XTO (IL/A):Best in class and premium deserved. Goldman April 05, 2005
We have published a detailed report on XTO Energy, 'Best in class and premium deserved.' XTO continues to show the best combination of per-share growth, returns, and free cash flow among large-cap E&Ps. We believe the stock's current premium valuation is warranted, but we do not expect a widening of XTO's returns advantage. We continue to rate XTO In-Line relative to an Attractive coverage view. Please see our detailed 28-page report, "Best in class and premium deserved." If you are on our e-mail distribution list, a .pdf will be sent today. If you are an institutional investor client of Goldman Sachs and not on our email distribution list, please call 1-212-902-8259 or send an e- mail to a member of the team to receive a .pdf of this report.
WE BELIEVE XTO'S F&D COSTS WILL RISE BUT WILL CONTINUE TO BE BELOW PEERS'
XTO has maintained an advantage versus its peers with its low-cost drilling inventory, in our view. Although we continue to see XTO in an advantageous position, we expect drillbit F&D costs to rise to about $7.30 per BOE. Because of its low cost structure and strong free cash flow, XTO is favorably leveraged to a potential super-spike in natural gas prices.
EXXON, CHEVRON ACQUISITIONS KEY TO ADDING TO EXISTING PROSPECT INVENTORY
East Texas still represents the bulk of XTO's future drilling, while the Permian Basin, site of acquisition activity during 2004, represents just 7% of drilling inventory. We believe the Permian Basin should be the key driver of incremental drilling inventory in the coming years.
PREMIUM VALUATION DESERVED, BUT WE SEE BETTER OPPORTUNITIES ELSEWHERE
XTO's premium valuation has expanded in recent months. We believe that XTO shares can continue to perform well given our bullish view on commodity prices. However, we see better opportunities in our Outperform-rated stocks such as EnCana Corp., Questar Corp., Newfield Exploration, Bill Barrett Corp., Devon Energy, and Pioneer Natural Resources.
ANALYST CERTIFICATION Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Brian Singer, Arjun Murti.
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Odd that they would bother to put out a special 28 page report but not upgrade the stock. |
