XTO's Williams Looks Forward

The conundrum of low gas prices coupled with burgeoning unconventional supplies has created a tricky environment for the U.S. natural gas industry. But upstream producers have "been here before in the 1980s and again in the 1990s," said Jack Williams, president of XTO Energy. Speaking at Hart Energy's DUG Conference & Exhibition in Fort Worth in late April, Williams shared his long-term view of unconventional resources and how the merger of XTO and ExxonMobil has transformed XTO's resource base.

"We have to remember that natural gas is a commodity, and not immune to the ups and downs of cycles and the fundamentals of supply and demand," Williams told the audience of nearly 2,500 attendees.

“We have to remember that natural gas is a commodity, and not immune to the ups and downs of cycles and the fundamentals of supply and demand,” says Jack Williams, XTO Energy president.

Williams acknowledged that, since the merger in 2010, XTO has been fairly mum about operational developments, but he highlighted a few of the unconventional plays where the company is active. At year-end 2011, its total U.S. portfolio consisted of 6 million acres and a total resource base of about 82 trillion feet equivalent, with unconventional resources approximately 90% of this total.

Today XTO has holdings in most of the major unconventional plays in the U.S. Including ExxonMobil's production, XTO is the largest natural gas producer in the U.S., Williams said, though it is not the largest producer in any given region. Instead, it holds substantial positions in most of the more economic plays, which gives it operational stability, a lower risk profile and the ability to manage the pace of its growth.

While XTO has a significant portfolio of shale-gas assets, it also has several strong liquids operations under way, Williams said.

"In Oklahoma's Woodford shale, we couldn't be more pleased with our results to date. We hold nearly 300,000 acres and have gross operated production of 185 million cubic feet equivalent per day. We're currently operating 12 rigs, 10 of which are in the Ardmore Basin."

XTO's position in the emerging Ardmore Basin tripled in 2011 to 172,000 acres. Its acquisition costs were roughly 50% below recent industry costs in the Eagle Ford play in South Texas, Williams said, adding that the Ardmore has the potential to exceed 70,000 net oil equivalent barrels per day.

"We recently signed an agreement with Chesapeake Energy to acquire an additional 58,000 acres (in the Texoma Woodford). We're excited about this bolt-on position, because it's highly complementary to our existing position and could eventually add another 25,000 net oil equivalent barrels per day."

During the past decade its North Dakota and Montana areas of operation have hosted significant activity, due largely to the development of the Bakken shale. There, XTO is operating eight rigs, and holds 395,000 acres with gross operated production of 30,000 barrels of oil equivalent per day. Since entering the play in mid-2008 XTO has more than doubled its oil production in the area.

Meanwhile, the company's holdings in the liquids-rich Permian Basin of Texas and New Mexico may have benefitted the most from the ExxonMobil merger in terms of acreage. In January of this year 350,000 Permian Exxon-Mobil acres were transferred to XTO Energy, bringing XTO's total to 540,000 acres of conventional and unconventional resources. The company has five rigs running and its gross operated Permian production is approximately 85,000 barrels of oil equivalent per day.

Shifting to the company's gas plays, "We all know the Barnett is where shale gas began," Williams said. "It's still the best example of gas development in an urban environment."

XTO has 235,000 acres in the Barnett shale, six rigs running and gross operated production of 830 million cubic feet of gas per day. Advances in efficiency helped XTO to cut its number of drilling days in half to 13, while extending its laterals—all during a six-year period.

In the Haynesville and Bossier shales, XTO currently has 250,000 gross acres, five operated rigs and gross operated production of 400 million cubic feet equivalent per day. Last year, its production from these plays increased 140%. Its gross operated production also grew, while its rig count decreased. With optimized frac stimulation treatments and improved casing designs , the Eagle Ford company saw 90 cost reductions in these areas of about 30%.

XTO’s substantial positions in most of the more economic plays in North America give it operational stability and the ability to manage the pace of its growth.

Finally, in the Marcellus shale region (including Utica acreage), XTO holds 735,000 acres and has 170 million cubic feet equivalent per day of gross operated production. The company is running just four rigs in the play, so it's still early days, Williams said.

"With measured, disciplined development of a number of unconventional plays, we are clearly continuing to move forward. Long-term demand projections and the role of unconventionals give us reason to be optimistic. Another reason for our optimism is the energy transformation that is under way in North America.

"At ExxonMobil, we think huge success through (commodity, and supply and demand) cycles has been through long-term commitment and disciplined development of resources, and a focus on efficient and safe operations. For XTO Energy, this philosophy has only been enhanced since the merger with ExxonMobil."

A top priority at XTO is implementation of ExxonMobil's operations integrity system, he said. This system will help ensure that XTO continues to address safety, environment, security and social risk in its operations.

"It is imperative that we remain committed to safe operating practices that affect our employees, our contractors and the communities where we operate," Williams emphasized.

During his keynote presentation the president also highlighted the company's pace of acquisitions since the merger.

"We have completed 16 additional transactions, adding 20 trillion cubic feet equivalent of oil and gas to our resource base. We've also transferred some onshore ExxonMobil operating assets to XTO, including 600,000 acres of leasehold."

XTO now provides technical support for ExxonMobil's unconventional resource development around the world, including projects in western Canada, South America, Europe and Asia, utilizing XTO's extensive Lower 48 experience to improve drilling and completion optimization.

"We've also brought our most advanced technologies together. These synergies exist thanks to long-term thinking, and a dedicated effort to improve our business by focusing on the high-end technologies essential to the foundation of ExxonMobil, and that XTO is integrating into its culture."

New technologies and innovative techniques have taken sources of energy once labeled unconventional, uneconomic and inaccessible and made them conventional, economic, and environmentally responsible, he said. And, as economies around the world try to stabilize and create jobs, the influx of affordable, reliable, abundant natural gas—and increasingly abundant tight oil—is welcome.

Referring to President Obama's recent State of the Union speech, Williams added that the president has recognized the transformative potential of the oil and gas industry's technologies and investment.

"… (But) if we're to sustain, and in fact enlarge the energy consensus, the industry must increase the knowledge of policymakers and the general public. Industry has a key role to play in building public confidence. As an industry we have a responsibility to unlock safe, secure energy resources in an environmentally responsible way.

"Unconventional resource development has created hundreds of thousands of new jobs, billions in government revenues and economic benefits across the U.S. The energy transformation in North America has definitely shown the world that we're capable of achieving great things when we work together."