XTO earnings up 33 percent but shares tumble

NEW YORK (Reuters) - Oil and gas producer XTO Energy Inc (XTO.N) said on Tuesday second-quarter earnings rose 33 percent on higher production and natural gas prices, and announced deals for more than $2 billion on new properties.

Still, sharp declines in oil and natural gas prices on Tuesday and investor unease with the effects of XTO's recent acquisition spree contributed to a 9 percent drop in the Fort Worth company's shares, analysts said.

"They are kind of overextending themselves as far as the balance sheet -- and probably taking on a decent amount of debt to make these things happen, or at least diluting the shares," Dan Katzenberg, analyst with Oppenheimer & Co, said.

XTO's purchases include an $800 million buy in Texas' Barnett Shale and the acquisition of another $1.3 billion in properties in a number of areas, both announced Tuesday. The company, which agreed last month to buy privately held Hunt Petroleum Corp for around $4.2 billion, has made more than $10 billion in acquisitions this year.

XTO boosted its 2008 and 2009 output forecasts, due in part to recent acquisitions, and lifted its capital budget for the year.

Net income in the quarter rose to $575 million, or $1.11 a share, from $432 million, or 91 cents a share, a year before.

Excluding one-time items, the company earned $1.07 a share in the quarter. Analysts on average had expected the company to earn $1.04 a share, according to Reuters Estimates.

Natural gas and oil production in the second quarter rose 29 percent from a year before to 2.20 billion cubic feet equivalent per day. Its average realized price for natural gas rose 7 percent to $8.51 per thousand cubic feet.

XTO said it expects production growth of at least 29 percent in 2008 as well as 22 percent growth in 2009.

Given the company's production growth and acquisition pace, Chief Executive Bob Simpson said XTO could double in size over a four-year period.

XTO said on Tuesday it would buy 12,900 acres adjacent to its current operations in the Barnett Shale for $800 million, adding output of 35 million cubic feet of natural gas equivalent per day.

It also announced $1.3 billion in deals with multiple parties for producing properties in its Eastern and San Juan regions as well as acreage in the Marcellus, Fayetteville, Barnett and Haynesville shales.

Energy companies are spending heavily to lock up acreage in hot shale plays, where oil and natural gas are trapped in layers of rock. Record energy prices and technology such as horizontal drilling have made retrieving hydrocarbons from shale profitable.

XTO increased its capital budget for the year to $3.5 billion from $3 billion. It set its development budget for 2009 at $4.6 billion.

Shares of XTO fell $5.46 to $52.52 on the New York Stock Exchange on Tuesday, outpacing a 4 percent decline in the American Stock Exchange index of gas companies .XNG.

(Reporting by Michael Erman; additional reporting by Josh Brown and by Anna Driver in Houston; editing by Mark Porter and Gerald E. McCormick)