
Baker Hughes CAPS Rating: ****
CHK $6.24 Down -0.13 -1.97%
Chesapeake Energy CAPS Rating: ***
CRK $9.71 Down -0.38 -3.72%
Comstock Resources CAPS Rating: *
GDPM $0.00 Down +0.00 +0.00%
Goodrich Petroleum… CAPS Rating: **
NBR $12.95 Down -0.09 -0.69%
Nabors Industries CAPS Rating: ****