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Cross Timbers Shakes Up Portfolio

September 20, 1999
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Cross Timbers Shakes Up Portfolio

Cross Timbers Oil Co. executed a series of acquisitions, sales and closings last week in an attempt to tidy its portfolio and reduce debt. Through all the activity, the Texas-based producer gained full control of Oklahoma City-based Spring Holdings Co. and closed a previously announced $231 million deal with Ocean Energy. Cross Timbers said the net result of all this activity was an increased reserve base, without deviation from its debt reduction plan.

Louis Baldwin, the company's CFO, said Cross Timbers is successfully working towards meeting its debt reduction goals. "With the sales and added production, our debt per Mcfe is around the 50- to 55-cent level. Our goal is 40 cents/Mcfe and I think we'll accomplish that."

The flurry started early last week, when Cross Timbers announced it had reached agreements to sell $63.5 million of non-core assets in various Rocky Mountain and Midwest areas. The company then used the proceeds from the sale to buy Lehman Brothers Holding's 50% in Spring Holdings Co. The rest of the proceeds from the sale were used to pay down debt.

The sale occurred in two parts. In the first segment, Cross Timbers sold a total of $41 million of primarily non-operated properties in Oklahoma, the Permian Basin, the San Juan Basin and the Green River Basin. The sale occurred in two transactions and the buyers identities were not disclosed. In the second segment of the sale, Spring Resources Inc., a subsidiary of Fort Worth, TX-based Cross Timbers, sold $22.5 million of properties in the Panhandle area of Texas and in Coal County, OK.

Proved reserves attributable to the properties sold are 70 Bcf and 2.6 million barrels of oil and natural gas liquids. The current production from the properties equals 18 MMcf/d and 800 b/d of oil and natural gas liquids. Cash flow during the first half of 1999 was approximately $4.2 million. The company's well count will be reduced by approximately 2,800 wells, or 30%, through the sale of these properties, while decreasing reserves by less than 5%.

"These divestitures mark the completion of a program to comprehensively review the company's properties and to select those appropriate for sale," said Bob R. Simpson, CEO of Cross Timbers. "While the large number of wells sold increases the company's efficiency, the relatively small proportion of reserves sold highlights the quality and concentration of the company's remaining reserves in our seven core areas."

By purchasing the other 50% of Spring Holdings, Cross Timbers finished a process started last May, when it made the initial investment in the company. Cross Timbers acquired Lehman Brothers Holdings' 50% interest for approximately $44 million. Spring Holdings owns interests in about 1,400 producing wells on 340,000 net acres located primarily in the Arkoma Basin of Arkansas and Oklahoma. 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.

With the Ocean Energy property acquisition, which was first announced in August, Baldwin said the Arkoma Basin now houses 24% of the company's production, more than any other area. The purchase is effective as of July 1. The acquisition increases the company's reserves by 220 Bcfe, of which 99% is gas. Proved developed reserves account for 82% of total proved reserves. Current production levels from the 1,140 wells is 55 MMcf/d. The wells have a reserve-to-production index of 11 years. Operated properties represent about 88% of the value. Direct operating expenses, before severance and property taxes, are estimated by Cross Timbers to be 21 cents/ Mcfe.

John Norris

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ISSN © 2577-9877 | ISSN © 1532-1266
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