1999 Annual Report
The people of Cross Timbers Oil Company live and work in the vast
expanse of America. From the icy wate...
Cr oss Tim b er s O il C om pan y
                                      FINANCIAL                                         ...
Cr oss Tim b er s O il C om pan y
                          TO         OUR              SHAREHOLDERS
     “The pendulum sw...
Cr oss Tim b er s O il C om pan y
PROPERTY SALES                                                    tion at a cost of only...
Cr oss Tim b er s O il C om pan y
FINANCIAL RESULTS                                                 OUTLOOK
     For 1999,...
At the turn of the 1800s, the rich natural resources of
                                                        the Alaska...
Cr oss Tim b er s O il C om pan y
                                 OPERATIONS                                       REVIEW...
On thousands of uninhabited acres rising above the
                             valleys, an old way of life continues to e...
Cr oss Tim b er s O il C om pan y
   The first acquisition was completed in June 1999,                  DEVELOPMENT
when t...
Although the West Texas territory was wrought with
                                                                dust st...
Cr oss Tim b er s O il C om pan y
                                                                  East Texas Basin
The farthest extent of the Red River brought paddleboats
     into the woods of eastern Texas in the mid-1800s. With
Cr oss Tim b er s O il C om pan y
motion a program to increase production by adding pay                 The Company holds ...
In the mid-1800s, adventurous cowboys rode hundreds
                                                                of mil...
Cr oss Tim b er s O il C om pan y
San Juan Basin                                                       The Paradox Formati...
In past times, the mesa landscape was home to only cac-
       tus, creatures and a few brave souls. Now communities
Cr oss Tim b er s O il C om pan y
   Two successful wells were drilled in the State Line area           Our development pr...
The endless flatlands of Kansas provide the source for
                                                            the reg...
Cr oss Tim b er s O il C om pan y
   This area is ripe for exploration opportunities. During                              ...
Cr oss Tim b er s O il C om pan y
between 7,300 and 10,000 feet. Production is currently                 1999 program was ...
Cr oss Tim b er s O il C om pan y
    Since acquiring the unit in 1994, the Company has                   Oil prices, at a...
xto energy annual reports 1999
Upcoming SlideShare
Loading in …5

xto energy annual reports 1999


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

xto energy annual reports 1999

  1. 1. 1999 Annual Report
  2. 2. s ABOUT THE REPORT The people of Cross Timbers Oil Company live and work in the vast expanse of America. From the icy waters of Alaska’s Cook Inlet to the piney woods of East Texas, our folks are part and parcel of the daily routines of life in these communities. We drive the country roads. We watch local football. We do business at the corner stores. Yet, with the hectic pace of life, we rarely have a minute to pause and look around at our world. In so doing, the seemingly ordinary might reveal itself as something extraordinary. Our goal was to take that “pause” for you in photographs. We hoped to capture those little slices of life which reveal the underly- ing essence of our neighborhoods. What we expose is a compelling collection of diverse landscapes, interesting cultures and colorful characters who live and work alongside us. s ON THE COVER Atop White Rock Mountain in the Ozark National Forest, an adventurer surveys the rolling terrain of Arkansas. At the close of 1999, we reflect on the year’s many challenges, relish the substance of our accomplishments and stand ready to enter another world of opportunity – the gas-rich Arkoma Basin. Like the bold explorer with a vision, we have staked our claim to more than 600,000 acres. With excitement, anticipation and sea- soned confidence, we prepare for the intensity of work and fresh challenges ahead. s COMPANY PROFILE Cross Timbers Oil Company, established in 1986, is engaged in the acquisition and development of quality, long-lived producing oil and gas properties and exploration for oil and gas. Since going public in 1993, proved oil and gas reserves have grown at an annual compound rate of 38% to more than two trillion cubic feet of gas equivalent. Cross Timbers operates more than 85% of its properties, which are concentrated in Texas, Arkansas, Oklahoma, Kansas, New Mexico, Wyoming, and Alaska. The Company completed its initial public offering in May 1993 and is listed on the New York Stock Exchange under the symbol “XTO.” It also created the Cross Timbers Royalty Trust (“CRT” traded on the NYSE) and the Hugoton Royalty Trust (“HGT” traded on the NYSE) which went public in 1992 and 1999, respectively.
  3. 3. Cr oss Tim b er s O il C om pan y FINANCIAL HIGHLIGHTS 1999 1998 1997 In thousands except production, per share and per unit data Financial Total revenues $ 341,295 $ 249,486 $ 198,272 Income (loss) before income tax and minority interest $ 70,605(a) $ (105,570)(b) $ 39,201 Earnings (loss) available to common stock $ 44,964(a) $ (71,498)(b) $ 23,905 Per common share (c) Basic $ 0.96 $ (1.65) $ 0.60 Diluted $ 0.95 $ (1.65) $ 0.59 Operating cash flow (d) $ 132,683 $ 78,480 $ 89,979 Operating cash flow per share (c) $ 2.83 $ 1.81 $ 2.26 Total assets $ 1,477,081 $ 1,207,005(e) $ 788,455 Long-term debt Senior $ 684,100 $ 615,000 $ 239,000 Subordinated notes and other $ 307,000 $ 305,411(e) $ 300,000 Total stockholders’ equity $ 277,817 $ 201,474(e) $ 170,243 Common shares outstanding at year-end (c) 48,890 44,727 39,450 Production Daily production Oil (Bbls) 14,006 12,598 10,905 Gas (Mcf) 288,000 229,717 135,855 Natural gas liquids (Bbls) 3,631 3,347 220 Mcfe 393,826 325,390 202,609 Average price Oil (per Bbl) $ 16.94 $ 12.21 $ 18.90 Gas (per Mcf) $ 2.13 $ 2.07 $ 2.20 Natural gas liquids (per Bbl) $ 11.80 $ 00007.62 $ 9.66 Proved Reserves Oil (Bbls) 61,603 54,510 47,854 Gas (Mcf) 1,545,623 1,209,224 815,775 Natural gas liquids (Bbls) 17,902 17,174 13,810 Mcfe 2,022,653 1,639,331 1,185,759 (a) Includes effect of a $40.6 million pre-tax gain on sale of Hugoton Royalty Trust units. (b) Includes effect of a $93.7 million pre-tax net loss on investment in equity securities and a $2 million pre-tax, non-cash impairment charge. (c) Adjusted for the three-for-two stock splits effected on March 19, 1997 and February 25, 1998. (d) Cash provided by operating activities before changes in operating assets and liabilities and exploration expense. (e) As restated. See Note 16 to Consolidated Financial Statements. Operating Cash Flow Daily Production Proved Reserves Total Revenues Glossary (in millions) (in MMcfe) (in Bcfe) (in millions) $150 $350 400 2,500 Bbls Barrels (of oil or NGLs) Bcf Billion cubic feet (of gas) 350 $300 Bcfe Billion cubic feet equivalent $120 2,000 BOE Barrels of oil equivalent 300 BOPD Barrels of oil per day $250 E&P Exploration & production 250 Mcf Thousand cubic feet (of gas) 1,500 $90 $200 Mcfe Thousand cubic feet equivalent 200 MMcf Million cubic feet (of gas) $150 MMcfe Million cubic feet equivalent $60 1,000 150 NGLs Natural gas liquids Tcf Trillion cubic feet (of gas) $100 100 Tcfe Trillion cubic feet equivalent $30 500 $50 One barrel of oil is the energy equivalent 50 of six Mcf of natural gas. 0 0 0 0 1
  4. 4. Cr oss Tim b er s O il C om pan y TO OUR SHAREHOLDERS “The pendulum swings...” and it swung decisively to share and have debt of $.40 to $.45 per Mcfe by year-end the upside in 1999, for both the industry and Cross 2000. Obviously, the amount of cash flow is dependent on Timbers. Despite three mild winters in a row, both oil and commodity prices, but we expect to internally generate gas prices approached new highs in the first quarter of between $320 million and $340 million, including asset 2000. During this time, Cross Timbers progressed notably, sales. About $100 million to $120 million will be used to positioning itself among the top U.S. independents. Our fund the development program, while $111 million was achievements during 1999 were impressive: used on March 31 to purchase the minority interest in Arkoma Basin properties held by Lehman Brothers Proved oil and gas reserves at year-end 1999 were Holdings, Inc. The remaining $100 million to $130 2.02 Tcfe, up 23% from the 1.64 Tcfe at year-end million will be used to reduce existing debt and to 1998. This translates to 41 Mcfe per share. repurchase our common stock. Record production, attributable to our successful development drilling and property acquisitions, ACQUISITIONS jumped 21% to 144 Bcfe. Much of our production growth in recent years has been fueled by the steady accumulation of high-quality properties, Acquisition of nearly 500 Bcfe in the highly regarded Arkoma Basin established a new core and 1999 was no exception. In two transactions, we operations area for the Company. acquired 455 Bcfe of proved reserves, net of sales, in the highly promising Arkoma Basin of Arkansas and Oklahoma, Cash flow from operations reached an annualized as well as a gas gathering and marketing company, compres- rate of $203 million, or $4.15 per share, during the fourth quarter. sion and gathering assets and undeveloped acreage. The Arkoma properties are 99% gas, creating a new core area Unit cash margin averaged a strong $1.03 per Mcfe for Cross Timbers and adding about 120 MMcf in daily during 1999 and an impressive $1.42 per Mcfe in gas production. the fourth quarter, both multiples of our five-year average drill bit replacement cost of $.40. The Arkoma Basin is generating considerable excite- ment among our experienced staff of engineers and Debt per Mcfe was reduced to $.49 from $.56 geologists. Early studies of the multiple sandstone plays and in 1998. producing horizons indicate this area will yield a multi-year The Company added 852 Bcfe (before reserve sales) project inventory and may well exceed our usual 50% at a cost of $.70 per Mcfe. improvement on reserves acquired. We have already identi- fied 180 well locations and 200 workover opportunities, With a 15% production growth for 2000 already which include 50 compression projects, 70 pumping units “built-in” through our Arkoma Basin acquisitions, our pri- and 80 recompletions. mary focus shifts to efficiently developing the vast potential The Arkoma acquisitions, valued at $466 million, were of the quality properties we’ve acquired over the past two achieved with Lehman as a financial partner. Cross Timbers years. Our acquisitions in East Texas, the San Juan Basin purchased Lehman’s interest in the first acquisition in and the Arkoma Basin have nearly tripled production and September 1999 and the second interest on March 31 reserves as well as related development opportunities. of this year. Our stated goals for 2000 are to generate $4.00 per share in cash flow, have proved reserves of 40 Mcfe per 2
  5. 5. Cr oss Tim b er s O il C om pan y PROPERTY SALES tion at a cost of only $.28 per Mcfe. These results are directly attributable to our well-established formula for In 1999, Cross Timbers conducted a comprehensive success: purchase quality, established reserves with the right review of its producing property portfolio. As a result, we characteristics for further development, perform detailed sold $258 million of producing properties in several trans- studies and apply the latest engineering, geologic and actions. Proceeds from these sales were used for debt reduc- geophysical technology to increase production, reserves and tion and to partially fund the acquisition of gas-producing cash flow. properties in the Arkoma Basin. Hugoton Royalty Trust. In May, Cross Timbers com- Our 1999 activities focused on our East Texas and San Juan properties. In both of these areas, field studies indi- pleted the Hugoton Royalty Trust offering. By selling an cate that reserve additions could exceed 100% of acquired interest in properties that our development efforts have reserves in the next couple of years. already increased in value, we were able to “monetize” our Since acquisition of our East Texas properties in 1998, success and to fund acquisition opportunities with even we have drilled 41 wells and completed 153 workovers in greater upside potential. To form the trust, we conveyed an the area. As a result, in the past 18 months we have 80% net profits interest in our properties in the Hugoton increased reserves by 88% and daily production by 38%. area of Oklahoma and Kansas, the Anadarko Basin in Our remaining exploitation inventory consists of 150 Oklahoma and the Green River Basin in Wyoming. We development wells and 300 recompletions. sold 17,004,000 of 40,000,000 total units in a public offer- Development emphasized the Travis Peak and Cotton ing at $9.50 per unit. This sale generated net proceeds of Valley formations underlying the Willow Springs and $149 million. Importantly, we still effectively own 66% of Freestone fields. Additionally, in the Freestone Field we are the original property base subsequent to the offering. Other Property Sales. Other property sales during involved in an active Bossier Sandstone development play. In both fields we have utilized innovative completion and 1999 generated $109 million in proceeds. These sales low-cost fracture techniques that allow recompletion of pay occurred in multiple transactions and focused primarily on intervals beneath existing producing intervals – a signifi- non-operated producing properties in Texas, New Mexico, cant technical achievement. By using these new techniques, Oklahoma and Wyoming. Through this process, we were completing all producing horizons and commingling able to reduce the Company’s well count by 30%, while production, we are adding still more upside to these high- reducing the reserves by only 7%. The large number of quality properties. wells sold increased our efficiency, while the relatively small In the San Juan Basin, we have drilled 31 wells and proportion of reserves sold is testimony to the quality and completed 220 workovers since acquisition. As a result, we concentration of our remaining reserves. have increased daily operated production by 46% and On March 31, 2000, Cross Timbers sold properties reserves by 62% and still have 200 well locations and 250 located primarily in southeast New Mexico and West Texas workovers remaining in our development inventory. for $68.3 million. Daily production from the combined In 1999, we increased daily operated production in the sales totals 13.1 MMcf and 560 barrels of oil. The proceeds San Juan Basin by 27% – topping the 15% increase in were used to partially fund the purchase of Lehman’s 1998 – by drilling 18 wells and successfully developing minority interest in the Arkoma properties. deeper Dakota, Burro Canyon, Paradox and Morrison forma- DEVELOPMENT tions. We completed 130 workovers and revamped field compression by installing 74 wellhead compressors. We We executed the most aggressive development pro- will continue to install wellhead compression to further gram in our history in 1999. Cross Timbers delivered on reduce line pressure. In 2000, we plan to drill 42 wells and 516 projects, including drilling 116 wells (101 gas, 15 oil), complete 100 workovers in the San Juan Basin. completing 400 workovers and replacing 237% of produc- 3
  6. 6. Cr oss Tim b er s O il C om pan y FINANCIAL RESULTS OUTLOOK For 1999, the Company reported earnings to common The historical link between oil and gas prices and E&P shareholders of $45 million, or $.96 per share, compared equity price performance was shattered this past year. with a loss of $71.5 million or $1.65 per share in 1998. While operations of a majority of independent producers Earnings for 1999 included a $26.8 million after-tax gain are once again prospering, E&P share prices are just now from the sale of the Hugoton Royalty Trust units, a $4.2 beginning to recover. million after-tax gain on the sale of properties, and an Despite the market’s current tendency to discount $800,000 after-tax loss on investment in equity securities. industry improvements, we are committed to achieving a The 1998 loss includes a $61.9 million after-tax loss related stock price that better recognizes our underlying value. to the Company’s investment in equity securities, as well as More than 80% of our reserves and daily production are an after-tax impairment write-off of producing properties of related to natural gas. With the 12-month natural gas $1.3 million. Excluding gains and losses from investments price strip around $3.00 per Mcf even as we near the end of and from sales of trust units and other property, earnings another mild winter, North American natural gas funda- for 1999 were $14.8 million or $.32 per share. Excluding mentals appear bullish for 2000 and beyond. As a result, losses from investments and impairment write-off, the we should generate at least $80 million to $100 million in Company would have reported a loss of $8.3 million or cash flow above the capital requirements of our develop- $.19 per share in 1998. ment program. This will position us to meet our debt per Total revenues for 1999 were $341.3 million, a 37% Mcfe goals and to continue to do what we do best – buy increase from revenues of $249.5 million for 1998. Cash high-quality oil and gas properties and improve them by flow from operations before changes in operating assets and more than 50%. liabilities and exploration expense for the year was $132.7 We can’t predict or control the “swing of the million, or $2.83 per share, compared to $78.5 million or pendulum.” We can, however, concentrate on the funda- $1.81 per share for 1998. mentals of being a low-cost finder and producer of energy, especially gas. We also can emphasize shareholder value, SHARE REPURCHASE PROGRAM and with our strategic steps this year, expect that solid In February of 2000, the Board of Directors authorized value will be recognized in the marketplace. the repurchase of up to 2.5 million shares of the Company’s We hope you share the excitement of our bright common stock, or about 5% of the 48.9 million shares out- prospects for 2000 and beyond. As always, we appreciate standing at year-end. The shares will be bought from time your continued support. to time in open-market or negotiated transactions. The Board’s action recognized the extraordinary value represented by the current price of Cross Timbers stock, which is trading at a substantial discount from our historic multiples of four to seven times cash flow and well below Bob R. Simpson our underlying value. The buy-back plan continues Chairman and Chief Executive Officer management’s long-standing strategy of opportunistically repurchasing its common stock to create additional value per share. Steffen E. Palko Vice Chairman and President March 31, 2000 4
  7. 7. 5
  8. 8. At the turn of the 1800s, the rich natural resources of the Alaskan frontier brought Russian fur traders across the Bering Strait. With their families and their religion, these bold pioneers carved a life out of the wild Kenai Peninsula. They hunted the woods and fished the cold This Russian Orthodox Church, a gentle reminder of a past culture, waters. They trapped and traded anchors the center of old Kenai. pelts. They dreamed of fortunes. Two centuries later, pioneers still make the journey to this northern frontier. They come with their families and culture. Only now, the “hunt” is for the natural resources lying deep below the surface – great reservoirs of hydrocarbons. 6
  9. 9. Cr oss Tim b er s O il C om pan y OPERATIONS REVIEW Since the Company’s founding in 1986 and initial Our efforts in 1999 yielded another successful chapter public offering in 1993, the domestic energy industry has in the story of Cross Timbers’ focused and disciplined experienced – alternately enduring and enjoying – wide strategy. swings in commodity prices. Through it all, Cross ACQUISITIONS Timbers has pressed forward to emerge as a leader in the exploration and production sector. One of the reasons is a The Company has steadfast commitment to a proven operational strategy: purchased about $1 billion of strategic, gas- Employ talented professionals, both in the office producing properties and in the field; since December 1997, Make quality acquisitions of long-lived reserves; including $466 million in Arkoma Basin properties this past year. It now has a presence in every premier onshore Reduce field operating costs while increasing gas-producing basin in the United States. Cross Timbers’ production volumes; challenge now is to efficiently develop this extensive Focus development spending on the most favorably inventory and to achieve or beat the Company’s historic priced commodity, oil or gas; 50% addition to reserves on acquired properties. Do the analytical homework, both intensively Arkoma Basin and creatively; The Arkoma Basin, stretching across Arkansas and Deploy the most current technological advancements eastern Oklahoma, is well known for its shallow decline for finding, developing and producing more reserves rates, multiple formations and complex geology – attrib- from existing properties. utes that long attracted Cross Timbers to the region. Our bold move into this basin was accomplished in two major These tenets on which the Company was built have deals that made Cross Timbers the largest gas producer in provided a sound foundation for growth. From a team of the state of Arkansas. less than a dozen in 1986, personnel has grown to over 600 strong. Operations have expanded from a handful of wells in West Texas and Oklahoma to more than 7,000 wells in five core operating areas in the Lower 48, as well as off- shore Alaska. Proved reserves, starting at zero, have grown Major Producing to two Tcfe. In so doing, we have positioned the Company Areas Fontenelle Area to profit from the future preeminence of natural gas by building one of the most impressive domestic reserve bases of any independent. From an operational perspective, a simple goal has Hugoton Area remained resolute throughout these challenging periods: Major County San Juan Basin Arkoma Basin “Work hard to enhance reserves, improve production and profitability and, consequently, increase East Texas our shareholders’ value.” Permian Basin Basin 7
  10. 10. On thousands of uninhabited acres rising above the valleys, an old way of life continues to exist. Shepherds tend to thousands of sheep that graze the vast government lands. These men roam the mountains for months at a time with only their dogs and caravan wagons. Yet below them lies a wealth A solitary sheepherder rises to a new day. of natural gas. This gas feeds a web of pipelines that stretches to the West Coast, providing energy for modern life. 8
  11. 11. Cr oss Tim b er s O il C om pan y The first acquisition was completed in June 1999, DEVELOPMENT when the Company purchased the common stock of Spring Cross Timbers spent about $94.4 million for explo- Holding Company, a private oil and gas firm in Tulsa, ration and development activities in 1999, replacing a Oklahoma, for cash and Cross Timbers common stock remarkable 237% of its totaling $85 million. Lehman Brothers Holdings, Inc. production through contributed $42.5 million in cash for a 50% interest in development at a cost Spring. In mid-September, Cross Timbers acquired of $.28 per Mcfe. This Lehman’s interest for $44.3 million, funded through the compares to a five-year sale of non-strategic properties. average drill bit reserve The acquisition was 99% gas and gave Cross Timbers replacement of 189% proved reserves of 264 Bcfe, with proved developed at a cost of $.40 per reserves accounting for 82% of total proved reserves. Mcfe. This is an enviable achievement that places Cross Based on first quarter 1999 daily production of 66 MMcfe, Timbers at the forefront of its peers. the reserve-to-production index was 11 years – fulfilling Improved oil and gas prices have spurred new the Company’s criteria for acquiring long-lived reserves. enthusiasm in the oil patch, and Cross Timbers was no The properties included about 1,400 producing wells exception to the upturn in field activity. We executed our located on 340,000 net acres. The deal also included most aggressive development plan to date, participating in non-producing assets such as compression equipment, the drilling of 116 wells and completing more than 400 gathering systems and undeveloped acreage. workovers. Our primary focus was on gas projects, with In September, Cross Timbers again teamed with about 90% of the completed wells targeting natural gas. Lehman to acquire $231 million worth of Arkoma proper- Oil project development accelerated late in the year as oil ties from Ocean Energy, Inc. As in the Spring transaction, prices reached levels not seen since 1990. Lehman granted Cross Timbers Natural gas drilling con- Summary of Proved Reserves by Area an opportunity to acquire its centrated in East Texas SEC Assumptions – December 31, 1999 50% equity interest at a (in thousands) (31 wells), the Arkoma Basin Proved Reserves Discounted later date. Natural Gas Present Value before of Arkansas and eastern Liquids Income Tax of Engineers estimate proved Area Oklahoma (26 wells), the San Oil (Bbls) Gas (Mcf) (Bbls) Proved Reserves Permian Basin 38,738 99,681 – $ 393,602 22.3% reserves at acquisition of 220 Juan Basin of New Mexico Arkoma Basin 4 433,083 – 346,064 19.6% East Texas 2,575 401,617 – 337,434 19.1% Bcfe with daily production of (19 wells), the Major County Hugoton (a) 2,819 333,503 – 269,754 15.3% 55 MMcfe from 1,140 wells. area of northwestern San Juan Basin 1,315 259,031 17,902 257,426 14.6% Alaska 14,001 – – 126,309 7.1% Like the Spring acquisition, Oklahoma (13 wells), and the Other 2,151 18,708 – 35,347 2.0% these Arkoma properties are Total 61,603 1,545,623 17,902 $1,765,936 100.0% Fontenelle Unit located in 99% gas and have a reserve-to- (a) related underlying properties. in the Hugoton Royalty Trust and the Includes Cross Timbers’ ownership Wyoming (7 wells). We production index of 11 years. placed greatest emphasis on As a result of these Arkoma Basin acquisitions, Cross our core properties in East Texas and the San Juan Basin Timbers added an estimated 480 Bcfe (455 net of sales) in with more than 65% of capital deployed to these gas-rich reserves with daily production of about 120 MMcfe. More regions. In addition, more than two-thirds of our than 86% of the value of the reserves acquired is operated, workover activities were focused in East Texas and the and production expense, before severance and property San Juan Basin. taxes, is just $.22 per Mcfe. The Company now has inter- ests in more than 2,500 (1,100 operated) Arkoma wells on 435,000 net acres. 9
  12. 12. Although the West Texas territory was wrought with dust storms and danger, bold pioneers battled their way across the land to set down roots for the future. They worked to build homesteads and towns while the stage- coaches and railroads followed. Ila Trout, Postmaster of Tokio, Texas, For their pioneering efforts, a has seen decades of letters come and go through the doors of her post office. legacy of wealth was granted to their descendants. Though the land of the Permian Basin is rugged and unforgiving, beneath it lies a bonanza of oil and gas. 10
  13. 13. Cr oss Tim b er s O il C om pan y East Texas Basin Development of oil reserves again focused on the The East Texas Basin, one of the nation’s premier gas University Block 9 Field and the Prentice Northeast Unit, basins, has a history of production from multiple intervals both located in the Permian Basin of West Texas. Six wells ranging from 7,000 to 12,000 feet. Our holdings are con- were successfully drilled in the University Block 9 Field. centrated in eight major fields including Willow Springs, Three of these were horizontal sidetracks that continued Opelika, Logansport, Freestone, Whelan, Tri-Cities, North the horizontal program begun in 1998. In the Prentice Lansing and Bald Prairie. Northeast Unit we drilled nine wells, several of which Since assuming operations in May 1998, we have were delineation wells that set up future drilling prospects. drilled 41 wells and completed 153 workovers. Daily pro- Meanwhile, development of the prolific Middle Ground duction has increased 38% to 110 MMcfe from 80 MMcfe Shoal Field located in Alaska’s Cook Inlet was initiated in while reserves, including 1999 with six workovers and the refurbishment of drilling 55 Bcfe produced since rigs on both platforms in preparation for continued devel- acquisition, have opment in 2000. increased 88% to 472 During 1999, Cross Timbers focused its exploration Bcfe from 251 Bcfe. We efforts on prospect generation in areas where it already has still have 150 well loca- a presence. Successful wildcats were drilled on the Fort tions and more than 300 Chaffee prospect located in the Arkoma Basin of Arkansas workovers identified for and the Cowboy prospect located in McClain County, future development. During 1999, Cross Timbers spent Oklahoma. These successful test wells will fuel additional about $43 million on 31 development wells and 100 drilling in 2000. workovers with an average rate of return exceeding 60%. Our 2000 capital budget of $100 million to $120 Most of Cross Timbers’ East Texas production comes million encompasses acquisition, exploration and develop- from the Travis Peak Formation, which has multiple ment plans. Cross Timbers expects to drill or participate sandstone reservoirs distributed throughout a thickness of in the drilling of 180 wells and plans to implement more about 2,000 feet. Because of its prolific production rates, than 400 workover and recompletion activities. Our multi-pay complexity and depth, the Travis Peak development program will again focus on gas, with 70% Formation has generally been the primary target in the of capital allocated for these projects. Any acquisitions are East Texas Basin for the past 25 years. Cross Timbers’ expected to be additive in nature – limited to small initial development focus also centered on the Travis Peak purchases in areas where we already have a foothold. and, while this play has been and will continue to be The excellent results from the 1999 program reveal successful, we have identified significant potential in the the quality of our exploration and development portfolio, remaining formations. In fact, we drilled 16 wells target- which is the best in our 14-year history. We can attribute ing overlooked potential in the Bossier and Cotton Valley this to strategic acquisitions that place Cross Timbers in formations in 1999. major gas basins with multiple producing horizons allow- Willow Springs Field. This Gregg County field has ing our extensive technical expertise to be brought to bear been the proving ground for the vast potential of the entire in a target-rich environment. The Arkoma Basin acquisi- basin. As a result of our development efforts, production tions are the most recent in a string of astute acquisitions has tripled to 27 MMcf per day (net 22 MMcf). A substan- that have transformed Cross Timbers into one of the top tial portion of the increase is due to adding production U.S. E&P independents. The results of this strategy will from the Cotton Valley Sandstones to the established Travis become more apparent during the next 12 months as the Peak production. Arkoma acquisitions drive future development with In 1998, we performed several workovers that proved additional high-quality projects. the production potential of the Upper Cotton Valley, an interval with a thickness of about 1,000 feet containing numerous sandstones. As a result, in 1999 we set in 11
  14. 14. The farthest extent of the Red River brought paddleboats into the woods of eastern Texas in the mid-1800s. With them came the commerce that built port towns. Folks harvested raw goods and resources – from timber to cotton to sugar cane – to send packing back downstream on boats headed for the bustling Blessed with a relaxed pace of life, two men of Jefferson cities of the East Coast. strum their tune on a fine spring afternoon. These historic hubs, with their unique culture, live in quieter times today. Yet the land around them is still rich with a commodity that flows east: natural gas. 12
  15. 15. Cr oss Tim b er s O il C om pan y motion a program to increase production by adding pay The Company holds more than 17,000 acres (10,000 from the Upper Cotton Valley Sandstones to existing net) with Bossier Sandstone potential and has identified up producing wells. Previous operators in the area imple- to 100 potential well locations. Furthermore, very few of mented high-cost stimulation techniques with poor results, the deep Freestone wells have been completed to the which resulted in underdeveloped Cotton Valley reservoirs. Cotton Valley Sandstones, leaving much of the interval Cross Timbers unlocked the potential of these “stringers” untapped. And the development of the deepest formation, by designing a more economic completion process. the Cotton Valley Limestone, has been limited to the A fracture stimulation using water instead of northern third of the field. Substantial costly gels to carry proppant was successfully development opportunity for this limestone implemented with excellent results. This remains throughout the acreage. new stimulation process resulted in higher We plan to capitalize on these numerous production rates with cost savings of about reservoir opportunities by drilling wells with 70% – $75,000 versus $250,000. Import- multiple completions. In fact, commingling antly, this technique can be utilized beyond production from the Cotton Valley the boundary of the Willow Springs Field, Sandstones, Cotton Valley Limestones and creating exciting upside potential in Bossier Sandstones, in conjunction with other areas. utilizing less costly water fracture versus The 1999 drilling efforts yielded 11 conventional fracturing techniques, has Willow Springs Field wells with average initial producing already generated phenomenal results. Previous operators rates of two MMcfe per day and reserves of two Bcfe per completed these three zones separately, attaining daily well. This development drilling further delineated and rates of 1 to 1.5 MMcfe per zone. In contrast, we com- extended the field boundaries to the south and west. In bined all zones at initial completion with daily rates addition, pressure tests indicate very little drainage from exceeding four MMcfe. By completing deeper pay zones 40-acre development wells, creating additional drilling in the beginning and utilizing more cost-efficient develop- opportunities on tighter spacing. The Company plans to ment techniques, the present value of these Freestone Field drill 12 wells and to perform 13 workovers and recomple- wells will be significantly increased. tions in this area in 2000. The development results for 1999 reveal the success of Freestone Field. Located in Freestone County, Texas, our proven process. As a whole, daily field production this field produces from the Cotton Valley and Bossier more than doubled since acquisition, increasing from eight sandstones and the Travis Peak and Pettit formations. MMcfe to around 20 MMcfe at year end. We plan during However, at the time of acquisition, development was 2000 to drill 15 wells and to complete 12 workovers, focused in the Travis Peak Formation, with 35 of 40 wells making Freestone one of our most active completed exclusively in that formation. development areas. Other Fields. Cross Timbers enjoys additional During 1999 our focus shifted to new development targets in the deeper Cotton Valley and Bossier sandstones. upsides in all its East Texas fields. We believe previous We drilled four wells, completing them in both zones. operators of the Opelika and Tri-Cities fields bypassed Daily rates averaged more than four MMcfe per well, with reserves in the Cotton Valley Sandstones, while the Travis reserves of 3.2 Bcfe each, far exceeding expectations. An Peak and Rodessa formations have many numerous multi- intensive field study reveals there is more to come. zone development prospects. The Whelan, North Lansing, and Logansport fields also provide opportunities for field extensions and infill drilling. In total, the Company plans to drill 40 wells and perform more than 120 workovers in these areas during 2000. 13
  16. 16. In the mid-1800s, adventurous cowboys rode hundreds of miles with thousands of cattle to get to the Kansas railheads and payday. Over the decades, towns of trade populated by bold, colorful characters sprang up all along this famous trail. Today, the same entrepreneurial In western Oklahoma, 83-year-old Bob Klemme is on a mission to mark spirit is alive in the heartland of the Chisholm Trail – every mile from South Texas to Kansas. America. Farmers, merchants and oilmen alike strike out on a daily journey to serve their passions and earn a dream. 14
  17. 17. Cr oss Tim b er s O il C om pan y San Juan Basin The Paradox Formation wells are producing at rates exceeding three MMcf per day with estimated reserves of Cross Timbers’ acquire-and-exploit strategy is strongly 3.5 Bcf per well. The Paradox Formation was initially exemplified in the San Juan Basin properties it purchased developed on 640-acre spacing; however, field studies and in late 1997. The existing wells had long produced from these recent results indicate the need for tighter spacing to multiple intervals and the region’s complex geology pro- adequately recover remaining reserves. The Company will vided a well-established arena for upside potential. Also, pursue changing the spacing rules to allow for additional like East Texas, the San Juan Basin is laden with producing Paradox drilling in 2000. horizons bypassed by previous operators. Regulatory Cross Timbers drilled four Dakota wells targeting changes in recent years, allowing increased development structural highs identified in our seismic through reduced spacing and commingling, have Ute Indians A-#25 studies. We drilled these wells multiplied our prospects in this gas-rich region. through the deeper Burro An impressive snapshot of our San Juan potential – 350 • Canyon and Morrison sand- both realized and unrealized – is illustrated by our devel- 400 • stones. Two of the four wells opment progress. At acquisition, we identified 37 well 450 • encountered prolific produc- locations and 29 workover projects on our operated proper- 500 • tion from these deeper ties. We have since drilled 31 wells and completed more Milliseconds 550 • sandstones. Since the than 200 workovers, with a remaining inventory of 150 600 • majority of the original wells identified well locations and 250 workover opportunities. 650 • in the field were not drilled Production on the operated properties has increased 46% deep enough to test the Burro 700 • while reserves have increased 62%. Canyon and Morrison sand- 750 • In 1999, we drilled 19 wells and completed 130 stones, there is significant 800 • workovers, employing only $9 million in capital. This upside potential for additional Burro Canyon Dakota Entrada generated an average rate of return exceeding 100%. Ute Dome Field development. The other two Development again focused on lowering producing wells were economically completed in the pressures with the installation of 74 wellhead compressors, After processing the 3-D seismic survey over main Dakota sandstone intervals. bringing total compressor installations to more than 150. Ute Dome Field, several subtle fault traps were Development plans for 2000 include These installations have resulted in increased daily produc- discovered in the shooting additional areas of the field with Cretaceous-age Dakota tion rates averaging more than 100 Mcf per well. Drilling Formation. Three wells 3-D seismic and drilling eight wells with focused on the Ute Dome Field in both the Paradox and were drilled in 1999 targeting these traps, the Dakota, Burro Canyon and Morrison Dakota formations along with Fruitland Coal development all being successful. formations as targets. in the northwestern portion of the basin. Fruitland Coal. Development activities in the The 2000 development budget for the San Juan Basin Fruitland Coal focused on the northwestern portion of the includes 48 recompletions, 50 wellhead compressor instal- basin where we drilled eight wells during 1999. Our lations and 42 development wells. This is about 15% of successful program increased daily Fruitland Coal gas our planned development spending for the year. Ute Dome Field. During 1999, the Company production to more than seven MMcf from about two MMcf at acquisition. The Fruitland Coal Formation is successfully utilized reprocessed 3-D seismic in the Ute only 1,500 feet deep here, and therefore, highly economic Dome Field to clarify structural mapping and to identify – costing $190,000 to drill and complete a well with isolated, undrained fault blocks. Using these studies, we average reserves of about 1.4 Bcf. This equates to a drilled three wells to the Paradox Formation and four wells development cost of just $.14 per Mcfe. to the Dakota Formation. As a result of this development, daily production has almost tripled, increasing to 14.5 MMcf from five MMcf at acquisition. 15
  18. 18. In past times, the mesa landscape was home to only cac- tus, creatures and a few brave souls. Now communities dot the countryside and the townsfolk are involved in the energy business which fuels vibrant growth. Tucked into the San Juan Basin, thousands of gas wells quietly coexist In the cold Farmington morning, brothers walk the with the cities, the wildlife and the dirt road toward their school bus. environment. All the while, natural gas flows from deep within the earth, filling the pipelines which supply our growing demands for energy. 16
  19. 19. Cr oss Tim b er s O il C om pan y Two successful wells were drilled in the State Line area Our development program in the Ashland Field has where producing rates often exceed two MMcf per day. In continued to target the Morrowan-age Cromwell addition, six wells were drilled in the Fulcher-Kutz area Sandstones and Atokan-age sandstones, using reprocessed surrounding Farmington, New 2-D seismic lines to pinpoint the Mexico. Several of these wells were optimum position for new wells. The successful trend extension tests that set work paid off as the two wells that up additional drilling opportunities have been completed are testing at for the future. A reduction in well daily rates exceeding 2.5 MMcf. Also spacing from 320 acres to 160 acres the Company has a sizable acreage also is under discussion with regulato- position in the South Pine Hollow ry agencies, providing further oppor- Field, which only has one well pro- tunity. We expect to drill 15 wells to the Fruitland Coal ducing from the Cromwell Sandstones. An exploration Formation during 2000. well is currently being drilled to define the possible limits of this Cromwell production. Arkoma Basin In total, the Company plans to drill six wells in the The Company secured a stronghold in the Arkoma Oklahoma Cromwell/Atoka Trend during 2000. Four will Basin, by acquiring, net of sales, 455 Bcfe of high-quality be infill development wells to exploit trapped reserves, and reserves and interests in 2,500 wells. We have long pur- two exploratory wells will test portions of our extensive sued a significant position in the Arkoma, a multi-pay and acreage position. Arkansas Fairway Trend. This area is home to the geologically complex basin stretching from central Arkansas into eastern Oklahoma. This premier basin is majority of the Company’s Arkoma acreage. Production well known for its shallow rates of production decline, here is predominantly Aetna Field Cline Cline Dunn Pile Pile multiple productive intervals and heavily faulted, complex controlled by #4 #3 #4 geology. These attributes perfectly match our comprehen- faults that cre- 0• sive approach to exploitation and development. With this ate pockets of 1,000 • isolated reserves 2,000 • sizable acquisition, we now control more than 40% of the 3,000 • Depth Arkansas Arkoma Basin production, making us the largest trapped in mul- 4,000 • producer in the state. tiple sandstones 5,000 • In the last half of the year, we drilled 10 wells that at depths rang- 6,000 • proved geologic concepts that will drive future develop- ing from 2,500 7,000 • ment. Thus, we have already identified more than 200 to 7,500 feet in Areci SS Freiburg Dunn quot;Cquot; SD Orr L. Hale SD prospective workover opportunities and 180 well locations. the Atokan-age Aetna Field, located in the In 2000, the budget provides for drilling 45 of these wells and Morrowan-age formations. The heart of the Arkoma Basin, produces from and completing 75 workovers. Company is utilizing electrical imaging Atokan-age through Morrowan-age sediments. The properties can be separated into three distinct logs to define these sandstone trends while Each identified fault block areas with unique geologic and producing characteristics: reprocessing seismic data for better creates separate reser- voirs that remain the Oklahoma Cromwell/Atoka Trend, the Arkansas fault-plane definition. undrained until penetrated by a new well. Fairway Trend and the Arkansas Overthrust Trend. Three multi-zone development wells Oklahoma Cromwell/Atoka Trend. This area is were drilled during 1999 with initial daily located in eastern Oklahoma, with the majority of our production rates averaging 2.5 MMcf and reserves of 1.80 ownership in the Ashland and Northwest Reams fields. It Bcf per well. So far, more than 120 locations have been was originally developed in the 1970s targeting the identified for development drilling with 24 planned in Cromwell Sandstones with subsequent drilling focusing on 2000. Moving forward, we expect our joint geologic and the shallower Atokan-age sandstone. engineering studies to reveal a bounty of untouched fault blocks, setting up additional development drilling. 17
  20. 20. The endless flatlands of Kansas provide the source for the region’s wealth – fertile soils and hydrocarbon-rich reservoirs. With so much to gain The spirited farmer works his land in preparation for spring planting. for the economy and their families, farmers and pumpers work hand in hand. Tractors plow across the same lands where thousands of gas wells produce from the giant Hugoton area. 18
  21. 21. Cr oss Tim b er s O il C om pan y This area is ripe for exploration opportunities. During Drilling in Major and Woodward counties focused on 1999, the Company participated in the Fort No. 1-23 further development of the Chester and Osage formations. well, which tested at daily rates exceeding 2.5 MMcf from A successful trend extension well, the Stanford No. 3-2, the Orr and Hale sandstones. This well was located on a was completed in Major County with daily production of portion of Fort Chaffee, an inactive military base, which 20 barrels of oil and 1.1 MMcf. This well led to plans for has been off-limits to drilling until now. The Company two additional wells during 2000. In the Quinlan area, and its partners have the rights to develop a 12,300-acre the Company completed highly economic development federal unit within the Fort’s wells that extended Gragg Field Gragg Field is in the boundaries, with Cross Timbers the boundaries of overthrust portion of the Arkoma Basin, 0• having a 49.3% interest. the trend. The located in Sebastian 1,000 • Importantly, the success of this County, Arkansas. 2,000 • Company possesses Upper Atoka Tectonic forces 3,000 • first well extends the southern a large acreage 4,000 • caused sediments in Depth Pennsylvanian 5,000 • the subsurface to fault. edge of the Fairway Trend onto position in this area 6,000 • This resulted in the Thrusted Middle 7,000 • thrusted Middle Atoka Atoka the Fort Chaffee acreage. Three and plans to drill 8,000 • interval as illustrated additional wells are expected to be 9,000 • Lower Atoka six wells to further with multiple isolated Morrow 1 mile 10,000 • reservoirs. Scale Mississippian drilled in 2000 to further test the develop the Chester Top Middle Atoka Basham Nichols Turner Borum possibilities on the acreage block. Formation during 2000. Fontenelle Unit development in 1999 focused Arkansas Overthrust Trend. This area is located to primarily on additional 80-acre infill drilling. However, the south of the Fairway Trend. It is characterized by mul- two successful step-out wells also were completed, tiple thrust faults that create isolated reservoirs. Structural confirming our trend extension theories and creating definition is therefore key to successful development in this future upside opportunities. Unit production remains area. Our ongoing process of interpreting seismic studies above 30 MMcf per day. Plans for 2000 include five wells and evaluating fault-planes through the use of electrical along with five workovers and recompletions. imaging logs will provide a more complete stratigraphic As for the Hugoton area, development during 2000 picture to realize the best exploitation opportunities. will focus on further delineation of the Council Grove and We have already seen early success. Towanda formations. A well to test the deeper Chester The Company drilled five wells during 1999 with and St. Louis formations also is on the sched- average daily production of 1.6 MMcf. One of the wells, ule. The Company expects to drill a the Glen Jones No. 3-20, which is completed in the total of three wells in this area during Nichols Sandstone, recently tested at daily rates exceeding the year. four MMcf, showing the high-rate potential for the area. Alaskan Cook Inlet The Company holds a substantial acreage position in this trend and more than 40 well locations have already been In October 1998, Cross identified. Fourteen wells are scheduled for drilling Timbers acquired two state leas- Cook Inlet during 2000. es in the Cook Inlet, two operated production platforms and an inter- Hugoton Royalty Trust Properties est in production pipelines and onshore Development on the Hugoton Royalty Trust proper- processing facilities. The platforms, ties during 1999 included completing 68 workovers and located in 70 feet of water, contain drilling 25 new wells. Thirteen wells were drilled in 29 producing wells in the Major and Woodward counties of northwest Oklahoma. Middle Ground Shoal Field Seven wells were drilled in the Fontenelle Unit in the along with 12 water injection wells. Oil production is Green River Basin of Wyoming, and five wells were com- derived from multiple intervals in the Tyonek Formation pleted in the Hugoton area of Oklahoma and Kansas. 19
  22. 22. Cr oss Tim b er s O il C om pan y between 7,300 and 10,000 feet. Production is currently 1999 program was no different, with each of the three new 3,950 BOPD (3,456 net) with reserves pegged at 14 sidetracks averaging 136 BOPD. These “legs” extend million barrels of oil. approximately 1,500 feet laterally, cost $350,000 and Last year, the Company began preparing the field for develop 119,000 BOE. This equates to a development cost future expansion of secondary recovery operations. of $2.94 per barrel ($.49 per Mcfe). Historically, secondary recovery operations have been In addition, the Company drilled three vertical highly successful on the East Flank of the field. During Devonian wells in the eastern portion of the field during 1999, the Company embarked on a study to analyze the 1999. These wells were set-up by the highly successful potential of a full-scale West Flank waterflood program CE-C6 well, which was completed in 1998 at initial daily and to evaluate the East Flank for optimization and production rates exceeding 1,000 barrels of oil. The three potential expansion of the current program. This included vertical Devonian wells drilled during 1999 were utilizing a 3-D visualization model to better define the completed with average daily production rates of about complex geology of the field and to clearly identify addi- 160 barrels of oil. tional drilling opportunities. Since the Devonian Formation is the deepest produc- As a result of our studies, we plan to expand the West ing formation in this field, any well drilled to this horizon Flank waterflood during 2000 by drilling two wells and penetrates the shallower Pennsylvanian and Wolfcamp converting three wells to water injection. In addition, a formations. Consequently, each well has excellent recom- new well will be drilled on the East Flank in an area that pletion opportunities in these upside zones. The Company has not been adequately flooded. If successful, more East has focused specifically on recompletions targeting reser- Flank wells will be required to drain the new-found voirs in the Pennsylvanian Formation, which are then reserves. Development costs for 1999 are commingled with the reservoirs in the AU 5 AU 8 estimated at $12 million, which include Devonian Formation. During 1999, six To p : T upgrading onshore facilities and refurbish- wells were successfully recompleted to the hir ty on e Fo ing the drilling rigs on both platforms. Pennsylvanian Formation with produc- rm ati on The Company expects to begin develop- tion rates averaging 40 BOPD. ment activities in April of this year. Development plans for 2000 include drilling 12 vertical wells and five AU 8H Permian Basin horizontal sidetracks and performing six University Block 9 Field. Located in recompletions in this field. Prentice Northeast Unit. This unit Andrews County, Texas, this field received University Block 9 Field renewed interest during 1999 as oil prices Horizontal sidetracks have been used to also posted exciting development results extend the life of wells. The University rebounded. The multi-pay field, which AU No. 8 was producing 27 BOPD prior during 1999. The West Texas unit is to being sidetracked. After a 1,021-foot produces from the Devonian, located in Terry and Yoakum counties and lateral was drilled, the well produced at Pennsylvanian and Wolfcamp formations, produces from the Glorieta and Clear 332 BOPD and is currently producing 270 BOPD. was aggressively developed during the last Fork formations at depths of 6,800 and half of the year. 7,700 feet, respectively. Drilling in this unit was suspend- The Company continued the highly successful hori- ed during 1998 due to low oil prices; however, as oil prices zontal sidetrack program it began in 1997, along with recovered in 1999, we recommenced activity, drilling nine additional Devonian development in the eastern portion of wells with exceptional results. As a result, we continue to the field. Through the end of 1998, nine horizontal expand infill development upsides in this mature field. sidetracks targeting the Devonian Formation had been completed. Each sidetrack averaged 140 BOPD. The 20
  23. 23. Cr oss Tim b er s O il C om pan y Since acquiring the unit in 1994, the Company has Oil prices, at an average of $12.21 per barrel for 1998, successfully drilled 82 ten-acre infill wells. In the eastern rose to an average of $16.94 for 1999, reflecting OPEC’s portion of the field, high oil-cuts in efforts to reduce over-production by the Upper Clear Fork encourage con- its members as well as a general tinuous expansion of our program. A reduction in U.S. inventories. The deeper section, the Basal Clear Fork, average gas price for 1999 was $2.13 was encountered in many of the new per Mcf, up 3% from the 1998 aver- wells and has proven productive. For age of $2.07. The NGLs price per the northern portion of the unit, infill barrel averaged $11.80, up 55% from wells have yielded oil-cuts in the the 1998 average sales price of $7.62. 80-100% range, indicating the need for further secondary As of December 31, 1999, estimated recovery optimization. Thus, additional infill wells will future net cash flows before income tax Proved Reserves by Category tap more untouched reserves. were $3.27 billion based on realized (in Bcfe) In 2000, the Company intends to drill 10 ten-acre prices of $24.17 per barrel of oil and 2,500 infill wells. An additional 40 sites have been mapped for $2.20 per Mcf of gas. The present value 2,000 future development. before income tax, discounted at 10%, was $1.77 billion, compared to the year- 1,500 RESERVES & PRODUCTION end 1998 level of $909 million. The Cross Timbers’ aggressive acquisition and development realized prices at year-end 1998 were 1,000 program resulted in record operating results and impres- $9.92 per barrel of oil and $2.00 per sive reserve growth during 1999. The major stimulus Mcf of gas. 500 came when management took advantage of a unique opportunity to purchase 480 Bcfe of gas properties, prior 0 to property sales in the Arkoma Basin, creating a new core area for the Company. Oil NGL Gas Estimated proved oil and gas reserves at year-end 1999 Proved Oil & Gas Reserves were 2.022 Tcfe, up 23% from 1.639 Tcfe at year-end December 31, 1999 (in thousands) 1998. This translates to 41 Mcfe for each share of the Natural Gas Oil Gas Liquids Company’s common stock. After deducting reserve sales of (Bbls) (Mcf) (Bbls) Mcfe Proved developed 48,010 1,225,014 13,781 1,595,760 325 Bcfe, the Company replaced 527 Bcfe or 367% of Proved undeveloped 13,593 320,609 4,121 426,893 1999 production at a cost of $.70 per Mcfe. Through the Total proved 61,603 1,545,623 17,902 2,022,653 Estimated future net cash flows, drill bit, we replaced 237% of production at a cost of $.28 before income tax $3,269,443 per Mcfe. For the past five years Cross Timbers has Present value before income tax $1,765,936 replaced 470% of its production at a finding cost of just Changes in Proved Reserves $.68 per Mcfe. We believe this outstanding record places (in thousands) Natural Gas the Company among the best in the industry for finding Oil Gas Liquids (Bbls) (Mcf) (Bbls) Mcfe cost and production replacement statistics. December 31, 1998 54,510 1,209,224 17,174 1,639,328 During 1999, the Company produced 5.1 million bar- Revisions 10,792 60,011 1,838 135,791 Extensions and discoveries 3,003 166,669 3,357 204,829 rels of oil, 1.3 million barrels of natural gas liquids and Production (5,112) (105,120) (1,325) (143,742) 105.1 Bcf of natural gas. Daily oil and NGLs production Purchases in place 2,790 494,666 20 511,526 Sales in place (4,380) (279,827) (3,162) (325,079) averaged 17,637 barrels, up 11% over the 15,945 barrels December 31, 1999 61,603 1,545,623 17,902 2,022,653 per day during 1998. Daily gas production averaged Based on SEC assumptions 288.0 MMcf, up 25% from the 229.7 MMcf in 1998. The 1999 exit rate for daily production is 332.7 MMcf of natu- ral gas and 17,620 barrels of oil and NGLs. 21