XTO Energy will spend nearly $2 billion to acquire a piece of the Bakken Shale field.  XTO is the largest natural gas producer and one of the most respected energy companies in America.  This move could indicate a shift in emphasis on XTO’s part toward oil production.  The Energy Investment Strategies portfolio holds a small position in XTO.  Here is the report from today’s Wall Street Journal:

XTO Energy Deal Highlights Interest in U.S.-Canada Field

By BEN CASSELMAN
May 29, 2008; Page A8

XTO Energy Inc. agreed to pay $1.85 billion for drilling rights in an oil-producing area near the U.S.-Canadian border, highlighting the once-obscure field’s growing importance. The move also reflects rising confidence by energy companies that oil will stay above $100 a barrel.

The Fort Worth, Texas, oil and natural-gas producer said it will buy rights to 352,000 acres in the Bakken Shale, which stretches across Montana, North Dakota and Saskatchewan, from closely held Headington Oil Co. XTO will pay $1.06 billion in cash and $790 million in stock. The deal is expected to close July 15.

XTO said the land contains proved reserves of 68 million barrels of crude oil and natural gas, a figure it says could double easily as new technology allows greater production. Headington produces about 10,000 barrels of oil per day in the region; XTO plans to increase production by 12% to 15% a year.

“It’s not only a growth asset, but it’s a cash cow at the same time,” XTO Chief Executive Bob Simpson said.

The deal brings new attention to what has emerged as one of the hottest crude-oil plays in North America. Oil companies have been active in the region more than 20 years, but high production costs and low oil prices discouraged large-scale production. Now, however, producers such as Marathon Oil Corp., Hess Corp. and EOG Resources Inc. are taking new technologies, developed to produce natural gas, and applying them to areas such as the Bakken that have substantial crude-oil reserves. The U.S. Geological Survey recently estimated the region has as much as 4.3 billion barrels of recoverable oil.

Even with technological advances, however, the Bakken requires high prices to be economical. Tom Gardner, director of research for investment banker Simmons & Co., said that based on XTO’s estimate of proved reserves, the $1.85 billion price tag only makes sense if oil stays above $100 per barrel. If XTO increases production, the deal will still require prices well in excess of $65 a barrel to be economical, Mr. Gardner said.

Write to Ben Casselman at ben.casselman [Email address: ben.casselman #AT# wsj.com - replace #AT# with @ ]

Tags: peak oil energy investments

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