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Cross Timbers Picks Up East Texas Properties

Cross Timbers Picks Up East Texas Properties

Independent Cross Timbers Oil Co. is punching up its exploration and production plans in East Texas, announcing an agreement to purchase some of Herd Producing Co.'s gas producing properties in East Texas and Louisiana for $115 million. The deal includes 500 potential drilling locations, with average gross reserve targets of 3.5 (2.4 net) Bcf, holding a total resource potential of more than 1.2 Tcf.

The acquisition would more than double the Fort Worth-based company's inventory of development areas in its East Texas Freestone Trend, which includes the Travis Peak, Cotton Valley Sand, Bossier Sand and Cotton Valley Lime formations.

"These properties directly offset our existing properties and bridge the gap between our Bald Prairie and Freestone fields," said Steffen E. Palko, president. "Including these properties, we now have more than 500 potential locations in the East Texas Freestone Trend. We expect to drill 220 of these wells during the next two years with the balance available for future growth."

CEO Bob R. Simpson said the extensive prospects in East Texas would help Cross Timbers to become the "premier growth company in the domestic natural gas business."

Closing is set for early 2001. Funding initially will be made through existing bank lines of credit, which are expected to be repaid from cash flow in the first six months of 2001. In November, Cross Timbers sold six million shares of its common stock through Lehman Brothers Inc., which it said it was using to reduce outstanding debt by $115 million, the price of the Herd properties. With the stock sale, the company had expected to reduce debt at the end of this year to between $755 million and $765 million.

Because of the "multitude of development opportunities" in East Texas and other existing projects, Cross Timbers has targeted a 20% growth in total gas production next year, and has increased its 2001 capital budget by $50 million to a total of $250 million. Cross Timbers said that daily gas production next year should increase to 535 MMcf, a 60% increase above daily production rates in 2000.

Banc of America Securities analyst Mark Fischer, who covers Cross Timbers, expects the company to generate $380 million in cash flow in 2001. He raised his price target to $30 a share from $29, and has maintained his recommendation of a "strong buy" for the company.

Less than a month ago, Cross Timbers' board approved a $200 million exploration and development budget for the coming year, and said it expected most of the increase to go toward gas production, then estimated to be 15% higher than this year.

Carolyn Davis, Houston

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