Bob:    Glad to be here Jim.

Jim:      Well, Mr. Simpson, you know natural gas took out $5, I am beginning to think that maybe the bottom doesn’t go to $3 bucks. It is freezing all over the country, what the heck happened to this, the inexpensive clean fuel that I thought was going to boom this year?

Bob: Well, we had a confluence of events that came together, one is the growth and supply of probably 6 or 7% this year. The first real growth year we have had in a decade. That was from 1600 rigs going. Which are busy falling, by the way. And also the soft economy, those events came together so we are having kind of a clean out the year in terms of what happens next. Early rig count is already down about a 1/4, from 1600 to approaching 122 for natural gas. If you look at natural gases underlying decline rate, we think it is about 30%. And so what business do you know of that if you lose almost a 1/3 of its supply capability in a year, so it is going to correct pretty quickly. We think the value of gas is $8 to $10. We have hedged about 80% of our gas for the year.

Jim:      At what price?

Bob:    It’s around 11.

Jim:      Really?

Bob:    Yeah, last year we did about $11 billion in acquisitions. So we were securing our cash flow for the first year at a pretty intense rate. We are protected through it. And so we will take advantage of these falling prices.

Jim:      You have taken a lot of action to clear up cash flow, why did you have to do that if you so effectively hedged?

Bob:    We wanted to go ahead and strengthen the balance sheet. Now the hedges we did not really take off, we just took down some of the money. The value of those hedges was approaching $5 billion. And so we decided to take roughly a billion after tax. And if we have a debt repayment play, we thought that investors might enjoy if we expatited that, so we went ahead and did it. At a nominal cost, it cost us about a point.

Jim:      One thing that confuses me, and maybe this is just the commodization of stocks, and not just commodization of commodity. You took a aggressive, evasive action, and you sold through at huge high prices, you cleaned up your balance sheet, but you went down just like every other one, didn’t you?

Bob:    Yeah, we did. But eventually that is what happens. I have been around doing this since the ‘70’s. Eventually everybody gets tossed out, and then they sort through it. And then look at who comes back first.

Jim:      One last question, Bob, you had to do a lot of selling of the stock. Was that just because it was the right time in your life to sell?

Bob:    I had decided to do that in case there was a melt down of the system that I didn’t understand. I wanted a little diversification. I am 60 years old, I am not ancient, but maturing. And I decided that I would take about a quarter of my earnings and diversify.

Jim:      Got it. Bob Simpson, XTO (XTO)’s Energy chairman and founder. Thank you so much. Thanks for coming on the show.

Bob:    Alright, thanks.

 

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Jim's comments AFTER the interview:     Alright guys look… they are cheap… when I speak to my friend, Bert Dohleman, who does chartist work, because you know we are doing all this chart vs. stock… he is very bearish on the group… he had a very good call over there… much higher… still thinks they go lower… I am trying to tell you which ones did it right… Anadarko Petroleum (APC) did it right… I think XTO Energy Inc. (XTO) did it right… I am not pressing this… because I do think they go lower… but now you know that if natural gas comes back… APC and XTO will be two that I will want to pull the trigger on.

[verbatim recap]

[end of segment]


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