XTO Retains Neutral Rating – Analyst Blog

We are maintaining our Neutral recommendation on XTO Energy Inc. (XTO) with a target price of $51.

 

XTO remains well positioned to provide another strong performance on the back of its impressive portfolio of producing assets and industry-leading cost metrics. The company is expected to post a 10% volume growth in 2010 and generate free cash flow in excess of $1.5 billion.

 

XTO has amassed large acreage positions in the most prospective upcoming shale plays in the country, providing it with a multi-year inventory of low-risk development drilling opportunities. Also, having already locked in a majority of 2009 production at very attractive prices, XTO has smoothed out the commodity-price risk.

 

However, the company’s relatively leveraged balance sheet and exposure to the highly cyclical and capital-intensive exploration and production sector offset these strengths and remain key areas of concern, in our view.

 

We also believe that XTO’s current valuation reflects the strategic value of its impending ExxonMobil (XOM) tie-up. As such, we see limited upside from current levels and expect XTO shares to perform in line with the broader market

 

Fort Worth, Texas-based XTO Energy is a major independent oil and gas player engaged in the acquisition, development, exploitation and production of oil and gas properties in the U.S. The company’s operations are focused on the East Texas Basin, the Arkoma Basin (Arkansas and Oklahoma), the San Juan Basin (New Mexico and Colorado), the Hugoton Basin (Oklahoma and Kansas), the Anadarko Basin (Oklahoma), the Green River Basin (Wyoming), the Permian Basin (Texas and New Mexico), and a number of other fields in Alaska’s Cook Inlet and northwestern Louisiana.

 

As of year-end 2009, XTO had a record 14.83 trillion cubic feet equivalent (Tcfe) in proved reserves, of which more than 84% was natural gas and about 61% was developed. Production averaged 2.86 billion cubic feet equivalent per day (Bcfe/d) during 2009, comprising 82% gas and 18% crude oil/ liquid hydrocarbons.