Cross Timbers Oil Co. executed a series of acquisitions, salesand closings last week in an attempt to tidy its portfolio andreduce debt. Through all the activity, the Texas-based producergained full control of Oklahoma City-based Spring Holdings Co. andclosed a previously announced $231 million deal with Ocean Energy.Cross Timbers said the net result of all this activity was anincreased reserve base, without deviation from its debt reductionplan.
Louis Baldwin, the company’s CFO, said Cross Timbers issuccessfully working towards meeting its debt reduction goals.”With the sales and added production, our debt per Mcfe is aroundthe 50- to 55-cent level. Our goal is 40 cents/Mcfe and I thinkwe’ll accomplish that.”
The flurry started early last week, when Cross Timbers announcedit had reached agreements to sell $63.5 million of non-core assetsin various Rocky Mountain and Midwest areas. The company then usedthe proceeds from the sale to buy Lehman Brothers Holding’s 50% inSpring Holdings Co. The rest of the proceeds from the sale wereused to pay down debt.
The sale occurred in two parts. In the first segment, CrossTimbers sold a total of $41 million of primarily non-operatedproperties in Oklahoma, the Permian Basin, the San Juan Basin andthe Green River Basin. The sale occurred in two transactions andthe buyers identities were not disclosed. In the second segment ofthe sale, Spring Resources Inc., a subsidiary of Fort Worth,TX-based Cross Timbers, sold $22.5 million of properties in thePanhandle area of Texas and in Coal County, OK.
Proved reserves attributable to the properties sold are 70 Bcfand 2.6 million barrels of oil and natural gas liquids. The currentproduction from the properties equals 18 MMcf/d and 800 b/d of oiland natural gas liquids. Cash flow during the first half of 1999was approximately $4.2 million. The company’s well count will bereduced by approximately 2,800 wells, or 30%, through the sale ofthese properties, while decreasing reserves by less than 5%.
“These divestitures mark the completion of a program tocomprehensively review the company’s properties and to select thoseappropriate for sale,” said Bob R. Simpson, CEO of Cross Timbers.”While the large number of wells sold increases the company’sefficiency, the relatively small proportion of reserves soldhighlights the quality and concentration of the company’s remainingreserves in our seven core areas.”
By purchasing the other 50% of Spring Holdings, Cross Timbersfinished a process started last May, when it made the initialinvestment in the company. Cross Timbers acquired Lehman BrothersHoldings’ 50% interest for approximately $44 million. SpringHoldings owns interests in about 1,400 producing wells on 340,000net acres located primarily in the Arkoma Basin of Arkansas andOklahoma. It currently operates wells representing 85% of thereserve value and has estimated proved reserves of 264 Bcfe, ofwhich 99% is natural gas. Proved developed reserves account for 82%of total proved reserves. The company produced 66 MMcf/d in thefirst quarter of 1999.
With the Ocean Energy property acquisition, which was firstannounced in August, Baldwin said the Arkoma Basin now houses 24%of the company’s production, more than any other area. The purchaseis effective as of July 1. The acquisition increases the company’sreserves by 220 Bcfe, of which 99% is gas. Proved developedreserves account for 82% of total proved reserves. Currentproduction levels from the 1,140 wells is 55 MMcf/d. The wells havea reserve-to-production index of 11 years. Operated propertiesrepresent about 88% of the value. Direct operating expenses, beforeseverance and property taxes, are estimated by Cross Timbers to be21 cents/ Mcfe.
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