XTO Energy: Natural Gas Can Expect Over 100% Further Upside

Buy-recommended XTO Energy (XTO) is priced at the lowest McDep Ratio among the largest, most concentrated producers of high-appreciation-potential natural gas in the developed world. Estimated natural gas value increased on May 13 when we raised Net Present Value [NPV] to $88 a share, up from $68, on the basis of a long-term oil price assumption of $100 a barrel, up from $80.

We also like the $27 a barrel, oil-in-the-ground economics of a $1.8 billion acquisition in the Bakken Shale of North Dakota and Montana announced on May 28. Though that deal may close by July 15 and add 10,000 barrels daily to XTO production, it is not yet included in projected volumes. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.

The recent strength in natural gas futures may have more staying power as the six-year average has advanced along with the one-year average. A remarkably low price for natural gas relative to oil points to more than 100% further upside.

Finally, all three U.S. presidential candidates want to enforce reductions of carbon dioxide emissions that may have the consequence of stimulating natural gas price just as their promotion of biofuels stimulated food price.

Originally published on May 29, 2008.

Comments

[Ozarker]

When will we start hearing about Compressed Natural Gas as an alternative fuel for cars and trucks? It is 80% hydrogen and ,as such, emits very little Carbon Dioxide compared to gasoline and it is available now. All you need is to have your SUV, pick-up, van or car converted to burn Natural Gas. It takes a larger tank and some larger vehicles can burn both Nat. Gas and Gasoline. Fuelmaker Corp. in Canada makes a compressor for home use that fits on your garage wall and Honda makes a production Civic that comes from the factory already set up to burn Natural Gas. Since we have a 60 to 300 year supply in North America, depending on the source, why don't we "Git er done"?

[john s. gordon]

fleet operators (usps & buses) use cng now. all you need is a central refueling point & short hauls.
> jack

[richjoy]

Fueling (non-comercial) cars with compressed natural gas is already done in some other countries (and a 'early adaptor') folks here.

However, most Americans are afraid to sit on a bomb of compressed gas...it may happen, but it will take much higher gasoline prices or lack of gasoline availability. When America gets to either of those points, we will have such a broken economy, no one will want to go anywhere anyway.

[richjoy]

BTW, how is it that we get an article from May 29th on June 30th without reference to an update?...a month is an eternity on the stock market!

[john s. gordon]

don't put your cng-fueled vehicle in your garage; or if you do, leave the door open. same applies to your hydrogen-fueled vehicle.
we have a couple of baltimore tunnels a few miles up the road, compressed gases (including propane in camp trailers) are illegal.
> jack

[horatioatthegate]

Although the use of high storage pressures might appear dangerous, compression, storage and fueling of natural gas vehicles meet stringent industry and government safety standards. Remember that high-pressure gases are used safely every day in idustrial and medical applications.

Natural gas powered vehicles are designed and built to be safe both in normal operation and in crashes. New natural gas vehicles are subjected to the same federal government crash tests as other vehicles.

Natural gas vehicle fuel systems must meet Federal Motor Vehicle Safety Standards 303 and 304.

Natural gas cylinders are much thicker and
stronger than gasoline or diesel tanks. Cylinders are designed not to rupture when fully fueled over six times a day, 365 days a year, far beyond what they will see in service.

Industry standards test them far beyond normal environmental and service damage risks.

Cylinders must even withstand a bonfire test and penetration by a 30-caliber bullet without
rupture!

No matter what the fuel, fueling stations, indoor parking structures and repair garages must
be built to ensure high levels of safety. Requirements for facilities handling natural gas
and natural gas vehicles may differ from those for gasoline or diesel vehicles.

For example, leaking diesel and gasoline form puddles on the floor. Natural gas normally rises
toward the ceiling and disperses. Therefore the danger of fire would be greatest near the floor for liquid fuels and near the ceiling for natural gas.
Time has proven natural gas vehicles to be safe in actual operation.

Based on a survey of 8,331 natural gas utility, school, municipal and business fleet vehicles (NGVs) that traveled 178.3 million miles:

• The NGV fleet vehicle injury rate was 37% lower than the gasoline fleet vehicle rate.

• There were no fatalities compared with 1.28 deaths per 100 million miles for gasoline
fleet vehicles

[BrucePile]

Ozarker, we don't have a 60 to 300 year supply of nat gas here in North America. We are already into a post peak decline in conventional gas here and it is only the frenetic drilling of shale and other fields that is ramping up to barely keep supply adequate. That won't last too long; then we will desperately and suddenly need LNG!