XTO Purchases Hunt Petroleum

XTO Energy is on a high-priced shopping spree, adding to its energy holdings at a time of unprecented petroleum prices. On Tuesday, it added Hunt Petroleum, founded by late oil tycoon Haroldson Lafayette Hunt Jr., for $4.2 billion and said it was looking for more assets.
XTO Energy (nyse: XTO - news - people ) will add 1.2 trillion cubic feet of natural gas to its portfolio--the equivalent of what it has in its proven reserves--with the cash-and-stock purchase of the privately held company, founded with the H.L. Hunt's poker winnings. XTO will pay $2.6 billion in cash.
"I'm pretty agnostic on the deal," said Subash Chandra, an analyst at Jefferies, "it wasn't overpriced, it wasn't underpriced." Still, this was a notable purchase, Chandra said. "If anyone wanted to scale up, they would have done it with Hunt Petroleum," he said.
In late-May, the Fort Worth-based oil XTO, formerly known as Cross Timbers, announced it had bought the oil producing properties and undeveloped land from Headington Oil for $1.8 billion. Now with the new assets, XTO has pushed its 2008 production growth target to a range of 28.0% to 30.0%, well ahead of its previous estimate of 20.0% to 23.0%.
Even though XTO shares started strong on Tuesday trading, they tapered off in the afternoon to $66.03, 2.5%, or $1.69, below Monday's closing price after the company said its spending spree wasn't over.
Chadra said XTO's spending is driven by two factors. First, the company has excellent collateral after 10 to 15 years of accumulating high quality assets. The second reason relates more broadly to the rest of the sector. Oil companies are moving to make deals before possible changes in tax law after the U.S. elections this fall.
The takeover may be added to the list of dramatic episodes within the entertaining Hunt family. In November, one of H.L. Hunt's great-grandsons sued his father and several other family members, claiming they conspired to exclude him from part of his inheritance because he opposed a plan to sell Hunt Petroleum.
The lawyer for great-grandson Albert Hill III vowed to fight the sale, calling the price too low. "Why would anyone dump the company at this price in this market? Unbelievable," said Hill's lawyer, William Brewer.