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Cross Timbers Still Growing Arkoma Presence

Cross Timbers Still Growing Arkoma Presence

Cross Timbers Oil Co. of Fort Worth, TX, continues to grow its presence in the Arkoma Basin with an acquisition from Houston-based Ocean Energy Inc. Ocean Energy agreed to sell its working interest in certain properties in the Arkoma Basin in Arkansas and Oklahoma to Cross Timbers for about $235.3 million, which will be used to reduce debt. The transaction, which is subject to customary closing conditions, is scheduled to close by mid-September.

Including its acquisition of Spring Holding Co. with Lehman Brothers Holdings, which was completed July 2, Cross Timbers will have about 2,540 gas wells in the Arkoma Basin, said spokesman Preston Kirk. About 2,140 of the wells are in Arkansas; about 60 to 70 are in the Texas Panhandle, and the balance are in Oklahoma, Kirk said. The properties offer about 1,000 drilling opportunities, which is a three- to four-year inventory. Both the Ocean Energy and Spring Holding properties have a reserve-to-production index of 11 years.

Cross Timbers announced the 50% acquisition of Spring Holding Co., a private Tulsa, OK-based oil and gas producer, for $42.5 million in May (See Daily GPI May 19, 1999). The deal included about 1,400 producing wells on 340,000 net acres, primarily in the Arkoma Basin. It currently operates wells representing 85% of the reserve value and has estimated proved reserves of 264 Bcfe, of which 99% is natural gas. Proved developed reserves account for 82% of total proved reserves. The company produced 66 MMcf/d in the first quarter of 1999.

Before the Spring Holding deal, Cross Timbers was about 70% gas. That increased to 80% after the Spring deal. Now with the Ocean Energy properties the company is about 90% gas. Around the first of the year, Cross Timbers announced a capital and exploration budget of between $60 and $70 million. That has since been increased to $70 to $90 million.

Ocean Energy plans to cancel its recently announced royalty trust offering. A portion of the underlying properties dedicated to the royalty trust consists of the Arkoma properties for sale.

"Given our previous intentions in regards to the Royalty Trust, we had identified these assets for monetization several months ago. However, it has become clear since we made our filing with the SEC that the more efficient means of monetization is now an outright sale," said James T. Hackett, CEO. "At the time of the merger in late March, one of our self-imposed goals was to achieve a long-term debt to book capitalization ratio of 55% within 18 months of closing. With this transaction, we now anticipate achieving the substantial portion of this objective by the end of 1999. While we will remain diligent in terms of our financial prudence going forward, this transaction also marks the completion of the aggressive asset rationalization program that we have pursued over the course of the past four months. Consequently, we can now dedicate our attention to the challenges of the future as we embark on the growth portion of our strategy."

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