Independent Cross Timbers Oil Co. is punching up its explorationand production plans in East Texas, announcing an agreement topurchase some of Herd Producing Co.’s gas producing properties inEast Texas and Louisiana for $115 million. The deal includes 500potential drilling locations, with average gross reserve targets of3.5 (2.4 net) Bcf, holding a total resource potential of more than1.2 Tcf.

The acquisition would more than double the Fort Worth-basedcompany’s inventory of development areas in its East TexasFreestone Trend, which includes the Travis Peak, Cotton ValleySand, Bossier Sand and Cotton Valley Lime formations.

“These properties directly offset our existing properties andbridge the gap between our Bald Prairie and Freestone fields,” saidSteffen E. Palko, president. “Including these properties, we nowhave more than 500 potential locations in the East Texas FreestoneTrend. We expect to drill 220 of these wells during the next twoyears with the balance available for future growth.”

CEO Bob R. Simpson said the extensive prospects in East Texaswould help Cross Timbers to become the “premier growth company inthe domestic natural gas business.”

Closing is set for early 2001. Funding initially will be madethrough existing bank lines of credit, which are expected to berepaid from cash flow in the first six months of 2001. In November,Cross Timbers sold six million shares of its common stock throughLehman Brothers Inc., which it said it was using to reduceoutstanding debt by $115 million, the price of the Herd properties.With the stock sale, the company had expected to reduce debt at theend of this year to between $755 million and $765 million.

Because of the “multitude of development opportunities” in EastTexas and other existing projects, Cross Timbers has targeted a 20%growth in total gas production next year, and has increased its2001 capital budget by $50 million to a total of $250 million.Cross Timbers said that daily gas production next year shouldincrease to 535 MMcf, a 60% increase above daily production ratesin 2000.

Banc of America Securities analyst Mark Fischer, who coversCross Timbers, expects the company to generate $380 million in cashflow in 2001. He raised his price target to $30 a share from $29,and has maintained his recommendation of a “strong buy” for thecompany.

Less than a month ago, Cross Timbers’ board approved a $200million exploration and development budget for the coming year, andsaid it expected most of the increase to go toward gas production,then estimated to be 15% higher than this year.

Carolyn Davis, Houston

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