XTO Plans to Reduce Debt

On Monday, energy stocks got a bit of a boost as speculations over an OPEC production cut sent oil prices a little bit higher, and as bargain hunters began looking for what quality could be had for bargain prices.

What a difference a few days can make.

Today, the stock market is expected to take everyone on one craaaazy ride. Mainly due to panic induced by the imminent nature of a global recession. No one is even thinking about quality right now; it’s all about making a desperate bid for the exits. For the energy sector, another bit of discouraging news has also come: OPEC is planning to cut production *only* by 1.5 million barrels. This amount is smaller than expected, and the announcement served only to fuel the downtrend in oil prices.

XTO decides to reduce debt:

In this climate, it is perhaps not surprising that some companies are starting to shore up their fundamentals. XTO Energy (XTO) has announced that it plans to reduce its debt, and that it is hedging its natural gas production. MarketWatch reports on XTO’s position:

"Given these hedges and the current commodity strip pricing, XTO anticipates record cash flow and production volumes with the financial strength to reduce debt," said Bob R. Simpson, chairman and chief executive officer. "With our focus on delivering performance, particularly in these challenging times, we will continue to look for opportunities to increase our hedge position."

The move is a smart one, and other companies (like Peabody Energy Corp. — BTU) are stepping up stock buyback programs. The idea is to raise capital and make sure that debt is kept to a minimum. In a climate where credit is restricted, and where cash is king, it makes sense to pay off debt and increase capital.

Disclosure: I do not invest in XTO or BTU.

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