XTOÂ’s Simpson: Economic state is bad, but not the worst
The energy industryÂ’s epic tumble during the past seven months soon will find its bottom, after which natural gas prices should work their way back up to a comfortable level around January 2010, XTO Energy Inc.Â’s Bob Simpson, chairman and co-founder, told a crowd of more than 500 people during an honorary luncheon.
The Cisco, Texas-native and longtime energy industry veteran spoke at length about the economy with an air of optimism during the Jan. 29 Fort Worth Chamber of Commerce event; he often urged guests to keep their heads up or ignore comparisons between this recession and financial crashes of decades past.
“Let’s get this thing in perspective,” he said, “this is not the ‘30s.”
Still, Simpson acknowledged the oil price plunge from $140 per barrel to about $41 per barrel has been rough. Natural gas similarly has seen its own descent: a 67 percent drop from July 2008 highs of about $14 per million British thermal units to current levels above $4.50 per MMBtu.
“The industry just went through the most volatile time in its history, and we’ve seen volatility. With that has come a lot of dislocation and frankly a lot of shock,” said Simpson, who has been a top executive at XTO Energy since he and two others founded the company in 1986. He stepped down as CEO in November 2008.
“We’re approaching the point to where as a group, as a country, as a world, we can say we’re going to get through this,” he said.
XTO Energy Inc. was founded with seven employees when oil was at $10 a barrel. The Fort Worth-based company now boasts 1,200 employees in six buildings Downtown, and 3,200 employees overall in natural gas shale plays nationwide.
“You can’t question the success of this company – it’s a phenomenon,” said the Fort Worth Petroleum Club’s Charles Simmons during introductory remarks.
The company often has been criticized and praised for its conservative nature; Simpson is known to play his cards close to his chest, so to speak, and rarely does interviews or public appearances.
“One of our strengths in our conservative model is we’re not going to do layoffs,” he said. Despite this resistance to spend big, XTO Energy expects to become the nation’s largest producer of natural gas once fourth quarter earnings are released Feb. 19. Competitors Devon Energy Corp. – a sponsor of the Simpson speaking engagement – and Chesapeake Energy Corp. previously have held that title.
Looking forward, natural gas prices will bottom in February at about $4 per MMBtu before beginning a slow and steady climb toward $6 per MMBtu by yearÂ’s end, Simpson said. He expects 2010 levels to move between $8 per MMBtu and $10 MMBtu, which he said are good prices.
In the meantime, however, natural gas exploration companies must reduce their drilling efforts to bring a surplus in line with shrinking demand. In the Barnett Shale, he expects the rig count to drop from a peak of 220 to 110 in the 18-county play. Nationwide, that number has gone from more than 1,600 rigs to about 1,100, but Simpson expects another 200 rigs to 300 rigs to be dropped in time.
“We’ll correct our crisis by laying down rigs,” he said.
From Southland to Cross Timbers
A Baylor University alum, Simpson and former XTO Energy executives Steffen Palko and Jon Brumley founded Cross Timbers Oil Co. in 1986. The three created Cross Timbers after departing Fort Worth-based Southland Royalty Co., which was purchased via a hostile takeover by Burlington Resources.
Eventually, Cross Timbers would become XTO Energy in 2001, and Palko and Brumley would leave at different times to pursue other interests.
Simpson remained, however, until passing his torch in November 2008 to two executives: Keith Hutton and Vaughn O. Vennerberg II.
Hutton, also from Texas, had been president since 2005, and worked in various engineering positions since 1987. Vennerberg previously served as senior executive vice president and chief of staff, and now serves as president. Despite their titles, Simpson has said the two split the duties he once performed. Hutton is now CEO and Vennerberg is now president.
“We acquire and try to make it better and then we do it again and again,” Simpson said of XTO Energy’s business model. “It’s the same process it has always been.”
