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XTO Energy Just Picked a Bad Day To Announce Earnings

by: Trader Mark July 22, 2008 | about stocks: XTO    
Trader Mark

Trader Mark

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XTO Energy (XTO) put out a bevy of good news today but since crude oil is down a few bucks today, the supercomputers and their trader friends running this market will have nothing of it. Down 8-9%.

Let's review all the good... er... bad news

Earnings up 33%

  • XTO Energy Inc on Tuesday said second-quarter earnings rose 33 percent on higher production and natural gas prices. Net income in the quarter rose to $575 million, or $1.11 a share, from $432 million, or 91 cents a share, last year. Excluding one-time items, the company said it earned $1.07 a share in the quarter. Analysts, on average, had expected the company to earn $1.04 a share, according to Reuters Estimates.
  • Natural gas and oil production in the quarter rose 29 percent from last year to 2.20 billion cubic feet equivalent per day.

Production Growth in 2009 targeting 22%

  • XTO Energy Inc. announced today that the Company is increasing its 2009 production growth target to 22% based on projected development activities and acquisitions already announced in 2008.
  • In order to achieve this production growth, the 2009 development budget is estimated to be $4.6 billion. The Company plans to utilize about 120 operated drilling rigs.
  • Another $700 million will be allocated for pipeline infrastructure, compression and processing facilities.
  • Executive Bob Simpson said XTO could double in size over a four-year period.

Even more acquisitions for this asset hungry company

  • XTO Energy Inc.  announced today that it has entered into definitive agreements with multiple parties to purchase producing properties located in its Eastern and San Juan Regions and acreage positions in the Marcellus, Fayetteville, Barnett, and Haynesville shales, for a total of about $1.3 billion, of which $1 billion closed during the second quarter.
  • From the producing properties, XTO Energy's internal engineers estimate proved reserves to be 185 billion cubic feet of natural gas equivalent (Bcfe) of which approximately 60% are proved developed. Starting July 1, these acquisitions add 20 million cubic feet of natural gas equivalent per day (MMcfe/d) to the Company's production base.
  • Bob R. Simpson, Chairman and Chief Executive Officer. "With the transactions announced today, including our Barnett Shale acquisition, XTO has now committed to a total of $10.6 billion in assets this year which complement and expand our operated positions across the nation. Through diligence, discipline and hundreds of transactions, we are acquiring the equivalent of a very high-grade unique company. This handcrafted company contributes a portfolio of properties in our legacy basins and adds expansive undeveloped acreage in all the premier emerging shale plays. As a result, the new XTO is a better franchise with more growth firepower for the future."
  • Acquisitions in 2008 represent over 2.3 Tcfe of proven reserves today and another 6 to 8 Tcfe in upsides

But Mr. Simpson, natural gas is down a % or two today, who cares about the long term - it's time to trash your stock. After all this is just "one big commodity trade" - forget the fundamentals. Your chart is now broken and it's our job, as the hedge fund community, to short you as if you are a subprime lender - after all we have to make our number this quarter. You deserve at least a $50 price for your insurgence - doubling your size in 4 years? When natural gas is down the past 3 weeks? What sort of harebrained idea is that.

Further, at 12x forward earnings you are an overbloated pig and if natural gas falls another 10% you deserve a 6 multiple. It's only a trade, Bob - you're just a 3 or 4 letter symbol we trade in and out of on a daily basis to make our quarter - no hard feelings, I hope. One day (heck, maybe tomorrow) we'll reverse course and take you back up. You're in our back pocket now, Bob - now we have to go find a good technology stock to go long, since they are safe as they don't have natural gas exposure - so we can't talk any further. Have a nice day.

Disclosure: Long XTO Energy in fund; no personal position

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This article has 13 comments:

  •  
    Jul 22 02:17 PM
    This article is spot on. This has been happening to the market for at least the last 9 months, rotating from one sector to the next. The hedge funds short the bejesus out of things, inducing selling panic, then buy it back at the bottom. Meanwhile, folks like me, trying to build a little (very little) wealth, put together a decent IRA, get screwed. Bottom line with XTO and so many others... these commodities are going to be in huge demand, these are well-run companies and we've done our research to know that. Nevertheless, we see our portfolios dropping by 20% on nothing but manipulative shorting. I'm sure that the multi-billizionaires who have their wealth with the hedge funds are happy as George Bush in an oil field, but these predatory actions will ruin the financial futures of the regular folks. Of course, when has the market been about us?
    Reply
  •  
    Jul 22 02:26 PM
    Trader Mark, keep up the great posts. Love your writing style as well.

    As far as XTO goes, well, the same thing could be said of COG, CHK, etc. I keep buying, thinking these things are going to turn around on the fundamentals...but no. Hey, WB's up today...on a 8.9 Billion dollar loss!! Sign me up! Where can I invest?!
    Reply
  •  
    Jul 22 03:32 PM
    We poor shorts have seen these stocks run up 600% on "manipulative longing" even though we know the increases cannot possibly be a result of supply and demand alone...these predatory actions are going to ruin us!
    Reply
  •  
    Jul 22 06:19 PM
    outstanding Mark, Please gives us more after BTU gives earnings in the morning Wednesday. I also like your style and analysis.
    Reply
  •  
    Jul 22 06:39 PM
    Interesting article on natgas and crude volatility- www.greenfaucet.com/en....
    Check it out. Such an important topic right now
    Reply
  •  
    Jul 22 07:07 PM
    Good post user 68127. I am long XTO, but its hard to feel bad for any company operating in the oil and gas sector right now...every trade has two sides, that's what makes a market. When the evil investment banks were publising research reports on 'super-spikes' in oil prices that scared the #!@^ out of my poor mom at home watching the evening new trying to figure out how to pay for her gas and heating this winter, no XTO long was complaining about those pesky speculators.

    The spread between price and growth, commodity price, etc will tighten over time. This company is solid and has a clear strategy it executes very well. Things will work themselves out here. The investors, such as myself, who are long in an IRA shouldnt be watching the market close enough to know where the hedge funds are moving in and out of, thats a job for people who work at, well, hedge funds...
    Reply
  •  
    Jul 22 11:06 PM
    LMAO reading that last paragraph - well said! Days like this make me take a deep breath and remember the long term reasons I fully believe in stocks like this and wish I had more cash to buy in with as you know next year at this time we will be beating ourselves up with some of these entry points
    Reply
  •  
    Jul 22 11:36 PM
    The Bush administration, the Congress and their Wall-Street masters are destroying the America Main Street.

    America financial predators, using casino-market environment, like parasite are sucking financial blood from America businesses.

    The only good news is this cannot go for long anymore. US$ more and more starts to resemble mexico peso. There are no more idiots left to lend money to America expecting never be paid back.
    Reply
  •  
    Jul 23 12:21 AM
    It's all true, of course. But never forget that all this sector rotation insanity is possible only because the hedgies have enough money to move the markets. And the only reason they have so much money is that money is so cheap. If you want more stable markets, you need higher interest rates. It's one thing to lever up 40x with money you're paying 3% for; it's another thing altogether to lever up 40x with money you had to pay 13% to get.

    The good news is, volatility is great for value investors: there's nothing better than picking through the dumpsters behind hedge fund HQ after they've tossed out this sector or that. When they dumped financials, I picked up USB and PGF. When they tossed industrials I picked up GE and ROK. I've been holding STO as a core part of my portfolio for a while, but XTO has been on my radar for a while and it may soon be time to get long. With gas down almost half it's hard to go wrong - gas is a sure winner in the long run.

    Enjoy it while it lasts - bear markets with intense volatility, cheap money, and sector rotation by the big boys offer awesome buying opportunities.
    Reply
  •  
    Jul 23 08:13 AM
    I was perplexed by the market reaction even though oil and NG were down. XTO announced a 26m share offering yesterday. Big boys may have known about this, so they could easily short and then cover from secondary offering later.
    Reply
  •  
    Jul 23 06:53 PM
    Gosh, look at all these articles popping up on SeekingNewbies - if their stock doesn't go up it must be a conspiracy of some kind. Hey - news for you - wonderful stocks don't make new stock offerings! But that is beside the point. You 'conspiracy theory' folks really ought to give up on this stock market stuff, you are going to lose a LOT of money. (Might help to get a JOB in the INDUSTRY too - that way you don't go making a fool out of yourself talking about things you don't understand).
    Reply
  •  
    Jul 24 10:26 AM
    Why complain about the price volatility, unless you're 6 months from retirement... in which case you should be virtually all in bonds or cash right now. The fundamentals of a company are the fundamentals. I just bought XTO today because I think its a bargain. I had them for a while last year and sold on a run-up, now I'm back in. Good company with strong growth. Take advantage of the dip in price and buy more. Don't complain because someone is presenting you with a golden opportunity to make even more money on a good company.
    Reply
  •  
    Jul 30 10:31 AM
    XTO will turn around, this company is fundamentally strong and has positioned itself very well. I think the stock will be flirting with 100 next year.
    Reply
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