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Cross Timbers Enlarging Interests in Arkoma

Cross Timbers Enlarging Interests in Arkoma

A multi-million dollar acquisition last week by Cross Timbers Oil Co. of Fort Worth, TX, further grew the company's presence in the Arkoma Basin and also put the producer in the 90% natural gas column.

Houston-based Ocean Energy Inc. 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 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, a private Tulsa, OK-based oil and gas producer, for $42.5 million in May. 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.

Louis Baldwin, Cross Timbers chief financial officer, said the company does not have a lot of history in the Arkoma Basin, but the basin's geologic complexity offers a lot of opportunity to grow reserves and production. Cross Timbers doesn't really do any exploration, preferring instead to acquire and develop properties. Cross Timbers has sold about $50 million worth of properties so far this year and expects sales of another $50 to $70 million for the remainder of the year, Baldwin said. The company has sold interests in Rocky Mountain and San Juan Basin properties where it was not the operator.

Ocean Energy said it plans to cancel its recently announced royalty trust offering as a result of the Arkoma Basin property sale. A portion of the underlying properties dedicated to the royalty trust consists of the Arkoma properties.

"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."

Joe Fisher, Houston

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