ChevronTexaco to Sell Domestic Oil, Gas Fields
XTO Energy Inc. said Monday that it had agreed to purchase natural-gas and oil properties in Texas, New Mexico and five other states from ChevronTexaco Corp. for $1.1 billion -- its largest acquisition.
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% in the last two years. The reserves acquired from ChevronTexaco will help XTO boost output by 30% this year, up from a previous estimate of 20%, the Fort Worth-based company said.
“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 Monday to $26.66. The stock has risen 67% in the last year as the company benefited from higher gas and oil prices. Shares of San Ramon, Calif.-based ChevronTexaco, the nation’s second-largest oil company, fell 92 cents to $91.77. Both are traded on the New York Stock Exchange.
XTO plans a share offering to help pay for its acquisitions this year, which total $1.8 billion, 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.
ChevronTexaco said it expected to report a significant gain from the sale but did not elaborate.
“It is a key step in our drive to streamline our portfolio of assets to approximately 400 core fields that represent the vast majority of our long-term value in the United States and Canada,” ChevronTexaco Vice Chairman Peter Robertson said in a statement.
The purchase price for the properties is more than two-thirds of the $1.6 billion spent by XTO on acquisitions from 1997 to 2002, according to figures on the company’s website. 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 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.”
International oil companies such as ChevronTexaco and Irving, Texas-based Exxon Mobil, the world’s largest publicly traded oil company, are selling smaller oil and gas fields in the U.S. to focus on larger, more profitable projects in areas such as West Africa, the Caspian Sea and the Middle East.
ChevronTexaco is “in a restructuring mode, and anything that helps them rationalize their portfolio is a plus,” said Tim Ghriskey, chief investment officer of Bedford Hills, N.Y.-based Solaris Asset Management, which owns an undisclosed number of ChevronTexaco shares and has in the past owned XTO stock.
The sale “generates cash for them that they can use elsewhere and hopefully get better returns,” he said.
XTO’s new acquisitions will strengthen its presence in the petroleum-rich Permian Basin of West Texas and in New Mexico, Louisiana and Oklahoma. It will add properties in South Texas and a coal-bed methane project in the Rocky Mountains.
XTO expects to complete the purchase by Aug. 6. It will operate two-thirds of the properties. In the Permian Basin, XTO is getting 80 million barrels of proven reserves.
