One thing I enjoy about XTO Energy's
This quarter -- which saw not only monster production growth, but record cash flow as well -- management went with a theme of reintroducing XTO. They broke down the moving parts and showed how they fit together to drive economic returns.
One of the most useful takeaways was the breakdown of cash flow, which should notch $6 billion this year. One-third goes to maintaining production and reserves. Another third drives 10% growth, and the final third is for whatever XTO feels like doing. This year, that meant paying down debt following some big acquisitions in 2008.
The XTO team also took care to dispel the concern that 2009 results are a one-off anomaly driven by some lucky hedging. The company's hedges have indeed been delightful, locking in nearly $7 natural gas prices this quarter. That's about double the realizations over at Devon Energy
As for individual shale plays -- and XTO immodestly claimed the title of "leading shale player" on the call -- the Fayetteville is one standout. While Southwestern Energy
While XTO has a fair number of uncompleted wells in the Barnett, it echoed Chesapeake's call that the industry has mostly burned its way through this backlog. These lagging completions have pushed back the onshore production decline that never seems to arrive in the government data. The declines are coming, but they probably won't be visible until the end of the first quarter or thereabouts.
This phenomenon, combined with potential storage-related curtailments that XTO has baked into its fourth-quarter guidance, leaves room for natural gas prices to be pressured in the near term. I'm still holding out hope for a better entry point in this group.