?XTO Energy Inc., Fort Worth, Texas, (NYSE: XTO) plans to acquire producing properties and undeveloped acreage in the Bakken shale of Montana and North Dakota from privately held, Dallas-based Headington Oil Co. LP for $1.06 billion in cash and $790 million in stock for a total deal value of $1.85 billion.
XTO will pay 11,742,391 shares valued at approximately $67.35 each. The number of shares is not subject to adjustment.


The assets include 352,000 net acres in the Bar Trend and Nesson Anticline including producing properties in Elm Coulee Field in Montana. Estimated proved reserves are 68 million BOE (60% proved developed), according to XTO. Production is more than 10,000 BOE per day (88% oil).


Upside includes 215,000 net undeveloped acres. Associated gas production is Btu-rich and realizes a 30% premium to Nymex pricing.
XTO chairman and chief executive Bob R. Simpson says, “Since 2004 XTO has aggressively pursued the best shale basins—in terms of geology, productivity and economics—to stake a claim for long-term growth…With this acquisition in the Bakken shale, our company is now established as a leading producer and leasehold owner in this emerging oil shale play.”


Keith A. Hutton, XTO president, says the company holds more than 3 billion bbl. of oil in place within its acreage position and expects to more than double the acquired reserve volumes over time. “Drilling and operational activities should grow our production in the region by 12% to 15% annually, with about one-third of cash flow. Given the $3-per-bbl. production cost and high economic margin of these flowing oil wells, this expansive shale acquisition is a superb addition to XTO’s portfolio of premier properties,” he says.


Following the acquisition, the company will hedge 4,000 bbl. of oil per day for 30 months at $127 per bbl. and plans to hedge more. “At the current strip we’re paying about four times cash flow,” says Simpson. “We bought it on great economics and we want to protect that as we grow it.”
XTO will fund the cash portion with cash on hand and debt. Closing is expected by July 15. The effective date is April 1. XTO operates in Texas, New Mexico, Arkansas, Oklahoma, Kansas, Wyoming, Colorado, Alaska, Utah, Louisiana, Mississippi and Montana.


Standard & Poor’s Ratings Services reports that its BBB corporate rating on XTO is not affected. “On a pro forma basis, XTO’s debt leverage will be relatively high for the rating, with debt per BOE of total proved reserves at roughly $4. When using our conservative long-term pricing assumptions, we project pro forma funds from operations (FFO) to debt to be in the low 30% area,” S&P says.

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