XTO Energy Inc.

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XTO Energy Inc.

• Analyst Chris Ford

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Overview

• Ticker Symbol XTO
• Current Price (2/17/08) 55.29
• Market Cap 26.69B
• Beta 1.04
• Sector Energy
• Industry Oil Gas Operations
• Competitors Exxon Mobile, Devon Energy,
  Occidental Petroleum

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Overview

• Based in Fort Worth, TX
• Engages in the exploration and production of
  natural gas and oil
• Pursues an acquire and exploit strategy
• Natural-Gas 80 of reserves
• Proven reserves of 11.3 trillion cubic feet of
  natural-gas as of 2007 year end
• 32 increase
• 2009 target 15 trillion cubic feet
• Average daily production of about 1,821 million
  cubic feet.
• MMcfepd unit used to measure production
• Major holdings in Alaska, Colorado, Kansas,
  Louisiana, New Mexico, Oklahoma, Texas, Utah, and
  Wyoming

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Overview

• 4Q07 Daily Production
• Eastern Region 675 MMcfepd
• Barnett Shale 425 MMcfepd
• Permian Region 397 MMcfepd
• San Juan Region 341 MMcfepd
• Mid Continent 212 MMcfepd
• Gas 82, Oil 14
• 78 operated drilling rigs

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4Q07 Results

• Total production increased 6, natural-gas
  production increased 7, oil production increase
  3 from 3Q to 4Q
• Year increase of total average production 19
• Net Income rose to 464M from 429M
• Revenue increased 33

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Recent News

• Bought 1B worth of oil and gas assets
• This will help the company reach significantly
  higher production and reserve targets
• Should add about 212 billion cubic feet
  equivalent in reserves, 35 MMcfepd
• Issued public offering of 20 million shares
• Will help pay for acquisitions and debt

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Outlook

• Company expects to continue growth in the Eastern
  Region at a pace of 10 15 over next few years
• Has raised 2008 total production growth target to
  20

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Strengths

• Acquisitions
• XTO acquires and develops onshore oil and gas
  properties in the United States, typically in
  regions with an established production record
• Reserves
• High-quality natural-gas-producing properties
• Focus on keeping costs low
• Finding costs are about half the industry average

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Weaknesses

• Due to large size, company needs to find more or
  larger acquisitions if it anticipates to grow
• Competition from the major integrated Oil Gas
  companies
• Exxon Mobile, Chevron, BP
• Dependency on the price of gas and oil

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Opportunities

• Dominion Property Acquisition
• June 4, 2007
• Projected annual cash flow of more than 400M
• Accounted for a little over half of the 14
  increase in 3Q production (QoQ)
• Rocky Mountains San Juan Basin Expansion
• 40 undeveloped
• South Texas Expansion
• 50 undeveloped

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Threats

• No guarantee that new properties or future
  acquisitions will live up to expectations
• Costly exploratory failures, mechanical problems,
  and environmental disasters are constant concerns
• Rising costs for drilling rigs and oil and gas
  services

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1 Year Price Comparison
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Peer Analysis
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Time Series Analysis
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NYMEX Natural Gas
http//futures.tradingcharts.com/marketquotes/NG.h
tml
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Master Limited Partnerships (MLPs)

• A limited partnership that is publicly traded
• Combines tax benefits with the liquidity of
  securities
• These tax advantages and added ability to raise
  money to pay down debt have fueled the trend of
  offering MLPs
• XTO had planned earlier to exercise this option
  but since the 1B acquisition it has elected not
  to
• These MLPs may be another investing tool we can
  use in the future when looking at the energy
  sector

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Recommendation

• Intrinsic Value FCFE 88.05
• Yahoo 1-Yr Estimate 63.26
• Morningstar 57.00
• 72 with 10 increase in oil and gas price
  expectations
• Buy 60 shares
• 4.5 of IMP Portfolio at current price
• Reasons
• Good growth expectations through 2008, company
  should benefit from the 1B acquisition and
  undeveloped resources
• Natural Gas futures show higher prices in 2008
• One of the leading natural gas producers in the
  U.S.
• Low Finding and Development Costs