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
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.