1. X TO
ENERGY
a timeless value
a n n ua l r e p o r t
04

2. A Timeless Value Geologic Time Scale
Evidence of an ancient Earth is contained in the rocks that form its crust. The
rock formations themselves read like pages in a long complicated history.
Geologic events scarred the surface and buried ancient life forms layer
upon layer. These organic structures - plants and animals dating back
perhaps 3 billion years - form the origins of natural resources today.
mya _ million years ago
570 mya
Present Day
248 mya
a). Cenozoic Era, Eocene Period ( 58-37 mya ) page 2
65 mya
Diplomystus and small Priscara
b). Mesozoic Era, Cretaceous Period ( 144-65 mya ) page 8
Keichousaurus
c). Paleozoic Era, Mississippian Period ( 360-325 mya ) page 12
Crinoid
d). Paleozoic Era, Pennsylvanian Period ( 325 to 286 mya ) page 16
Cenozoic Era:
Neuropteris
Powder River Basin, Green River Basin
e). Paleozoic Era, Ordovician Period ( 505 to 438 mya ) page 20
Mesozoic Era:
Trilobite
Eastern Region, San Juan Basin, Rocky Mountains, South Texas
Paleozoic Era, Devonian Period ( 408 to 360 mya ) page 24
f).
Paleozoic Era:
Eurypterid
Permian Basin, Arkoma, Mid-Continent, Barnett Shale
g). Mesozoic Era, Jurassic Period ( 208-144 mya ) page 28
Precambrian Era
Ammonite
xto energy a timeless value

3. (8) (9)
04 0
Our founders started XTO Energy in 1986 with a
nyse: XTO
strategy that had proven successful over the previous
decade: acquire the best producing properties and
make them better. We have held true to this discipline.
Long-lived oil and gas basins offer the greatest
opportunity to grow because the properties tend to
outperform. We combine these assets with employees
who also outperform. The end result is a process, a
culture and a vision that has prospered in a volatile
Cenozoic Era, Eocene Period ( 58-37 mya )
a).
and sometimes chaotic industry. By staying committed
Diplomystus and small Priscara
to what we know, XTO Energy delivers the results
Table of Contents
today even as we build the foundation for future
1). introduction page 3
2). selected highlights page 4 growth. This creates value per share and, in the
3). letter to the shareholders page 6
page 7
Designed for Long-Term Profitable Growth
end, our investment will endure.
page 10
Achieving Record Acquisitions at the Right Time
page 15
Forging Ahead with a Dynamic Property Base
page 22
Our Proven Strategy Delivers Strong Results
0
page 23
Reiterating Our ‘Stronger for Longer’ Posture
page 26
Executing on Our Value Creation Strategy
4). glossary and non-gaap measures page 30
5). form 10-k
xto energy a timeless value

4. (5)
Selected Highlights
prov ed r eserv es da ily production
2004 2003 2002 2001 2000
( in Bcfe ) ( in MMcfe )
Financial ( in millions, except per share data )
$ 1,947.6 $ 1,189.6 $ 810.2 $ 838.7 $ 600.9
Total revenues 7,500 1,500
5,860
$ 919.3 $ 501.7 $ 348.8 $ 511.0 $ 212.1
Operating income
1,016
6,000 1,200
$ 507.9 a $ 288.3 b $ 186.1 c $ 248.8 d $ 115.2 e
Earnings available to common stock
4,185
Per common share f
785
3,372
4,500 900
$ 1.53 $ 0.96 g $ 0.67 $ 0.91 h $ 0.49
Basic
2,682
623
$ 1.51 $ 0.95 g $ 0.66 $ 0.90 h $ 0.46
Diluted
2,252
525
448
3,000 600
Operating cash flow i $ 1,285.6 $ 792.3 $ 515.9 $ 549.6 $ 344.6
$ 6,110.4 $ 3,611.1 $ 2,648.2 $ 2,132.3 $ 1,591.9
Total assets
1,500 300
$ 2,042.7 $ 1,252.0 $ 1,118.2 $ 856.0 $ 769.0
Long-term debt
$ 2,599.4 $ 1,465.6 $ 907.8 $ 821.1 $ 497.4
Total stockholders’ equity 0 0
Common shares outstanding at year end f 347.2 312.3 282.2 275.0 258.5
00 01 02 03 04 00 01 02 03 04
Production ( in thousands, except per unit data )
Average daily production
834.6 668.4 513.9 416.9 343.9
Gas (Mcf)
7.5 6.5 5.1 4.4 4.4
Natural gas liquids (Bbls)
22.7 12.9 13.0 13.6 12.9
Oil (Bbls)
1,015.7 784.9 622.5 525.1 448.1
Mcfe
Average sales price
$ 5.04 $ 4.07 $ 3.49 $ 4.51 $ 3.38
Gas (per Mcf)
$ 26.44 $ 19.99 $ 14.31 $ 15.41 $ 19.61
Natural gas liquids (per Bbl)
$ 38.38 $ 28.59 $ 24.24 $ 23.49 $ 27.07
Oil (per Bbl)
tota l r ev enues net income
Proved Reserves ( in millions )
( in millions ) ( in millions )
4,714.5 3,644.2 2,881.2 2,235.5 1,769.7
Gas (Mcf)
38.5 34.7 25.4 20.3 22.0
Natural gas liquids (Bbls) $2,500 $750
1,948
152.5 55.4 56.3 54.0 58.4
Oil (Bbls)
5,860.3 4,184.9 3,371.9 2,681.6 2,252.4
Mcfe $2,000 $600
508
Stock Price f
1,190
$1,500 $450
$ 27.66 $ 17.58 $ 11.87 $ 9.78 $ 8.70
High
288
839
249
810
$ 15.35 $ 10.21 $ 6.61 $ 5.54 $ 1.52
Low $1,000 $300
186
601
$ 26.54 $ 16.98 $ 11.12 $ 7.88 $ 8.33
Close
115
$ 0.0900 $ 0.0240 $ 0.0180 $ 0.0165 $ 0.0100
Cash dividends per share $500 $150
2,636 1,917 1,538 2,191 1,840
Average daily trading volume ( in thousands )
0 0
00 01 02 03 04 00 01 02 03 04
a Includes pre-tax effects of a derivative fair value loss of $11.9 million, stock-based incentive compensation of $89.5 million and special
bonuses totaling $11.7 million related to the ChevronTexaco and ExxonMobil acquisitions. Stock-based incentive compensation includes
cash compensation of $22.3 million related to cash-equivalent performance shares.
b Includes pre-tax effects of a derivative fair value loss of $10.2 million, a non-cash contingency gain of $1.7 million, non-cash incentive
compensation of $53.1 million, a $9.6 million loss on extinguishment of debt, a $16.2 million non-cash gain on the distribution of
Cross Timbers Royalty Trust units, and a $1.8 million after-tax gain on adoption of the accounting standard for asset retirement obligations.
c Includes pre-tax effects of a derivative fair value gain of $2.6 million, gain on settlement with Enron Corporation of $2.1 million, non-cash
incentive compensation of $27 million and an $8.5 million loss on extinguishment of debt.
d Includes pre-tax effects of a derivative fair value gain of $54.4 million, non-cash incentive compensation of $9.6 million, and an after-tax oper ating cash flow r et ur n on equit y
charge of $44.6 million for the cumulative effect of accounting change.
( in millions ) (%)
e Includes pre-tax effects of a derivative fair value loss of $55.8 million, a gain of $43.2 million on significant asset sales and non-cash
$2,000 50
incentive compensation expense of $26.1 million.
38
1,286
f Adjusted for the three-for-two stock splits effected on September 18, 2000 and June 5, 2001, the four-for-three stock split effected on $1,600 40
March 18, 2003, the five-for-four stock split effected on March 17, 2004 and the four-for-three stock split effected on March 15, 2005.
30
$1,200 30
25
24
g Before cumulative effect of accounting change, earnings per share were $0.95 basic and $0.94 diluted.
792
22
$800 20
550
516
h Before cumulative effect of accounting change, earnings per share were $1.08 basic and $1.06 diluted.
345
$400 10
i Defined as cash provided by operating activities before changes in operating assets and liabilities and exploration expense. See Non-GAAP
Measures on page 30.
0 0
00 01 02 03 04 00 01 02 03 04
Glossary is located on page 30.
xto energy a timeless value

5. (6) (7)
At about 1 Bcf per day of gas production,
can you continue to grow?
Of course. Our management of the key ingredients: growing a
rich low-risk drilling inventory, maintaining a shallow decline
curve and carefully pacing development programs should ensure
resilient growth.
Fellow Shareholders:
∞
As a start-up in 1986 with a handful of we believe the foundation of XTO, the acquisition 0 From all sources, we replaced 551% of 0
employees, we envisioned building a solid and development of high-grade producing 2004 production at an all-in finding cost Designed for Long-Term
energy company, one well at a time. Nearly properties, continues to distinguish our of $1.26 per Mcfe. Profitable Growth
two decades later, XTO Energy continues to accomplishments year after year.
0
0 With drilling alone, we replaced 195% of
achieve beyond even our expectations. Today,
The Company’s notable achievements for annual production at a cost of $0.88 per Mcfe.
the Company owns almost 1 billion barrels of In our view, predictable growth is the key
2004 include:
oil equivalent. Daily production has topped for any successful franchise. To encourage
0 The Company achieved ‘investment grade’
1 Bcfe and more than 1,350 people call XTO hard work and then attract meaningful invest-
credit status.
0 Record operating cash flow totaled $1.29
home. Perhaps most important for our owners ment, a company needs a plan that provides
billion, up 62%.
today, XTO has amassed a premier property base 0 XTO was added to the S&P 500. visibility for the future. We find it important
that tends to generate better results with time. to discuss XTO’s growth agenda every year
0 Net income per share increased 59% to a
0 Finally, the market value of XTO increased because we work in a depleting asset business.
record $1.53 per basic common share.
As we close the books on 2004, we are 74% to $9.2 billion during the year. Steep production declines in America and
proud to announce another extraordinary 0 Daily equivalent production averaged fewer impact plays make it challenging to keep
XTO Energy has emerged in the energy
year of performance for XTO Energy. In fact,
1.02 Bcfe, an increase of 29%. domestic production flat, in either natural gas
sector as a large capitalization company. Today,
it was a record year across the board. The
or oil. The dilemma raises doubts for every
our enterprise value is above $13 billion and
Company achieved record earnings, cash flow, 0 Record producing property acquisitions investor. If a company must constantly drill
daily gas volumes represent almost 2% of
production and reserves. Reflecting these totaled $1.95 billion, adding 1.32 Tcfe of its way to growth, the challenge is daunting:
overall domestic production. But size is only
achievements, the stock price reached a record long-lived reserves. more wells to drill, more exploration and
significant if the underlying business stays
high during the year. While stronger commodity
thus, increasing risk.
effective, profitable and dynamic. The good
0 Proved reserves grew 40% to 5.86 Tcfe.
prices are generating solid results industrywide,
news is that XTO has never been better positioned. XTO’s unique quality is that we start our
As evidenced by our operational success and growth profile with acquisitions that generally
record acquisitions, the strategy remains do not suffer dramatic production declines.
$9,212 focused and potent. Our low-cost, high-margin Then, from within these properties, we define
production is driving record capital returns drilling upsides and deliver growth at a
04 and a powerful balance sheet. Our hand-picked
03 measured pace. With this balanced approach,
$5,303
properties continue to deliver predictable the Company has grown production and
growth. So, the direction going forward is reserves per share each year since going public
m a r k et ca pita l iz ation
$3,136
established and the momentum is robust. As in 1993. Even more important, the growth has
( year-end in millions )
02
the Company enters 2005, the prospects for consistently generated healthy full-cycle economics.
another record-setting year look promising.
01 Our return on equity and return on capital
$2,166
00
$2,152
xto energy a timeless value

6. (8) (9)
Nature’s Archives
The process of growth and change continues in the natural world today. But
Mesozoic Era, Cretaceous Period ( 144-65 mya )
b). along the way, it has also been permanently frozen in time. The reptile at left,
fossilized in 100 million-year-old shale, represents a species forever
Keichousaurus
in the making.
∞
xto energy a timeless value

7. ( 10 ) ( 11 )
04 1,323
Are acquisitions getting too pricey?
03
506
XTO has always been a premium buyer. We expect to increase
acquired reserves by 50% to 100% and generate healthy economic
acquisition r eserv es returns along the way. With higher commodity prices, quality
346
acquisitions are simply worth more.
( Bcfe )
02
257
∞
01 32
00
employed have averaged 28% and 14%, development. Put into perspective, these low-risk 4). Old-fashioned high-margin economics to ongoing endeavor creates a pipeline of potential
weather the cycles.
respectively, over the past five years. wells provide another 4 to 5 years of drilling acquisitions that may take years to come to fruition.
Ultimately, our low-risk development programs visibility. The unbooked reserve potential of Over time, we have seen that these assets tend In 2004, our dealmaking efforts achieved
and low-cost property base are driving substantial 3 Tcfe implies upsides of more than 50% to
to outperform even our projections. Since new heights, establishing XTO as a preferred
amounts of free cash. Today, less than one- the Company’s proven reserve base.
inception of the Company in 1986, we have pur- partner to the Majors. We purchased a record
third of cash flow is required to maintain our
chased 4.5 Tcfe and increased those volumes by 1.3 Tcfe of reserves for about $1.95 billion,
With this in mind, we have targeted pro-
production levels. The remaining two-thirds
another 3.8 Tcfe, including production and overwhelming our 2003 record of $624 million.
duction growth of 21% to 23% in 2005. For
is available for additional development
reserve additions. This means that our efforts At a price of $1.47 per Mcfe, these deals look
2006, our initial production growth, based
drilling, acquisitions or return to shareholders.
have increased reserves on the average XTO highly attractive in a market that today commands
on a conservative drilling pace and before
Regardless, with so much financial firepower,
acquisition by 85% through the effectiveness of around $2 per Mcfe. All told, our team com-
acquisitions, is projected at 10%. As our track
‘organic growth’ – growth through the
our long-term development programs. pleted over 140 separate transactions adding
record reveals, we plan to judiciously use this
Company’s free cash flow – should be
property interests from Louisiana to the
inventory to keep growing for years to come.
inevitable. We believe this economic strength Because it’s half of our business, we pursue northern Rockies.
distinguishes XTO within the industry. It also acquisitions for the right reason: we know the
0
assures a steady pace of continuing growth for rock and believe that we can make it perform The majority of the purchases during the
Achieving Record Acquisitions
our shareholders. better. So, we stay focused on the pursuit of year came from ChevronTexaco and
at the Right Time
acquisitions that offer XTO this opportunity. ExxonMobil. Totaling almost $1.3 billion,
Each year, a prime objective is to generate 0 Our team is working to craft deals with the these deals delivered both oil and natural gas
more drilling inventory worthy of our capital
Majors, independents and private players. We production in quality fields with underlying
At XTO Energy, acquiring the right properties
dollars. Low-risk opportunities optimize our
also solicit assets that are not for sale. This production declines below 10% and significant
is where value creation takes root. Our team
growth trajectory. For XTO, these captured
has spent its collective career working to identify
drilling opportunities continue to increase
and own the right reservoir rock in America.
even as the Company has scaled-up in size. In
For us, these properties are characterized by
2004, exploitation activities expanded producing propert y acquisitions
specific traits:
upsides throughout the core operating ( in millions )
regions. In conjunction, the impact of our $2,500
1). Long producing histories defined by
1,949
successful acquisition campaign brought
substantial well data, $2,000
exciting new prospects in our Eastern Region,
2). Highly complex reservoirs in which to $1,500
the Permian Basin, the Rocky Mountains and
apply operational and technological innovations,
the Barnett Shale of North Texas. XTO $1,000
624
Energy now boasts an inventory of up to 3). Extensive resource potential embedded in
354
238
$500
3,850 new well locations which are slated for sedimentary basins, and
32
0
00 01 02 03 04
xto energy a timeless value

8. ( 12 ) ( 13 )
The More Things Stay the Same
The oceans are teeming with creatures whose ancestry spans the eons, yet
Paleozoic Era, Mississippian Period ( 360-325 mya )
c). whose basic design remains virtually unchanged. Despite their names, these
sea lilies are actually marine animals. They spend their lives attached to driftwood
Crinoid
and stones on the sea floor — just as they have since the Paleozoic.
∞
xto energy a timeless value

9. ( 14 ) ( 15 )
a l l-in r eserv e r epl acement cost
Why can’t others in the industry
( dollars per Mcfe )
duplicate your process?
$1.50
1.26
1.01
$1.20
0.98
We have the best talent and we stay committed to what we know. We work
0.78
hard at the rock. We work hard at finding a technical advantage. We
$0.90
work even harder at keeping our advantage; no distractions.
0.41
$0.60
$0.30
0
∞
00 01 02 03 04
upsides in place. They are the ideal complement With a renewed focus of expertise and a fresh Our leadership in this dynamic play provides 140 geoscientists and hundreds of seasoned
yet another venue for future growth. operational veterans to make this happen.
to XTO’s growth profile. From ChevronTexaco, injection of capital, our team foresees years of
we bought 732 Bcfe for $930 million. Half development opportunities from these properties.
Further acquisition opportunities in 2005 These efforts have placed us in some of the
oil, these properties expanded XTO’s foot-
are being pursued. With a strong commodity
Moving into 2005, our acquisition efforts most dynamic resource plays in the industry
print in the Permian Basin and doubled our
backdrop, a unique situation has developed.
remain in high gear. In January, we announced today. While others look to capture the growth
daily oil production. The assets also brought
Higher energy prices continue to bring quality
an agreement to purchase privately held and economic advantages of a single basin
fresh additions to our Eastern Region, added
assets to market. In our view, Majors will likely
Antero Resources Corporation, solidifying play, XTO has managed to aggregate multiple
a coal bed methane operation in the Uinta
rationalize more assets through divestitures,
our position in the Barnett Shale play of platforms. By virtue of its complexity, XTO is
Basin and established a foothold in South
trades and farm-outs. Independents and
North Texas. For $685 million, XTO committed a leader in tight-gas technology and production.
Texas. From ExxonMobil, we increased our private owners, limited by manpower and
to purchase 440 Bcfe of natural gas reserves We are prominent in the other unconventional
West Texas oil holdings with additional interests capital, continue to cash out. Given our
with net daily production of 60 MMcf. This production areas, both coal bed methane and
in existing XTO fields or fields that predom- financial flexibility, XTO is poised to benefit
transaction, which closes April 1, elevates our shale gas. With our engineering expertise in
inantly offset our successful development from this scenario.
Company to the second largest producer in
West Texas, we are committed to enhancing oil
programs. We also acquired the Hartzog Draw the Barnett Shale for all the right reasons.
recovery in the great oil properties of the
0
Unit in Wyoming, marking our entry into the The holdings are anchored in the shale’s core
Permian Basin. The bottom-line is that our
Forging Ahead with a Dynamic
Powder River Basin with a premier oil property area where well data and production history
captured upsides should provide steady
Property Base
complete with coal bed methane upsides. Daily have established a solid outlook for a long-
drilling activity, predictable growth and
production from the ExxonMobil purchase was term development play. Importantly, strong 0
robust economics for years to come.
about 6,600 barrels of oil. Proved reserves economic returns are competitive with the
The XTO advantage is our intense focus
totaled 38 million barrels of oil equivalent. robust inventory throughout the Company. 0 Tight-Gas Properties
on exploiting a basin’s full resource potential.
We demand complex reservoirs in need of new More than 60% of our current gas pro-
technology and a fresh perspective. Importantly, duction, or about 600 MMcf per day, comes
we are not distracted with other agendas: no from tight-gas formations. The dominant
551%
exploration department and no international focus of this activity is within our Eastern
04
division competing for capital allocation. In Region operations. Since the initial acquisition
03
387%
our perspective, the U.S. is embedded with in 1998, net daily production has grown from
tremendous untapped resources. This trapped 80 MMcf to 480 MMcf. The Freestone Trend
a l l-in r eserv e r epl acement r atio oil and gas awaits the right combination of remains one of our crown jewels with about
404%
(%)
science, technology and innovation to unleash
02 325 MMcf in net daily production and 1.9
its potential. At XTO, we empower a team of Tcfe of recognized reserves. Our application of
326%
01
00
299%
xto energy a timeless value

10. ( 16 ) ( 17 )
Hydrocarbon Origins
In ancient forests, an abundance of flora and fauna provided the medium that
Paleozoic Era, Pennsylvanian Period ( 325 to 286 mya )
d). would be transformed into rich organic deposits. This material later became
trapped between layers of rock and was eventually buried deep beneath the
Neuropteris
earth’s ever-changing surface.
∞
xto energy a timeless value

11. ( 18 ) ( 19 )
dr il l bit r eserv e r epl acement cost
( dollars per Mcfe )
core areas
1.08
$1.25
0.88
2004 acquisitions
$1.00
0.77
0.63
$0.75
0.37
$0.50
$0.25
0
00 01 02 03 04
water-fracturing and commingling techniques Ongoing tight-gas operations in the
has tapped several thousand feet of hydrocarbon- Arkoma and San Juan basins will also continue
rich sediments that had remained undeveloped. to generate opportunities for future development.
This trend ‘discovery’, which has grown to XTO’s ‘fault block analysis technique’ in
166,500 net acres, will continue to act as the Arkoma has provided a manufacturing-type
swing-producer for the Company. On a con- approach to the region. Through advanced
servative development inventory of 1,100 to logging techniques and rigorous geological
1,300 additional wells, we estimate net reserve interpretation, we find untapped reservoirs,
potential at 2.6 Tcfe. Expanding pipeline drill a successful well, identify offset locations
infrastructure will increase gross daily capacity and then repeat the process. Deeper, tighter
62%, from 450 MMcf to 730 MMcf, and will zones, like the Paradox formation of the San
be completed in the first half of 2005. So, the Juan Basin, are providing new well locations
assess well performance. Since that time, our 0 Shale Gas Properties
plan for future growth is set. Our success in the with more than 2 Bcf of potential.
development and acquisition programs have
Freestone Trend inspired us to establish positions Since our entry into the Barnett Shale in
increased daily production from 2 MMcf to
0 Coal Bed Methane Properties
in two other areas with the same sequence of early 2004, enthusiasm for the challenging,
about 90 MMcf. Given this success, our special
tight-gas sands: the Sabine Uplift Trend of long-lived play has only accelerated. Well
In 1997, the Company acquired its first projects team researched coal basins across the
East Texas and the Cotton Valley Trend of performance, reservoir characteristics and
CBM production in the Fruitland Coal play of U.S. to identify prospective regions that
northwestern Louisiana. Our 2005 development continued improvement of completion
the San Juan Basin. As in all our programs, we would fit our demanding technical and
program targets increasing growth activities in techniques have confirmed that ultimate gas
first initiated a pilot study to evaluate the coal economic criteria. Acquisitions to date have
both of these trends. recovery, particularly in the core-area, will be
seam properties, commence development and expanded our CBM positions well beyond the
greater than current expectations. We solidified
prolific Fruitland Coal to footholds in the
our commitment to the play with the acquisition
Raton, Uinta and Powder River basins.
of a key producer, Antero Resources, announced
Altogether, the Company has grown daily pro-
in January of 2005. XTO Energy will now
195% duction to about 135 MMcf and has identified
direct development of approximately 150,000
more than 400 development locations. For
net acres across the basin, 50% of which is
XTO, the long-lived production profile of
04
211%
03
considered to be in the core-area. This provides
CBM assets merges ideally into our program
XTO with upside potential of more than 1 Tcfe.
of decline curve management. With extensive
dr il l bit r eserv e r epl acement r atio Tighter spacing and re-fracturing opportunities
02 252% drilling opportunities, we anticipate enhancing
(%)
could substantially increase these upsides over
our coal seam gas production while pursuing
time. With post-closing daily gross production
broader basin exposure.
01 191%
00
280%
xto energy a timeless value

12. ( 20 ) ( 21 )
Life on the Move
A simple crustacean offers a textbook example of evolution’s amazing subtlety.
Paleozoic Era, Ordovician Period ( 505 to 438 mya )
e). Over thousands of millennia, the environment slowly shapes each species.
It is only when we retrace the steps that dramatic changes become apparent.
Trilobites
∞
xto energy a timeless value

13. ( 22 ) ( 23 )
oper ating cash flow m a rgin
With so much inventory,
( dollars per Mcfe )
why not drill faster?
$5.00
3.46
$4.00 Our full-cycle exploitation process takes time. With a disciplined
2.87
2.77
timeframe, we can maximize returns, generate upsides and
$3.00
2.27
2.10
acquire more. Our goal is to balance present value realizations
with future growth value.
$2.00
$1.00
0
∞
00 01 02 03 04
above 130 MMcf, XTO will rank as the second prices, total revenues for XTO hit a record 0 the fatigue of more than a decade of systemic
largest producer in the play. We anticipate $1.95 billion, besting the 2003 mark of $1.19 under-investment. At the same time, global
Reiterating Our
doubling this production rate by year-end billion. Operating cash flow increased to inventories appear to be caught at a low point.
‘Stronger for Longer’ Posture
2006 through an aggressive drilling program. about $1.29 billion, up 62% from the prior New fields and updated industry infrastructure
0
As a hometown producer in the Fort Worth year level. Equally important, reported earnings are years away; thus, no quick fix is on the horizon.
Basin, we envision a decade of development hit $508 million, or $1.53 per share, compared Simply put, the outlook for robust energy
Meanwhile, demand for petroleum products
opportunities from the Barnett Shale that to $0.96 per share in 2003. prices endures. Since 2000, oil has averaged
continues to grow. Energy consumption
should complement our Eastern Region almost $31 per barrel while natural gas has
Our powerful capital investment program grinds upwards in the U.S. as the economy
growth activities. At 4 to 6 million acres of exceeded $4.50 per Mcf. Importantly, prices
continues to fuel XTO’s prosperity. In 2004, moves ahead. Booming economies in the Far
potential coverage and only 10% developed, have trended ever higher over the past few
we added 2.05 Tcfe of reserves for a total of East and Asian sub-continent have accelerated
the best is yet to come for this shale play. years culminating in today’s prices of about
$2.59 billion. This implies an all-in finding over the past three years, with China’s hyper-
$54 oil and $7 gas on the NYMEX. Market
Beyond North Texas, our team is assessing cost of $1.26 per Mcfe, excluding asset retirement growth blazing the way. Projections place
conjecture is contentious regarding the source
shale potential across America. Due to its obligations of $0.03 per Mcfe. With an operating global oil needs at close to 84 million barrels per
and sustainability of these levels. Experts and
sizeable acreage holdings in Arkansas, the cash flow margin per Mcfe of $3.46, XTO was day by year end 2005. The daunting outlook for
investors alike discuss geopolitical fears, the
Company has a position in the Fayetteville able to add 2.7 Mcfe for each Mcfe produced, supply and demand makes a ‘squeeze’ unavoidable.
OPEC agenda, the Chinese economic blitz, our
Shale play in the Arkoma Basin. We plan to a leading reinvestment efficiency for the sector. strained global supply situation – and the list
The scenario for natural gas in North
gauge its viability throughout the course of 2005. The Company continues to generate one of goes on. From our perspective, these higher
America is equally challenging. Domestic
the lowest drill bit finding costs in the domestic price levels are grounded in solid fundamen-
0 production in 2004 decreased by another
energy complex. For a cost of $0.88 per Mcfe, tals. Supply and demand are precariously bal-
Our Proven Strategy Delivers 3%, bringing the 3-year loss to above 5 Bcf
our development program added 724 Bcfe of anced, with demand gradually gaining the
Strong Results per day. Even record levels of drilling activity
reserves, holding true to our historic replace- upper hand.
have failed to offset the estimated 25% annual
ment ratio of about 200%. Overall, XTO
0
decline in underlying production. Exploration
On the global oil outlook, with about 82
Energy’s proven reserves increased 40% from
Once again, the Company surpassed million barrels per day of capacity, the overhang risks have accelerated. Meanwhile, the major
year ago levels, to 5.86 Tcfe. Under SEC
benchmarks set just a year ago. Total production of supply has finally evaporated. Production integrated companies are directing their
guidelines, these reserves quantities reflect a
grew almost 29% with natural gas increasing in America and the North Sea is declining. efforts to the international arena because of
present value before income tax, discounted at
25% to 835 MMcf per day, oil growing by 75% The potential of the former Soviet Union the dearth of sizeable prospects in U.S.
10%, of $12.2 billion. As always, since 1986, the
to about 22,700 barrels per day and natural nations has peaked in the short term and even basins. Moving forward, the fix for natural gas
outside engineering firm Miller & Lents, Ltd. has
gas liquids up 16% to 7,500 barrels per day. OPEC has pushed the limit with only marginal supplies appears to be liquid natural gas,
prepared the reserve report for the Company.
With higher volumes and strong commodity heavy and sour oil remaining in its inventory. which is also a vital global commodity facing
Finally, the entire energy complex is showing increasing demand. LNG will need to be
xto energy a timeless value

14. ( 24 ) ( 25 )
Adapt and Survive
Under the sea, some species seem protected from the constant tide of change.
Paleozoic Era, Devonian Period ( 408 to 360 mya )
f). The lobster has adapted little over time, with its success largely due to the same
traits it has possessed for ages. Their design has made for an efficient creature
Eurypterids
capable of a wide variety of functions.
∞
xto energy a timeless value