Independent Fort Worth-based Cross Timbers Oil Inc.’s boardapproved a $200 million exploration and development budget for thecoming year, and said it expects most of the increase to go towardgas production, estimated to be 15% higher than this year.Including natural gas liquids and oil the company expects itsyear-over-year Mcfe growth rate to be 10% to 12%.

“The theme for this year has been to get shareholders paid,”said CEO Bob Simpson. “With the stock price up about 200% sinceMarch, we’ve made good progress.” But, he said, the boardconsidered the company to still be “substantially undervalued.”

About $10 million of the new budget will be spent on explorationalone, and with the rest, Cross Timbers plans to drill about 245wells. It also plans to perform about 380 workovers andrecompletions to meet its growth target. Nearly 50% of the budgetwill be spent on East Texas property, with the rest divided in theArkoma Basin, San Juan Basin, Alaska, Permian Basin and the HugotonRoyalty Trust properties.

“With our large inventory of development projects, we have thepotential to continue this double-digit growth for several yearsthrough internally generated projects,” said Steffen Palko,president. “Given current commodity markets, we can fund the 2001capital budget with about one-half of cash flow and target a 15%growth rate for gas production.”

Simpson said that Cross Timbers had achieved “necessary criticalmass” with more than 2 Tcfe of proven reserves, and as thecompany’s growth rate continues, the “stock price should continueto improve.” The company’s stock price has gone from a low of $5 inthe first quarter to $23 and change last Wednesday. He also expectsCross Timbers to “join the elite group of E&P companies withpremium valuations” as growth continues.

CrossTimbers’ growth rate in gas production is expected to bedriven by an “intensive development program” in East Texas. Naturalgas production is expected to grow from between 360 MMcf/d and 365MMcf/d in the first quarter of 2001 to between 415 MMcf/d to 420MMcf/d in the fourth quarter, averaging between 385 MMcf/d and 390MMcf/d for the year.

Natural gas liquids production is expected to be “relativelyflat during 2001,” with daily rates between 4,000 and 4,500 bbls.Oil production is expected to grow from between 12,500 and 13,000bbls/d in the first quarter of 2001 to between 13,000 and 13,500bbls/d in the fourth quarter.

For the coming year, Cross Timbers realized natural gas pricesare expected to be twenty to thirty cents below the Nymex Henry Hubindex, and the natural gas liquids prices are expected to be about65% of the average Nymex crude oil price.

Last Wednesday, Standard & Poors raised its ratings on CrossTimbers, and said the outlook was “stable.” The S&P said theupgrade reflected the company’s “moderating financial policies,”demonstrated by the company’s sale in mid-November of $115 millionof new common equity. Cross Timbers plans to use the proceeds fordebt reduction.

The ratings reflect “the company’s long-lived, relativelylow-cost, natural-oriented base, offset by aggressive but improvingdebt leverage and financial policies,” said the S&P, whichpointed to the company’s “long proved developed reserve life (about11 years) and a large inventory of low-risk drilling and workoveropportunities (about six years) from recent acquisitions.”

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