XTO Energy Inc. agreed Monday to purchase natural-gas and oil properties in Texas, New Mexico and five other states, including Utah, from ChevronTexaco Corp. for $1.1 billion in its largest acquisition ever.
XTO and other U.S. energy companies are seeking to boost output from domestic fields shed by larger rivals after gas prices surged almost 80 percent in the past two years. The reserves acquired from ChevronTexaco will help XTO boost output by 30 percent this year, up from a previous estimate of 20 percent, the Fort Worth, Texas-based company said in a statement.
"It's a smart deal for both sides," said Donald Coxe, chief strategist at Harris Investment Management in Chicago. "The people at XTO are sticking to their knitting, which is basically producing oil and gas in the U.S."
ChevronTexaco "is prepared to give up some near-term cash flow" to pursue bigger projects abroad, said Coxe, who manages a fund that holds more than 100,000 XTO shares.
Shares of XTO rose 5 cents to close at $26.66 on the New York Stock Exchange. The stock has risen 67 percent in the past year as the company benefited from higher gas and oil prices. ChevronTexaco, the second-largest U.S. oil company, fell $1.14 to $91.55.
XTO plans a share offering to help pay for a total of $1.8 billion in acquisitions this year, chief executive Bob Simpson, 56, said during a conference call with analysts and investors.
The company had budgeted $650 million for acquisitions in 2004, and the offering will be used to cover about half of the difference between the budgeted amount and actual total, Simpson said.
The new properties will be "very accretive to cash flow per share," Simpson said. "That will allow us to do an equity offering."
ChevronTexaco expects to report a "significant gain" from the sale, the San Ramon, Calif., company said in a separate statement without elaborating.
The purchase price for the properties is more than two-thirds of the $1.6 billion spent by XTO on acquisitions over a five-year period from 1997 to 2002, according to figures on the company's Web site. XTO, formerly known as Cross Timbers Oil Co. went public in 1993.
The fields will add reserves equivalent to about 786 billion cubic feet of gas and initially increase XTO's daily output by 88 million cubic feet of gas and 14,000 barrels of oil, the company said. XTO earlier this month agreed to pay Exxon Mobil Corp. as much as $341 million for U.S. oil and gas fields.
"This is an opportunity to get something from the majors, and it fits with what XTO looks for: long production lives," said Andrew Byrne, an analyst at John S. Herold Inc. in Boston. "XTO has a very good eye for properties."
XTO's new acquisitions will strengthen its presence in the Permian Basin of West Texas and New Mexico, Louisiana and Oklahoma. It will add properties in South Texas and a coal-bed methane project in the Rocky Mountains.
The company expects to complete the purchase by Aug. 6.