Natural Gas Prospects

a. Natural gas prices per thousand cubic feet (MCF); spot prices now about $6

Weekly Natural Gas Storage Report
http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html
http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp

b. Bulls say that the prospects for natural gas is bright because:

1. The fuel's clean-burning qualities

2. Growing energy demand

3. Declining North American gas production

4. Limited imports in liquefied form from abroad

Stock to watch: XTO Energy (XTO)
XTO Energy Inc. is an independent domestic producer engaged in the acquisition, exploitation and development of high quality, long-lived producing natural gas and oil properties. The Company's reserves have grown from 296 Bcfe in 1993 to 8.549 Tcfe at year-end 2006, making it the fourth largest owner of domestic natural gas reserves among the independents. XTO is poised to deliver 18% production growth for 2007 and 17% growth for 2008. The Company’s low-risk development inventory of more than 7.3 Tcfe should provide steady production and reserve growth for years to come.

Metrics to watch for this company:

XTO's fields experience modest annual decline rates of 10-15%, half the industry average. With this depletion advantage, XTO is able to shift a decent amount of CapEx to expand output, not simply mantaining it

Analyze the company's proven, low-risk potential, and additional potential reserves in TCF (trillion cubic feet equivalent); for proven reserves, how many years of production is it worth?

Compare the company's finding costs per thousand cubic feet vs. its peers (exploration and production companies); the lower the better, since there is risk in finding reserves

Seeking giant oil fields overseas such as in Russia, Venezuela, and Kazakhstan is appealing, but it is financially and politically risky. XTO sticks to the Continental U.S.

The biggest risk with any energy company is reserve replacement