XTO is, indeed, a cash flow machine. Compared to last year, quarterly cash flow was up 66%. Per-share operating cash flow came in at $2.75, which beat the consensus Street estimate by roughly 20%. The cash bash is bound to continue, thanks to one of the most brimming hedge books in the industry.
I noted last year that XTO prefers hedging one-half to two-thirds of production in order to smooth out the commodity cycle. Well, the company has already locked in more than 70% of 2009 production at close to $11 per thousand cubic feet equivalent. The natural gas hedges are around $9, and the oil hedges really throw the afterburners on. Like its buddy in the Bakken shale play EOG Resources
But I digress. Even with a roughly 15%-20% budget cut in the works for 2009, XTO is looking at more than 20% production growth and free cash flow generation of $1.5 billion to $2 billion. The budget cuts, I should mention, would be a combination of lower service costs and lower drilling activity. So there's certainly no sign of a broken business model here.
The only area where XTO is lacking in comparison to an EOG or an Apache
It's a good thing XTO has done such a fine job hedging, or my confidence would be a bit shaken in this most capable hydrocarbon captain.