XTO ENERGY 2 0 0 8 ANNUAL REPORT GROWING THE LEGACY XTO HEADQUARTERS FORT WORTH CONTINUING OUR PROVEN STRATEGY We have defined our success, going on 24 years, by staying true to a time-tested strategy: Acquire great properties and make them even better. Today the Company holds a vast hydrocarbon resource captured for shareholders. As always, our focused and prudent plan will convert this potential into value. At XTO Energy, our performance today establishes the routine of success for the future. It always has. 2 STOCK UP 3868% SINCE 1993 COMPOUNDED ANNUAL GROWTH OF 29% AND 24% IN RESERVES AND PRODUCTION XTO ENERGY GROWING THE LEGACY AT A GLANCE A legacy investment is inspired by design, built with discipline and confidently guided to perform. It endures the challenges and excels through the cycles. BLOCKBUSTER YEAR OF ACQUISITIONS Strong commodity prices brought unique opportunities to the market early in the year. We purchased $11 billion in properties with long-lived production, quality reserves and superb growth potential. By hedging the 2009 associated commodity prices at $117 oil and $8.79 natural gas, the Company secured healthy economic returns on the acquisitions. RECORD INVENTORY FOR BUILDING THE FUTURE As a top domestic producer, XTO has now established dominant positions in the most prolific hydrocarbon basins across the nation. From conventional to unconventional reservoirs, we own over 14 Tcfe of upside potential to provide years of predictable, visible growth. EXPANDING SUCCESS IN OUR EASTERN REGION Our decade-long drilling program on the tight sands and carbonate formations of East Texas has established a ‘giant field’ discovery of over 10 Tcfe in the Freestone Trend. Building on this success, XTO continues discovering new reserves and unlocking natural gas potential across hundreds of thousands of acres in dozens of fields in the vast basin. With the purchase of Hunt Petroleum during the year, our franchise, in the legacy region, is now richer in value and potential. 2 2008 ANNUAL REPORT LEADING SHALE GAS PRODUCER Predicated on producing results and years of experience, XTO has established premier footholds in America’s best shale plays. With 1.2 million acres to exploit, we control high- impact growth positions in the heart of the Barnett, Fayetteville, Woodford, Marcellus and Haynesville shale plays. BLACK GOLD For XTO, our legacy oil properties have always provided steady production and strong cash margins. These are the essential ingredients for our enduring growth enterprise. With the addition of the Bakken Shale of Montana and North Dakota, we added 10,000 barrels of daily oil production while opening a new frontier of opportunity. EXCEPTIONAL WORK FORCE Starting from scratch in 1986, XTO Energy has evolved into a top performer in the S&P 500 index. Our dedicated and spirited team of more than 3,100 professionals made it happen. From sun-up to late-night, our folks define a unique culture within the industry — humble character, tenacious conviction and know-how. CREATING VALUE As an investment, our directive is to build value for the owners and then realize that value in the share price. It starts with extraordinary assets delivering strong operating margins that compound through accretive growth. Despite the extreme volatility, XTO once again achieved record results in 2008. 3 XTO ENERGY OUR FELLOW SHAREHOLDERS THE PAST YEAR WAS A JOURNEY OF EXTREMES FOR OUR COMPANY. During the first half, global economic growth appeared on track and with it came surging commodity prices. Oil touched a historic $147 per barrel. The energy sector was the darling of the investment community. As a leader, XTO Energy grew through both the drill bit and record property acquisitions. In June, our stock price topped $73, up almost 43% for the year. Then, the world dramatically changed. A financial crisis jolted national economies. The stock markets turned sour, investors fled the market and good fortunes turned bad. At XTO, our actions were quick and decisive. We hedged commodity prices on our production volumes to assure financial performance. With ample cash flow and flexibility, debt reduction became the order of the day. As the year ended, not only had the politics of our nation changed, but the global economy was in recession. Difficulties still lie ahead. Yet, the business of XTO has, once again, delivered exceptional performance even in an extreme environment. In fact, our Company reported record robust operating economics allowed billion in properties. Through numerous operational and financial results for 2008 XTO to continue its pursuit of consistent, transactions, XTO substantially expanded despite the volatile dynamics. Ambitious repeatable value creation even in the holdings, and future growth potential, development work and the extraordinary most challenging times. across multiple growth basins in America. acquisition efforts increased daily The purchase of Hunt Petroleum, an production volumes by 28% from the This success is grounded in more than 80-year-old private company, brought prior year, with natural gas production two decades of building a long-term significant production and drilling growing by 31%. Daily production for the investment through a proven strategy. inventory to our prominent Eastern fourth quarter averaged 2.6 Bcfe. Proved Simply put, we acquire high-quality, long- Region, while adding prolific Haynesville reserves climbed 23% to 13.9 Tcfe, as lived properties and make them better… Shale potential. In the Barnett Shale, we we replaced 401% of production. From recently, much better. In our hands, increased our premier position in the core the financial perspective, the Company purchased proved reserves are expected development corridor with the addition reported record operating cash flow of to triple. The XTO process involves of production and acreage. We also $5.13 billion, up 37% from the 2007 intense science, technical innovation and filled out our programs for the Woodford level of $3.74 billion. Revenues for the operational expertise. The result is the and Fayetteville shale plays by adding year grew by 40% to $7.7 billion. In discovery of new reserves and production. acreage in prime development locations. conjunction, profit margins remained Value is accreted per share. And, the XTO Finally, the Company expanded into strong. Net income was 25% of revenues, stock price has tracked this value creation two new shale regions: the Marcellus even considering significant cost inflation over time, increasing by more than 38 with the purchase of Linn Energy assets in the industry during the year. Operating times since going public in 1993. and the Bakken through the acquisition cash flow was pegged at about two-thirds of properties from Headington Oil. In of revenue which remained consistent With a dedication to this strategy, our aggregate, about 2 Tcfe of reserves were with the average of the past five years. On team is motivated to act when the right booked, but XTO expects another 6 to a unit basis, the cash flow margin hit $6 acquisitions hit the market and 2008 8 Tcfe of potential upsides. Importantly, per Mcfe, again, a record achievement. brought golden opportunities. Through the Company protected the economics All in all, our superb asset base and the course of the year, we purchased $11 of these deals by hedging commodity 4 2008 ANNUAL REPORT Center Bob R. Simpson Chairman and Founder Left Keith A. Hutton Chief Executive Officer Right Vaughn O. Vennerberg, II President XTO ENERGY prices and issuing equity at the time 1 Bcfe, up from 770 MMcfe today. In The XTO directive for our shareholders of the acquisitions. For a period of 28 2009, drilling will accelerate in both is to provide a plan of stability and months, XTO will record an equivalent the Woodford and Fayetteville shales, flexibility as we engage 2009. Once NYMEX price of about $11 per Mcfe establishing long-term growth platforms. again, record performance is expected for the acquired production. As a result, Combined daily production from these based on our hedged commodity prices, one-third of the estimated purchase two Mid-Continent areas is targeted production growth and falling costs. For price should be recouped by the end at 1 Bcfe over the next four years with 2009, 80% of our production volumes are of 2010. With all of these high-impact the infrastructure already dedicated to secured at an equivalent price of $10.69 acquisitions, XTO has defined its course transport the volumes. Looking beyond, per Mcfe. From an operations perspective, for future value growth. the Company anticipates more natural production is targeted to increase by 14%. gas growth from the Marcellus and To fortify our investment grade strength, The confidence in our long-term plan Haynesville shale plays. Finally, the we have already applied $1.7 billion for comes from experience, expertise and an Bakken Shale of Montana and North immediate debt reduction. Our powerful understanding of the serious potential Dakota offers XTO the ability to steadily strategy, to acquire great properties, hedge that we have captured within our legacy increase oil production. Our high margin prices and grow production, allows XTO properties. The Company’s ownership production from the Permian Basin, the to excel even in the most challenging in the critical shale plays now tallies San Juan Basin, the Rockies and South times like these. 1.7 million acres which were hand- Texas regions are the “cash cows” which picked in the best locations. Beyond subsidize the abundant growth programs. We thank the extraordinary XTO team our proved reserves, our technical teams and our Board of Directors for their estimate more than 14 Tcfe of unbooked For now, the uncertain times demand dedication, commitment and hard work. development inventory, which equates to discipline and patience. The economic To our shareholders, we appreciate your more than 5 years of scheduled activities.