Acquisition numbers tell the story for XTO Energy Inc., the fast-growing oil and natural gas firm based in Fort Worth.
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From 2003 through 2007, the company spent a total of nearly $8 billion to acquire proven oil and natural gas reserves, according to company filings. Already in 2008, XTO has spent $8.5 billion on acquisitions and plans to spend at least another $1 billion to $1.5 billion before the end of the year.
“It’s just midyear, and lots of deals are coming,” CEO Bob Simpson told analysts in early June.
XTO is an equal opportunity wheeler-dealer. Its partners have been other energy companies and regular homeowners in the suburbs of its hometown, where there is a natural gas drilling boom.
In June, for example, XTO agreed to acquire Hunt Petroleum for $4.2 billion from the heirs of oil legend H.L. Hunt and, separately, agreed to pay an association of homeowners a signing bonus of $20,000 an acre to lease the land under their houses.
The association represents 1,800 homeowners on 700 acres in the Barnett Shale region. That works out to an average of about $7,700 per homeowner, plus the annual potential of several thousand dollars more apiece, based upon a 25 percent production royalty.
Gas from the Barnett Shale has helped the North Texas economy buck the national slowdown.
The oil business is still risky, just as it was in wildcat days of H.L. Hunt. It can cost $5 million to drill a single well in some shale regions, like North Dakota, where XTO is active.
But Simpson says his company has a way to reduce that risk substantially. XTO favors acquisitions in areas with proven reserves and then tries to increase production. It employs techniques such as horizontal drilling and fracturing — high-pressure water injections that fracture the rock formation around a well, allowing the hydrocarbons to flow more freely.
“What we do is take our talent and look for the missed nuggets,” he told a television interviewer.
Simpson also actively hedges, locking in prices for future XTO production. That strategy carries its own risks, as the company notes in its SEC filings, but it allows more consistent planning and operations.
Wall Street certainly loves XTO.
Since the first of the year, XTO stock is up about a third, roughly tracking the increase in the price of oil. Exxon Mobil stock, by contrast, is down more than 5 percent. Some big international oil companies are being shut of production areas by state-owned oil companies, although Exxon and 34 other companies were invited Monday to bid on concessions within Iraq.
Since going public in 1993, XTO stock has increased about 6,000 percent, according to Google Finance. Founded in 1986 by Simpson and other former employees of Southland Royalty, XTO was originally called Cross Timbers Oil Company.
In 2006 and 2007, Simpson received compensation packages that totaled more than $56 million each year, making him one of the highest paid executives in the United States.
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