XTO Acquired by XOM at Average Valuation Despite Being Best Operator
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2. Lastly, I monitor a unique metric that calculates a company’s EV/mcfe as a percent of the market price of natural gas. Historically, XTO has average 25% (that is XTO’s EV/mcfe has averaged 25% of the market price of natgas). XOM is acquiring XTO for an EV/mcfe to natgas price of 53%.XTO, in my estimation and as reflected in its peer beating operating metrics, is the premier North America E+ P Company. (Some XTO peer beating metric include: ROIC, CFO/mcfe, FCF generation, Low F+D costs, Reserve growth per share, low debt/mcfe, etc)<br />Therefore, I find it curious that smartest, best run E+P company is selling out when gas is at a depressed $5/mcfe range and valuation multiples suggest no upside. This strongly suggests XTO management sees no further upside to gas prices!!<br />As the market absorbs this fact, the recent run up in E+P stocks from “M+A madness” will recede, and market will re-calibrate valuation benchmarks for E+P valuation. Assuredly downward!<br />.<br />