I had to think a bit before writing about XTO Energy (NYSE:XTO) today. Our trading rules here at The Motley Fool can be troublesome -- write about a stock, and you can forget about trading in it for 10 days. So I've bought myself a ticket to the sidelines here, even though this is one of my favorite energy ideas right now.
I'm writing today to discuss a recent deal and some other goings-on with the company. XTO is an oil and gas company focused on U.S. onshore production. Most of the company's reserves are natural gas, and a lot of the production is concentrated in Texas. The company also sports an excellent record of organic reserve replacement, opportunistic acquisitions, and low finding and development costs.
Yesterday, the company announced its purchase of privately held Peak Energy Resources in an all-stock deal. In exchange for 2.555 million shares (worth about $105 million at the time, but about $107 million now), XTO is buying a company with roughly 64 billion cubic feet of natural gas reserves. That's more than 10 million barrels in oil-equivalent terms. What's more, the company mentioned that potential reserves could provide an additional 200 billion cubic feet. XTO expects to more than double those assets' production from 2006 to 2007, while keeping development costs reasonably close to its historical norms.
This strikes me as an attractively priced deal in an area where the company has meaningful experience and knowledge. It should be yet another cost-effective asset for XTO.
Though not directly related to this news, it's also worth noting a recent release announcing that 40% of XTO's production in this year and next is hedged at attractive prices. Of course, hedging is a mixed blessing -- you seem really smart if and when prices decline, but not so savvy if prices spike up.
Along with Apache (NYSE:APA), Canadian Natural Resources (NYSE:CNQ), and Occidental (NYSE:OXY), XTO remains one of my favorite ideas among energy stocks. Folks seeking a slightly safer investment might consider Total (NYSE:TOT), while risk-takers could examine Chesapeake (NYSE:CHK). But as always, remember that these are volatile stocks in a commodity market trading well above recent historical trends.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
