A multi-million dollar acquisition last week by Cross TimbersOil Co. of Fort Worth, TX, further grew the company’s presence inthe Arkoma Basin and also put the producer in the 90% natural gascolumn.

Houston-based Ocean Energy Inc. agreed to sell its workinginterest in certain properties in the Arkoma Basin in Arkansas andOklahoma to Cross Timbers for about $235.3 million, which will beused to reduce debt. The transaction is scheduled to close bymid-September.

Including its acquisition of Spring Holding Co. with LehmanBrothers Holdings, which was completed July 2, Cross Timbers willhave about 2,540 gas wells in the Arkoma Basin, said spokesmanPreston Kirk. About 2,140 of the wells are in Arkansas; about 60 to70 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 andSpring Holding properties have a reserve-to-production index of 11years.

Cross Timbers announced the 50% acquisition of Spring, a privateTulsa, OK-based oil and gas producer, for $42.5 million in May. Thedeal included about 1,400 producing wells on 340,000 net acres,primarily in the Arkoma Basin. It currently operates wellsrepresenting 85% of the reserve value and has estimated provedreserves of 264 Bcfe, of which 99% is natural gas. Proved developedreserves account for 82% of total proved reserves. The companyproduced 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 OceanEnergy properties the company is about 90% gas. Around the first ofthe year, Cross Timbers announced a capital and exploration budgetof between $60 and $70 million. That has since been increased to$70 to $90 million.

Louis Baldwin, Cross Timbers chief financial officer, said thecompany does not have a lot of history in the Arkoma Basin, but thebasin’s geologic complexity offers a lot of opportunity to growreserves and production. Cross Timbers doesn’t really do anyexploration, preferring instead to acquire and develop properties.Cross Timbers has sold about $50 million worth of properties so farthis year and expects sales of another $50 to $70 million for theremainder of the year, Baldwin said. The company has sold interestsin Rocky Mountain and San Juan Basin properties where it was notthe operator.

Ocean Energy said it plans to cancel its recently announcedroyalty trust offering as a result of the Arkoma Basin propertysale. A portion of the underlying properties dedicated to theroyalty 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 SECthat the more efficient means of monetization is now an outrightsale,” said James T. Hackett, CEO. “At the time of the merger inlate March, one of our self-imposed goals was to achieve along-term debt to book capitalization ratio of 55% within 18 monthsof closing. With this transaction, we now anticipate achieving thesubstantial portion of this objective by the end of 1999. While wewill remain diligent in terms of our financial prudence goingforward, this transaction also marks the completion of theaggressive asset rationalization program that we have pursued overthe course of the past four months. Consequently, we can nowdedicate our attention to the challenges of the future as we embarkon the growth portion of our strategy.”

Joe Fisher, Houston

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