2. he story of Fort Worth is the story of a rambunctious southwest-
ern town which evolved from a frontier Army post into one of the
most modern cities in the nation. The area has always been
blessed geographically, economically and culturally, but its funda-
mental character was formed by an impressive parade of individu-
als, many with strong personalities almost larger than life. They
worked hard, dreamed big, and were unabashedly proud to be Texans and call Fort Worth their home.
We, too, are proud of Fort Worth and its character, and we dedicate this annual report to the men and
women, visionaries and laborers, desperadoes and lawmen, tradespeople and professionals, merchants
and philanthropists who helped build our community. They brought the cattle, the railroad, the oil
business, the military and aviation industries, as well as an eclectic variety of entertainment and arts
venues to the city that is home to Cross Timbers Oil Company.
Our Company is named after the ancient forests called the Cross Timbers, woodlands of post oak and
blackjack oak which mark the eastern margin of the southern Great Plains from North Central Texas
through Oklahoma to southeastern Kansas. The Cross Timbers played an important part in our local
history, drawing Indians and Fort Worth’s early settlers alike toward its protection and bountiful
natural resources.
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
growth rate of 41% to more than 1.6 trillion cubic feet. Cross Timbers
operates 87% of its properties, which are concentrated in Texas,
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) which
went public in 1992.

3. Cross Timbers Oil Company
FINANCIAL HIGHLIGHTS
1998 1997 1996
In thousands except production, per share and per unit data
Financial
$ 249,486
Total revenues $ 0198,272 $ 0161,335
$ (105,570)(a)
Income (loss) before income tax $ 0039,201 $ 0(30,973
$ (71,498)(a)
Earnings (loss) available to common stock $ 0023,905 $ 19,790
Per common share (b)
$ (1.65)(a)
Basic $ 00000.60 $ 00000.50
$ (1.65)(a)
Diluted $ 00000.59 $ 00000.48
$ 78,480
Operating cash flow (c) $ 0089,979 $ 0068,263
$ 1.81
Operating cash flow per share (b) $ 00002.26 $ 00001.71
$ 1,207,594
Total assets $ 0788,455 $ 0523,070
Long-term debt
$ 615,000
Senior $ 0239,000 $ 0285,000
$ 306,000
Subordinated notes and other $ 0300,000 $ 0029,757
$ 177,451
Total stockholders’ equity $ 0170,243 $ 0142,668
44,727
Common shares outstanding at year-end (b) 39,450 38,447
Production
Daily production
12,598
Oil (Bbls) 10,905 9,584
229,717
Gas (Mcf) 135,855 101,845
3,347
Natural gas liquids (Bbls) 220 –
325,390
Mcfe 202,609 159,349
Average price
$000012.21
Oil (per Bbl) $ 00018.90 $ 00021.38
$000002.07
Gas (per Mcf) $ 00002.20 $ 00001.97
$000007.62
Natural gas liquids (per Bbl) $ 00009.66 –
Proved Reserves
54,510
Oil (Bbls) 47,854 42,440
1,209,224
Gas (Mcf) 815,775 540,538
17,174
Natural gas liquids (Bbls) 13,810 –
1,639,331
Mcfe 1,185,759 795,178
(a) 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.
(b) Adjusted for the three-for-two stock splits effected on March 19, 1997 and February 25, 1998.
(c) Cash provided by operating activities before changes in current assets and liabilities.
Total Revenues Operating Cash Flow Daily Production Proved Reserves
Glossary
Bbls Barrels (of oil or NGLs) MMcfe Million cubic feet equivalent
Bcf Billion cubic feet (of gas) NGLs Natural gas liquids
Bcfe Billion cubic feet equivalent Tcf Trillion cubic feet (of gas)
BOE Barrels of oil equivalent Tcfe Trillion cubic feet equivalent
E&P Exploration & production
One barrel of oil is the energy equivalent
Mcf Thousand cubic feet (of gas)
of six Mcf of natural gas.
Mcfe Thousand cubic feet equivalent
1
5

4. Cross Timbers Oil Company
TO OUR SHAREHOLDERS
s a result of a highly successful units as well as the anticipated sale of units of an additional royalty
acquisition program during 1997 and trust formed later this year. We plan to fund strategic acquisitions,
1998, Cross Timbers was on course to should they arise, with property sales or equity.
achieve its aggressive goals for 1999. We Subsequent to the Hugoton Royalty Trust, we will consider
exceeded our reserves per share goal of forming two additional royalty trusts, one for the San Juan Basin area
36 thousand cubic feet of gas equivalent and one for the Permian Basin area. We could then sell a portion of
(Mcfe) well ahead of schedule. Our cash flow per share goal, however, each trust during the next 6 to 12 months, depending on commodity
was based upon $18.00 per barrel of oil and $2.20 per thousand cubic prices and market conditions.
feet of gas (Mcf). Given an industry environment with prices below By decreasing our leverage this year, we can position the
those levels, we do not expect to meet our 1999 cash flow per share Company for continued growth through acquisitions and development
goal. However, we exited 1998 with record production of 275,000 Mcf in future years. Recent mergers of major and independent oil and gas
per day and 19,000 barrels of liquids per day. Moreover, we achieved producers should result in substantial domestic producing property
record reserves of 1.639 trillion cubic feet of gas equivalent, up 38% dispositions. We plan to take advantage of what we believe will be
from year-end 1997, and our 1998 drill-bit finding cost was a stellar unprecedented acquisition opportunities in 2000.
$0.48 per Mcfe, despite low oil prices at year end. Our philosophy of acquiring long-lived, high-quality properties
The importance of our acquisition strategy of buying high-quality, and increasing reserves through development will remain unchanged.
long-lived producing properties is apparent during these adverse In this light, the success of the Hugoton Royalty Trust offering adds a
times. The Company maintains good cash margins even in a poor new dimension to our capital structure. After our development efforts
commodity price environment. Our cash margin for the fourth improve production and reserves – on average 50% – we believe our
quarter of 1998 was $0.59 per Mcfe, which compares favorably to our properties have the attributes to make excellent royalty trusts. We can
five-year average drill-bit replacement cost of $0.43. Therefore, we therefore harvest our value-added activities at high capitalization rates
can more than replace our reserves with cash flow during this low that have the effect of an equity infusion as well as redeploy the
price environment and prepare for the inevitable return to proceeds into new properties with more upside potential.
normalized prices. In addition, our general and administrative
ACQUISITIONS
expense of about $0.10 per Mcfe is one of the lowest of our peers and
has allowed us to retain our highly skilled employees while other Our acquisitions during the past two years – totaling nearly $600
companies are forced to reduce staff. million – are the best in our 13-year history and continue to exceed
While we had our most successful year in acquisitions and posted expectations. In 1998, we completed significant acquisitions in the
exceptional development results in 1998, our financial results were East Texas Basin, Alaska’s Cook Inlet, northwest Oklahoma and the
impacted by our decision last summer to invest about $150 million in San Juan Basin at a total cost of $340 million.
the equity securities of other energy companies. During that time we These properties fulfill every criteria of our acquisition
could purchase reserves underlying these securities at a lower price philosophy. With less than one year of hands-on operation, it already
per Mcfe than in the property acquisition market. The decision to appears that our initial expectations for enhancing reserves were
buy undervalued reserves through stock purchases and resell at conservative. In particular, the East Texas acquisition has the
higher prices is one we’ve successfully implemented on numerous potential for us to double the reserves acquired over time. Our 12
occasions during the past 20 years. These 1998 stock purchases, million BOE Alaskan Cook Inlet acquisition – which increased our oil
however, proved to be ill-timed and resulted in a year-end accounting production by 30% – has a very large original-oil-in-place and complex
loss of about two-thirds of our investment. We plan to sell these geology. These attributes typically result in large increases in proved
securities during 1999 and are optimistic that we can sell at higher reserves as our technical staff finds the keys to unlocking the reserves.
than year-end prices. Given the market’s diversion of attention from
EXPLORATION AND DEVELOPMENT
our acquisition and development successes, we do not plan to invest in
the securities of other companies in this way in the future. An aggressive 1998 development program resulted in the drilling
Our goal during 1999 is to re-achieve our long-standing debt goal of 150 wells (142 gas, eight oil), the completion of 250 workovers (220
of $0.40 to $0.45 per Mcfe from $0.56 per Mcfe at year-end 1998. We gas, 30 oil), and the replacement of 137% of production at a cost of
plan to achieve this goal through the sale of Hugoton Royalty Trust just $0.48 per Mcfe. Most of our natural gas activity occurred in East
2

5. Cross Timbers Oil Company
TO OUR SHAREHOLDERS
OUTLOOK
Texas, the San Juan Basin, the Fontenelle Unit of southwestern
Wyoming and the Ozona area of West Texas. Our oil development was Obviously, predicting the timing of an industry upturn is risky
focused on the University Block 9 Field of West Texas, where wells at best, with so many diverse global elements – economic recovery,
tested at production rates as high as 1,000 Bbls per day. political stability, nontraditional weather patterns – involved in the
In East Texas, where we initially expected to drill about 50 current equation. This has been the longest downturn seen in our
development wells and to implement 30 workover projects, we have 28-year careers. Several observations are in order:
now identified as many as 170 development wells and 300 workover We believe our nation’s vulnerability to disruptions in imported
and recompletion opportunities. During the next few years, these supplies is being viewed with considerable complacency. Historic
identified projects have the potential of increasing the reserves levels of U.S. crude oil inventories, represented as a number of days of
acquired by as much as 75% above the 232 Bcfe purchased. Over U.S. consumption, has dropped from 29.1 days in the 1981-1985
time we expect our development efforts to double the reserves period, to barely 22.4 days in March 1999. That is near the
acquired. 20-year low.
In the San Juan Basin, we have identified as many as 300 Moreover, U.S. oil production is at a 50-year low in terms of
development well locations and 100 recompletion opportunities with volume, and with low reinvestment rates that volume will continue to
the potential to increase the reserves acquired by 30% above the 300 slip away. The recent OPEC action to further reduce production is
Bcfe purchased. We anticipate ongoing studies will continue to result very encouraging and has already had a positive impact on oil prices.
in added reserves. We expect oil prices to be surprisingly strong as inventories decline.
We have set our 1999 exploration and development budget at $60 The case for gas is even more optimistic. The high decline rates
million. This budget may be revised, depending on commodity prices, in the Gulf of Mexico in conjunction with reduced drilling – rig
but we are determined to increase reserves and keep production flat utilization is at or near historic lows – have prompted many analysts
on an Mcfe basis, exclusive of property sales. During 1999, we plan to to call for a shortage of natural gas as early as next winter.
drill or participate in the drilling of about 100 wells and implement Cross Timbers will concentrate on reducing debt during 1999.
about 250 workover and recompletion activities. Importantly, our high-quality reserve base and low finding costs will
Natural gas projects, now offering the highest rates of return, will allow us to replace production and prepare for future growth. We will
be the primary focus of this year’s capital budget. If oil prices then be in position to take advantage of what we believe will be
continue to strengthen, we will shift a portion of the budget to high unprecedented acquisition opportunities during 2000 and beyond.
impact projects in the University Block 9 and Prentice fields of West Thank you for your ongoing support.
Texas. Exploration activities will be minimal with the primary
emphasis in the Hugoton area and several exploration test wells in
East Texas and central Oklahoma. Longer term, our existing property
base offers opportunities for 3-D seismic and geologic mapping for
additional exploration.
Bob R. Simpson
FINANCIAL RESULTS Chairman and Chief Executive Officer
For the year 1998, the Company reported a loss to common
shareholders of $71.5 million, or $1.65 per share, compared with
earnings of $23.9 million or 60 cents per share in 1997 (adjusted for
the three-for-two stock split in February 1998). Without the $61.9
Steffen E. Palko
million after-tax loss related to the Company’s investment in equity
Vice Chairman and President
securities and the $1.3 million after-tax impairment write-off of
producing properties, the Company would have reported a loss of only
19 cents per common share. Total revenues for 1998 were $249.5 March 31, 1999
million, a 26% increase from revenues of $198.3 million for 1997.
Cash flow from operations for 1998 was $78.5 million, or $1.81 per
share, compared to $90 million, or $2.26 per share for 1997.
3

6. The Fort
Fort Worth first appeared on the
map as a remote Army outpost, estab-
lished in 1849 as part of a chain of
forts intended to protect Texas settlers
from sporadic Indian raids. Major
Ripley Arnold and his scouting party
chose a bend in the West Fork of the
Trinity River as the first site, but after a
summer flood he moved the fort to a bluff
overlooking the river. Fort Worth was
named after one of Arnold’s commanders,
General William Jenkins Worth, who had
died of cholera. Later that same year,
Tarrant County, named for state legislator
and Indian fighter General Edward H.
Tarrant, was established.
After the army abandoned the fort in
1853, local settlers moved in and quickly
transformed its buildings into homes and
businesses. Fort Worth was designated
county seat in 1860, and construction of
the first courthouse was begun on this site.
The Civil War delayed construction, and a
fire in 1876 destroyed the completed court-
house, but it was rebuilt and expanded
until in 1893 county commissioners decided
to build a new, larger building to accom-
modate the area’s rapid growth. Over the
years, the courthouse on the bluff has out-
lasted several attempts to replace it with a
more modern building.
Facing south on Main Street and over-
looking the Trinity to the north toward the
historic Stockyards, the Tarranty County
Courthouse has remained the focal point of
downtown Fort Worth. Thanks to periodic
updating, restoration and renovation, it still
serves the citizens of Tarrant County.
4

7. Cross Timbers Oil Company
OPERATIONS REVIEW
ross Timbers’ strategy for enhancing proved reserves of 19 Bcfe and production of 4.1 million cubic feet
shareholder value – to identify, acquire per day. Importantly, they constitute additional interests in the
and consistently develop long-lived operated properties purchased earlier from EEX Corporation. The
producing properties with high economic seller had the right under the operating agreements to prevent
upside potential – is resoundingly development of these properties, which required us to
reflected in the numerous acquisition and conservatively book the reserves. Our engineers believe these
development successes achieved in 1998. properties have substantial additional potential and this purchase
To achieve our strategy, we strive to operate a high percentage increased our working interest in almost all our wells in this field to
of properties, to lower field operating costs while increasing 100%, allowing for accelerated development.
production volumes and to deploy talented professionals to apply These two timely acquisitions added high-margin production
the latest technological advancements for finding, developing and from a geographically concentrated reserve base with complex
producing more reserves from existing properties. geology and
Summary of
Often flexible and sound management can help control the multiple pay zones.
Proved Reserves by Area
timing and nature of capital spending to improve and expand While Cross
SEC Assumptions – December 31, 1998
production results during sharp shifts in commodity prices. Timbers typically (in thousands)
Proved Reserves Discounted
However, success still begins by making quality acquisitions. increases reserves Natural Gas Present Value before
Liquids Income Tax of Proved
on its acquisitions Area Oil (Bbls) Gas (Mcf) (Bbls) Reserves
by 50% to 60% over East Juan Basin
Texas 2,127 317,947 – $234,825 25.8%
ACQUISITIONS
San 1,199 253,568 17,174 170,868 18.8%
Less than two years ago, management set a goal to complete what was originally Mid-Continent 4,495 189,374 – 163,282 18.0%
Permian Basin 32,295 95,356 – 116,816 12.9%
strategic property acquisitions totaling more than $260 million by evaluated, these Rocky Mountain 2,481 183,830 – 110,390 12.1%
the end of 1999. Since May 1997, the Company has purchased properties have the Hugoton 232 159,128 – 89,745 9.9%
Alaska Cook Inlet 11,437 – – 12,719 1.4%
$560 million in quality properties, creating new core operating potential for a Other (a) ,244 10,021 – 9,961 1.1%
areas in the San Juan Basin and East Texas while making doubling of Total 54,510 1,209,224 17,174 $908,606 100.0%
significant additions to its franchise operations in Oklahoma. reserves. (a) Includes 209,000 Bbls and 8,278,000 Mcf and discounted present value
before income tax of $8,109,000 related to the Company’s 22% owner-
The Company ship of Cross Timbers Royalty Trust Units at December 31, 1998.
East Texas Basin wasted no time in
In April 1998, Cross Timbers completed its largest acquisition elevating production and probing long-term potential. By adding
to date, purchasing proved reserves of 232 billion cubic feet of gas compression, testing different stimulation techniques, recompleting
equivalent (Bcfe) on 88,000 gross (59,000 net) acres in the East wells into additional horizons and pursuing field extensions, the
Texas Basin. This $215 million purchase from EEX Corporation, Company has identified significant, previously unrecognized upside
effective January 1, 1998, included 784 gross (638 operated) wells value. In the past eight months, Cross Timbers has already
in eight fields stretching into Louisiana. Gas reserves accounted increased net daily gas production from 80 million cubic feet
for 97% of the value of the acquisition. equivalent to 95 million cubic feet equivalent.
During August, Cross Timbers acquired an
Alaskan Cook Inlet
additional 50% interest in the Willow Springs
Field for $23.6 million, further strengthening In October, Cross Timbers acquired a 100% working interest
Fontenelle
our portfolio of East Texas properties. At the (87.5% net revenue interest) in two State of Alaska leases, two
Area
time of acquisition, the interests had operated production platforms and a 50% interest in certain
operated production pipelines and onshore processing facilities
from Shell Oil Company affiliates. The platforms, located in 70
feet of water, are approximately seven miles offshore in the Middle
Ground Shoal Field. They contain 29 producing wells and 11
Hugoton
San Juan Area Major
water injection wells.
Basin County
At the time of acquisition, estimated proved reserves
were 12 million barrels of oil with net production
of 3,700 barrels per day. Production is primarily
Prentice N.E.
from multiple zones within the Tyonek
Russell
Formation between 7,300 feet and 10,000 feet
University
East Texas
Block 9 subsea with an estimated reserve-to-
Basin
MAJOR production index of nine years.
PRODUCING
AREAS
5

8. Cowtown
After the Civil War, Fort Worth was deplet-
ed in spirit and substance. In the early
1870s, the once-booming town had shrunk
to only a few hundred people. There was
one “ace-in-the-hole,” however, and that
was the city’s location along the cattle
trails, particularly the famous Chisholm
Trail, that took livestock from South Texas
to railheads in Kansas for shipment to
northern markets where the demand for
beef was great. The cowboys who drove
the herds became a breed unto themselves.
Fort Worth welcomed these tough,
hard-working, independent characters who
came to town eager for a break from the
hardship and danger of the long trail
drives. Fort Worth was the last place they
could replenish supplies before continuing
north, and the first stop on their way back.
So the town entertained them with all the
diversions they had time and money for,
including drink, gambling and the company
of certain ladies.
The trail drives provided economic
stability for Fort Worth, and other busi-
nesses emerged to support the needs of
West Texas ranchers. Valuable ties
between merchants and ranchers were
forged which continue to the present time.
Burgeoning prosperity meant more of
everything — churches, schools, doctors,
lawyers, bankers, and even the occasional
newspaper.
A growing network of holding
pens and other facilities for livestock
would eventually take up many acres
north of the Trinity and downtown
Fort Worth. These stockyards were
located far enough north to keep most
of the odor of cattle, hogs, sheep,
mules and horses away from the
general population, yet close enough
to town for the cowboys to
enjoy themselves.
6

9. The Middle Ground Shoal Field, first reserves. The primary areas of drilling activity
Cross section
discovered in 1962, began producing in 1966. were the Fontenelle Unit in southwestern
Cook
view of the
Inlet
To stimulate production, waterflood operations Wyoming (20 wells), the Ozona area in West Texas
Middle
were initiated in 1968 on the east flank of the (21 wells), the Major County area of Oklahoma
Ground Shoal
structure.
field. Further, in 1997 a successful pilot (18 wells), the Hugoton area of Oklahoma and
waterflood was initated on the west flank of the Kansas (15 wells), the San Juan Basin of New
field, paving the way for future expansion of Mexico (48 wells), and the East Texas Basin (10
secondary recovery operations. wells). The workover portion of the budget was
While our acquisition marked Shell’s greatly enhanced by the addition of the East
departure from Alaska, Cross Timbers was able Texas properties. East Texas workovers result in
to retain experienced personnel by hiring rates and reserves comparable to development
almost all of the Shell employees associated with drilling in many areas, but at a much lower cost.
the Alaskan operations. Currently Cross Development of oil reserves was concentrated
Timbers is one of only three companies in the University Block 9 Field located in the
operating the 15 platforms in Cook Inlet. Permian Basin of West Texas. The objective was
to further test the effectiveness of horizontal sidetracks out of
The Company aims to improve the properties in four ways:
existing wells. This decreases capital expenditures and enhances
• expanding waterflood operations where tests have proved the economics of oil projects. Four vertical wells, one horizontal
promising on the west flank;
well and three horizontal sidetrack wells were drilled. All were
• converting from gas lift to hydraulic or electrical
highly successful.
submersible pumps;
Significant production increases were achieved through the
• reducing operating costs with automation and offshore
acquisitions and development program, with the 1998 exit rates at
separation; and
a record 275 million cubic feet of gas per day and a record 19,000
• utilizing a redefined geologic model to determine potential
barrels of liquids per day. The Company spent about $78 million
drilling opportunities.
for exploration and development activities, replacing 137% of its
San Juan Basin and Northwest Oklahoma production at a cost of $0.48 per Mcfe. This is quite an
In November, Cross Timbers expanded its franchise operations achievement in the face of the worst oil prices in a
in the San Juan Basin of New Mexico and in northwest Oklahoma decade.
by purchasing producing properties from Seagull Energy The 1999 exploration and development
Corporation for $29.2 million. The transaction included proved budget is set at $60 million. This budget will
reserves of 42.5 Bcfe. The San Juan properties, when combined again focus on gas projects with limited
with non-operated properties in the basin purchased from Amoco spending on oil projects to further
in late 1997, form an attractive disposition package, and are part of delineate and replenish the drilling inventory
a pending property sale pursuant to our debt reduction plan. until oil prices are more favorable. If oil
The northwest Oklahoma properties, located in Major and prices continue to strengthen, we can Cook Inlet
Woodward counties, consist of 171 gross (60 net) wells of which 75 expand the capital budget to include high
gross (48 net) wells are operated by Cross Timbers. Production at impact projects in the University Block 9 and
acquisition was about six million cubic feet of gas equivalent per Prentice fields.
day, primarily from the Morrow, Chester, Mississippian and The Company expects to drill or participate in
Hunton formations between 6,000 and 9,000 feet. Most of these drilling 100 wells and plans to implement 250
properties are included in the Hugoton Royalty Trust. workover and recompletion activities. These
activities will allow Cross Timbers to maintain
EXPLORATION AND DEVELOPMENT its record daily production rates on an Mcfe basis.
In 1998, Cross Timbers implemented its most successful Exploration drilling during the past year focused on the
development plan to date, completing 250 workovers and drilling Hugoton area. Going forward, 3-D seismic shot in the Hugoton
150 wells. Due to weakening oil prices and fairly stable gas prices, area, as well as the acquisition of leases
the program focused on development of the Company’s extensive and seismic data in the Nemeha Ridge
gas properties. In fact, more than 90% of the completed projects area of central Oklahoma, indicate
were located in gas provinces. The workover program, the largest promising results. For 1999, exploration
in Company history, was highlighted by excellent results in the activities will be minimal, focusing on lease
newly acquired East Texas and San Juan Basin properties, acquisitions over identified prospects and the
where 65% of the program was implemented. drilling of several exploration test wells in East
Of the 150 wells drilled, 142 targeted gas Texas and central Oklahoma.
7

10. The Railroad
Beginning in 1871, rumors circulated that the
railroad would find its way to Fort Worth.
In 1873, a civic leader and newspaper editor
named B.B. Paddock created a map of what
Fort Worth would look like with railways
projecting from it like the legs of a spider,
and it came to be known as the Tarantula
Map. Amazingly, the railroads Paddock
envisioned actually were established one by
one. The first railroad train, the Texas &
Pacific, arrived in Fort Worth in 1876, an
event which only increased the already
bustling atmosphere of the city, and the
first train station at Lancaster and South
Main was built a few months later.
With the coming of the railroad,
Fort Worth became known as a place where
money could be made, a boom town in
earnest, with newcomers from all over the
country buying, selling, trading, gambling,
or mixing with the cowboys at the
numerous saloons which seemed to
open overnight.
After the raucous ‘70s, Fort Worth
settled into becoming a more structured,
socially responsible society in the ‘80s.
Expansion of the railroad increased ship-
ping opportunities for cattle as well as
other products, and the great trail drives
dwindled. Local businessmen began to
increase their efforts to find a way to pack
meat for northern and eastern markets
rather than transport it on the hoof. In
1901, Chicago’s Armour & Co. and
Swift & Co. opened meat-packing plants in
the stockyards, the second largest stock-
yards in the country. Soon they were
processing over a million cattle and almost
that many hogs each year.
In the first decade of the new
century, the population of Fort Worth
nearly tripled.
8

11. East Texas Basin Willow Springs Field, located in Gregg County, Texas, produces
Cross Timbers assumed operations of the East Texas properties from the Cotton Valley, Travis Peak, Rodessa, and Pettit formations.
in May 1998, establishing bases for operations in Tyler and Prior to 1998, the field was not heavily developed due to an
Longview. The Company immediately embarked on an aggressive operating agreement that required 100% partner approval for
workover program focused on recompletion opportunities in existing capital expenditures. By August 1998, Cross Timbers acquired the
wellbores. By year-end, the Company had completed 53 workovers remaining working interest in the field, clearing the way for
and drilled 10 development wells. aggressive development. The 1998 development program, consisting
The East Texas properties are a perfect match for Cross Timbers’ of three recompletions and one development well, doubled the field
acquire-and-exploit strategy. Located in one of the nation’s premier production from 8 million
gas basins, these properties offer a long history of production from to 16 million cubic feet
multiple intervals ranging from 7,000 feet to 12,000 feet. per day.
Production comes from eight major fields, with 80% produced from Significant recomple-
the Travis Peak Formation. Producing fields include Bald Prairie, tions in both the Upper
Freestone, Tri-Cities, Opelika, Willow Springs, Lansing North, Cotton Valley and Travis
Whelan and Louisiana’s Logansport. Peak formations underscore
The Travis Peak Formation consists of multiple pay zones the significance of the
distributed throughout a thickness of up to 2,000 feet. These bypassed sandstones.
sandstones were deposited over millions of years during the Middle For example, when Cross
Block Diagram of East Texas Basin
Cretaceous Age through ancient river, coastal and deltaic systems. Timbers acquired the Walke
During the Middle Cretaceous Age more than 65
Studies of the major fields reveal that many of the wells have No. 4 well as part of its East million years ago, sandstones were deposited in
river, delta, and coastal depositional systems in or
bypassed productive sands, leaving numerous recompletion and Texas acquisition, product-
near ancient seas that covered parts of what is
drilling opportunities. Upon acquisition, Cross Timbers’ technical ion was about 200 Mcf per now Texas. Approximately 2,000 feet of interbed-
staff identified 48 development well locations and 30 workover day from the Lower Cotton ded sandstones and shales accumulated during
Travis Peak sedimentation.
opportunities. We have since identified as many as 170 development Valley sandstones. Shortly
well locations and more than 300 rework and recompletion after closing the acquisition, we successfully recompleted this well to
candidates. the Upper Cotton Valley sandstones at an initial rate of 1,500 Mcf
The Travis Peak workovers consisted of two different types of per day. Prior to this workover, these sandstones had not been
recompletions involving different risks: those wells with untapped completed or produced in the field. Cross Timbers then completed
productive sands above and those wells with untapped productive the Walke No. 4 to the Travis Peak Formation. This production,
sands below the producing interval. The latter wells involve much when commingled with the Cotton Valley, resulted in a combined
higher mechanical risk, which apparently resulted in their being production rate of more than 3,000 Mcf per day. Clearly, the
written off as inaccessible by the previous owner. potential of the bypassed sandstones provides
Cross Timbers’ technical staff devised an innovative significant opportunity for production and reserve
workover procedure using a retrievable liner to isolate growth.
the producing interval, allowing the deeper sands to be Another example is the Robertson No. 6, which
completed with greatly reduced mechanical risk. The Cross Timbers drilled and completed in both the
retrievable liner procedure has been successfully Cotton Valley and Travis Peak formations. The well is
utilized on multiple recompletions in the Logansport, currently testing at daily rates as high as four million
Whelan, and Freestone fields to add significant cubic feet. These results highlight the untapped
reserves. potential of our East Texas properties by emphasizing
Thirty-eight of the 53 workovers implemented in the rate and reserve potential of additional workovers
East Texas were recompletions to intervals not and development wells in the Willow Springs Field.
previously produced in that wellbore. The program The 1999 development program for this field
was highly successful, with average producing rates of anticipates 12 workovers and 10 development wells.
the completed wells exceeding 700 Mcf per day. This
Logansport Field, located in Desoto Parish,
success was not limited to a single producing horizon
or field, but was consistent across all the major fields. Louisiana, produces from the Hosston Formation,
The high flow pressure and production rates from which is synonymous with the Travis Peak in Texas.
Travis Peak Thickness
these workovers confirm our belief that there are Relative thickness of the Travis Development during 1998 consisted of six
Peak Formation as it compares recompletions to various sandstones as well as
significant reserves yet to be developed.
to the Empire State Building.
Our development efforts were focused on three The curve on the left is an SP two development wells.
fields: Willow Springs, Logansport, and Whelan. log from a well, illustrating the
interbedded sandstone shale
sequence.
9

12. Oil
By 1900, Fort Worth had become the com-
mercial center for many farms, ranches and
smaller towns, particularly in West Texas.
Like other cattlemen with close ties to Fort
Worth, W. T. Waggoner found oil on his
property while trying to find water for his
livestock. Such oil discoveries attracted
more entrepreneurs who developed their
interests, built their homes and began to
shape the city’s downtown skyline.
Ranger, Texas, about a hundred miles
west of Fort Worth, was the site of the
first big oil discovery in West Texas in 1917.
Discoveries in Burkburnett to the northwest
and then Desdemona near Ranger were
made in 1918, and for a time it seemed that
in some areas of Texas oil popped up
whenever a drill bit went down. Because
oil for the military during World War I was
in short supply, people of all kinds
thronged to the discovery sites to try their
hand at making some quick oil money.
Fort Worth was the focus for the invest-
ment frenzy that followed, and the
Westbrook Hotel became the favored site
for buying and selling leases. For a time
there were so many deal-makers flocking
to the hotel that even after the lobby was
cleared of furniture, their trading activities
spilled out onto the sidewalks and the
street.
This era, in which incredible fortunes
were made, solidified Fort Worth as the
business center of the West Texas oil
boom. Oilmen such as Sid Richardson,
Ed Landreth and W. A. Moncrief created
wealth not only for their own families,
but also for their community. Many of
the institutions that give Fort Worth its
special identity continue to benefit from
the support of these families.
10

13. The Logansport workovers averaged more than 900 Mcf per from 160- to 80-acre spacing was approved, making way for increased
day, with development wells completed at initial rates in excess of drilling. Another operator has proposed a pilot test of the Dakota
2,000 Mcf per day. Evidence suggests that this field, currently Formation as a candidate for similar spacing reduction. Approval of
developed on 80-acre well spacing, may require 40-acre well spacing this proposal would greatly enhance our portfolio of drilling projects.
to adequately drain remaining gas reserves. Both development Further, in 1997 the New Mexico Oil Conservation Division eased
wells and workovers indicate very little pressure depletion and, the rules governing commingling of producing intervals. This ruling
when coupled with gas-in-place calculations, indicate that closer will allow additional development based on the ability to combine
spacing should increase proved reserves. Additionally, the multiple intervals in a single wellbore and should increase both
Company has undeveloped acreage in the surrounding area with production and reserves per well. These changes are the most recent
exciting potential for exploration and trend extension. Develop- additions to a storied history of realized upside potential in this
ment plans for 1999 call for 13 additional recompletions and eight major gas basin.
development wells.
The highlighted
areas indicate focus
San Juan Basin
Whelan Field, located in Harrison County, Texas, produces of drilling activity.
from the Travis Peak and Rodessa formations. Development
activity during 1998 included six Travis Peak recompletions and
seven Travis Peak development wells. Additionally, a gas
compression facility was installed in the northern portion of the
field to decrease line pressures. These efforts have increased field
production from 11,000 to 16,000 Mcf per day. Development plans
for 1999 continue to target the Travis Peak Formation and include
14 workovers and two development wells.
The acquisition of the East Texas properties added significant
exploitation and development opportunities to the Company’s
project inventory. The high potential of these opportunities may be Our San Juan Basin properties produce from eight formations
best seen as we implement the 1999 development budget. The ranging in depth from 1,500 feet to 9,500 feet. At acquisition,
budget includes 75 workovers and 20 development wells in East Cross Timbers had identified 139 development well locations and 29
Texas alone. This equates to 50% of the planned capital workover opportunities. Further study has identified more than 300
expenditures and highlights the spectacular production rate and development well locations and more than 100 workover and
reserve potential of these properties. recompletion candidates.
The 78 new wellhead compressors installed during 1998
San Juan Basin increased gross production by 9,000 Mcf per day, or an average of
Cross Timbers acquired the San Juan Basin properties from 115 Mcf per well. To date, the Company has identified more than
Amoco in the fourth quarter of 1997, opened an office in 120 additional compression candidates, which will be evaluated
Farmington, New Mexico and assumed operations in December of during 1999. In addition, the Company installed artificial lifts on
that same year. During 1998, the first full year of development, the 10 wells and recompleted two wells to additional producing
Company installed 78 new wellhead compressors, completed 15 intervals.
workovers and participated in the drilling of 48 wells. These Thirteen of the 48 development wells drilled here in 1998 were
activities have increased operated production by 15%. operated by Cross Timbers. These wells targeted the Dakota and
Cross Timbers diligently searched for a major acquisition in the Fruitland Coal formations. The eight Dakota wells, 160-acre
San Juan Basin for many years because these properties exhibit our development wells concentrated in the South Canyon area, had an
preferred attributes. Located in one of the nation’s premier gas average initial rate of 500 Mcf per day. Several of these wells
basins, San Juan properties have long produced from multiple encountered additional sands beyond the main pay interval. These
intervals and have extensive upside potential. sands had been bypassed in surrounding wells. This type of
Moreover, the San Juan Basin has a history of operators opportunity for additional sandstone development in the Dakota
bypassing significant producing horizons, the Fruitland Coal recurs in many areas of the basin. In fact, a study of several leases
Formation being a good example. Other development gains have uncovered deeper potential in the Burro Canyon and Morrison
been achieved by decreasing well spacing to efficiently recover sands not penetrated in original wells. The Company plans to drill
remaining reserves and by lowering pipeline pressures to increase several wells to the Dakota during 1999 to test these deeper sands.
production rates and reserves. Our acquire-and-exploit strategy The remaining five development wells targeted the
thrives on such attributes. Fruitland Coal Formation. Two of the wells
The past several years have seen significant regulatory changes were producing at year end, with the
allowing for increased development in the San Juan Basin. Recently, other three awaiting pipeline
an application to decrease well spacing in the Mesaverde Formation connections. The two producing wells,
11

14. The Military and
Aviation Industries
During the oil boom years, Fort Worth
businessman and newspaper publisher
Amon Carter hit his stride as Fort
Worth’s champion promotor and master
craftsman of its image. His tireless
energy and influence were behind many
of the city’s most important develop-
ments. He attracted businesses large
and small, not the least of which was
the aircraft industry. As early as 1911,
he began bringing people with a com-
mon interest in aviation to town.
When World War I began, the
Army came looking for a desirable
site to house a training camp, and
Fort Worth offered land for the pro-
posed facility. In 1917, Camp Bowie
emerged practically overnight. Like
the fort founded by Major Ripley Arnold,
Camp Bowie left an infrastructure after the
war which was quickly adapted to residen-
tial development.
In 1941, with World War II imminent,
the Army chose Fort Worth to be the site
of a bomber plant. In April of 1942, the
same month it opened, the plant produced
its first B-24 “Liberator” bomber. During
the next three years, Consolidated-Vultee
Aircraft Corporation (Convair, then General
Dynamics, now Lockheed Martin Tactical
Aircraft Systems) manufactured over 3,000
bomber and transport planes at this site.
Next to the plant, the Army had built
Tarrant Field, where 4,000 bomber pilots
were trained during the war. In 1948, the
air field was renamed Carswell Air Force
Base (now a Naval Air Station Joint Reserve
Base) and the Eighth Air Force trained
there for global missions in the new atomic
age. Both facilities, along with related
industries, played a major role in the post-
war economic growth of Fort Worth.
In addition to the military, commercial
aviation also found a favorable climate in
Fort Worth. The city would later become
a key participant in building DFW
International Airport, the largest airport in
the world when it opened in 1974.
12

15. with initial rates in excess of 300 Mcf per day, have the potential to Cross Timbers also uncovered additional production potential
reach 1,000 Mcf per day after dewatering of the coal is completed. in the Baxter sandstones. Located at 6,500 feet, these sandstones
Fruitland Coal wells are shallow, low-cost ($190,000 per well) are approximately 1,000 feet shallower than the Frontier sand-
development wells with excellent rate and reserve potential. These stones. Previous operators bypassed these sands because their
wells have expected development costs per Mcfe of $0.25. As such, shale-like appearance made them appear noncommercial. Cross
the Company plans to drill 10 additional Fruitland Coal wells Timbers cored this interval and discovered a thinly interbedded
during 1999. shale-sand sequence with favorable reservoir characteristics. This
In addition, the Company reworked previously acquired 3-D finding led to several successful Baxter sandstone recompletions
seismic data over the Ute Dome Field located on the northwestern with initial rates of 450 Mcf per day. As a result, we have defined
rim of the basin. The seismic reinterpretation revealed multiple an area of potential development encompassing one-quarter of the
drilling opportunities based on structure in both the Dakota and Fontenelle Unit. The Company plans to implement five Baxter
Paradox formations. The Paradox is a thick carbonate formation sandstone recompletions and drill five development wells
with several different producing intervals. The last well drilled in during 1999.
the Paradox Formation was in 1979 and is the best performer. It
Hugoton
still produces at a rate of 1,500 Mcf per day and has produced 20
Bcf to date. We plan to drill three Paradox wells during 1999. The The Hugoton area has produced more than 64 trillion cubic
Dakota Formation, only 2,500 feet deep in this area of the basin, feet (Tcf), making it the largest gas field in North America. As
also is an attractive, highly economic target. such, our properties in this area provide a foundation for our
The San Juan Basin properties, like East Texas, have added recently created Hugoton Royalty Trust. Our development efforts
exciting exploitation and development opportunities to our project in 1998 centered on further delineating the exploration discoveries
inventory. The 1999 development budget includes 30 of 1997. During 1998, the Company drilled or participated in the
recompletions, 40 wellhead compressor installations and 41 drilling of 15 wells, mainly targeting the Council Grove Formation
development wells (23 operated). at a depth of about 3,500 feet.
In 1997, the Company and its partners drilled two successful
Rocky Mountain exploration tests that encountered productive Council Grove
Fontenelle Area. In 1996, Cross Timbers acquired a 97% carbonates. Delineation of these discoveries continued in 1998
interest in the Fontenelle Unit located in the Green River Basin of with gross production from the 14 completed wells reaching nine
Wyoming. The Company acquired the remaining interests during million cubic feet per day (4.5 million net). The southern
the past year giving Cross Timbers 100% working interest. The extension wells have been particularly prolific, with two wells
Fontenelle Unit primarily produces from the low permeability producing at rates exceeding 1.5 million cubic feet per day. We
sandstones of the Frontier Formation, and development has plan to continue this successful program by drilling an additional
focused on 80-acre infill wells with some 40-acre test wells in select 13 wells during 1999 to further develop and delineate the
areas. This Unit is included in our recently formed Hugoton productive limits of the field.
Royalty Trust. Another upside has emerged from this recent drilling program.
Development of the Unit progressed in 1998 with the drilling of Since the development wells were being drilled to test deeper
20 additional wells, which had average initial rates of 800 Mcf per formations, each well penetrated the entire Chase Group. Gas
day and average reserves of 1.5 Bcf per well. These new wells shows were noticed in the Towanda limestone, which had not been
increased the total number of wells drilled since assuming produced or adequately tested in the surrounding area. The
operations in 1996 to 62. As a result, 1998 production peaked at Company successfully tested commercial quantities of gas from this
35 million cubic feet per day, the highest rate in the history of the interval and is currently studying its remaining acreage position for
Fontenelle Unit. In addition, two step-out wells were completed, similar opportunities. We believe that the original Chase
defining trend extension possibilities that will be further tested development wells, drilled more than 50 years ago, were not drilled
during 1999. deep enough to encounter this interval due to a fear of water
In 1998, a successful 40-acre development well drilled in the production. The recent test well encountered original pressure,
southeastern portion of the Unit revealed significant upside confirming that no significant gas has been produced from this
potential. Previous wells drilled on 80-acre spacing in this area in interval. The Company plans to further test this interval during
1997 and 1998 encountered original pressure. Data from these 80- 1999 through recompletions of existing wells and by drilling
acre wells showed inadequate depletion from current well spacing new wells.
in this area of the field. This led to a highly successful 40-acre test
well that produced at rates in excess of 1,500 Mcf per day. This
successful test proved-up additional 40-acre well opportunities in
select areas of the Unit.
13

16. Entertainment and
the Arts
From promoting the earthy type of enter-
tainment sought by cowboys and gamblers
in old Fort Worth, to showcasing today’s
most renowned intellects, artists and per-
formers in world-class facilities, local citi-
zens have always come together to provide
a hospitable environment for enter-
tainment, educational and cultural
endeavors.
Even before the turn of the centu-
ry, Fort Worth had developed a more
cultured way of life. Its first opera
house opened in 1876, and in 1889, the
Texas Spring Palace opened to show off
the many products indigenous to Texas,
some of which also served as construction
materials. Tourists came from all across
the country to view this unusual building
and its treasures, but in 1890, a fire
destroyed the building. In spite of its
short-lived reign, the Spring Palace got
people talking about Fort Worth and its
unique attractions.
The Will Rogers Memorial Center with
its coliseum and auditorium, the city’s first
large entertainment landmark, was built in
1936 with funds from the Federal gover-
ment, a city bond issue and donations from
the community. The Center became the
cornerstone of a cluster of museums, parks,
and restaurants known as the Cultural
District, which today includes the world-
renowned Kimbell Art Museum. Fort
Worth’s involvement in the performing arts
has also gained momentum over the years,
culminating in the 1998 opening of the
Nancy Lee and Perry R. Bass Performance
Hall. This state-of-the-art facility was
recently named one of the top 10 opera
houses in the world.
Fort Worth has matured remarkably in
its first 150 years. Whether visitors come
for a taste of the Old West or the best of
modern culture, they come away with a
sense of both. The city’s most distinctive
attraction, however, is the generous spirit
of the people who live here, and simply
want others to enjoy Fort Worth as much
as they do.
14

17. Permian Basin production at a cost of $0.48 per Mcfe. Our five-year all-in finding
University Block 9 Field. This West Texas field, discovered in cost is $0.64 per Mcfe. These finding costs and production
1953, is a multiple-pay field producing from the Wolfcamp-, replacement statistics are expected to be among the lowest in
Pennsylvanian- and Devonian-age carbonates from 8,400 to 10,400 the industry.
feet. Upon completing the consolidation of working interests in the During 1998, the Company produced 4.6 million barrels of oil,
Penn and Wolfcamp units and a majority of the Devonian leases in 1.2 million barrels of natural gas liquids (NGLs) and 83.8 billion
1997, Cross Timbers began an aggressive, highly cubic feet of natural gas. Daily oil and NGLs
successful development program that continued production averaged 15,945 barrels, up 43% over
Proved Reserves
in 1998. the 11,125 barrels during 1997. Daily gas
Five wells were drilled in this field with production averaged 229.7 million cubic feet, up
average initial production exceeding 200 barrels 69% from the 135.9 million cubic feet in 1997.
per day. One of the five wells successfully tested The 1998 exit rate for daily production, 275,000
the eastern portion of the field, which Mcf of gas and 19,000 barrels of oil and NGLs,
historically was believed to be adequately represents a 38% increase over 1997 exit rates.
depleted by original development. The new well Oil prices, at an average $21.38 a barrel in
is capable of producing more than 1,000 barrels 1996 and $18.90 in 1997, decreased to $12.21 for
per day, a rate not achieved since field discovery. 1998. The average natural gas price for 1998 was
This achievement redefines the economic $2.07 per Mcf, down 6% from the 1997 average
potential of the field’s eastern portion. of $2.20 per Mcf. NGLs per barrel averaged
Three horizontal sidetracks from existing Devonian wells also $7.62, down 21% from the 1997 average sales price of $9.66.
were completed in 1998. These wells, along with two existing As of December 31, 1998, estimated future net cash flows
horizontal sidetrack wells, are each producing an average of 125 before income tax were $1.677 billion based on prices of $9.50 per
barrels per day higher than their original vertical well rates. The barrel of oil and $2.01 per Mcf of gas. The present value before
horizontal sidetracks were drilled and completed for a cost of 65% income tax, discounted at 10%, was $909 million, compared to the
less than the cost to drill a vertical well, providing an attractive year-end 1997 level of $782 million. The prices at year-end 1997
development opportunity. As a result, 15 wells are now candidates were $15.50 per barrel of oil and $2.20 per Mcf of gas.
for a horizontal sidetrack development. Using year-end 1997 oil and natural gas prices, 1998 proved
Four recompletions to add additional pay in existing wells were reserves would have been 1.733 Tcfe, an increase of 46% from
successful in increasing production an average of 80 barrels per 1997. Estimated future net cash flows, before income taxes, would
day per well. have been $2.275 billion with a present value before income tax,
Additional upsides remain for the Devonian wells by discounted at 10%, of $1.249 billion. Our 1998 exploration and
completing the Pennsylvanian- and Wolfcamp-age carbonates above development program would have replaced 231 Bcfe or 195% of
the Devonian. During 1998, we recompleted four existing production at a cost of $.34 per Mcfe.
Devonian wells to the Pennsylvanian for an additional 150 barrels
Proved Oil and Gas Reserves
per day. December 31, 1998
Overall, the 1998 development program resulted in a peak rate (in thousands)
Natural
for the University Block 9 Field of 3,900 barrels per day in January Oil Gas Gas Liquids
(Bbls) (Mcf) (Bbls) Mcfe
1999, a 34% production increase over the previous year’s peak rate
Proved developed 42,876 968,495 14,000 1,309,751
and 300% above the rate at the time of acquisition. This is the
Proved undeveloped 11,634 240,729 3,174 329,577
highest field production rate in the past 25 years, allowing for Total proved 54,510 1,209,224 17,174 1,639,328
attractive rates of return despite low oil prices. With an additional
Estimated future net cash flows, before income tax $1,677,426
30 to 40 locations identified for future development by either
Present value before income tax $908,606
drilling or horizontal sidetracks, Cross Timbers continues to
breathe new life into a venerable field. Changes in Proved Reserves
(in thousands)
Natural
RESERVES AND PRODUCTION Oil Gas Gas Liquids
(Bbls) (Mcf) (Bbls) Mcfe
This was another banner year for Cross Timbers, attributable to
December 31, 1997 47,854 815,775 13,810 1,185,759
substantial acquisitions of producing properties, accelerated
Revisions (5,893) (5,429) 2,631 (25,001)
development activity and sheer determination by dedicated Extensions and discoveries 821 172,059 1,875 188,235
Production (4,598) (83,847) (1,222) (118,767)
operations personnel companywide. Purchases in place 16,331 311,260 80 409,726
Estimated proved oil and gas reserves at year-end 1998 were Sales in place (5) (594) – (624)
December 31, 1998 54,510 1,209,224 17,174 1,639,328
1.639 Tcfe, up 38% from 1.186 Tcfe at year-end 1997. Cross
Timbers replaced 482% of its 1998 production at a cost of $.73 Based on SEC assumptions.
cents per Mcfe. Through the drill bit, we replaced 137% of
15

18. Cross Timbers Oil Company
SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
In thousands except production, per share and per unit data
Consolidated Statement of Operations
and Cash Flows Data (a)
Revenues:
$ 56,164
Oil and condensate $075,223 $ 75,013 $060,349 $ 53,324
182,587
Gas and natural gas liquids 110,104 73,402 40,543 38,389
9,438
Gas gathering, processing and marketing 9,851 12,032 7,091 4,274
1,297
Other 3,094 ,888 3,362 288
$ 249,486
Total revenues $198,272 $161,335 $ 111,345 $ 96,275
$ (71,498)(b) $023,905
Earnings (loss) available to common stock $019,790 $ (10,538)(c) $003,048
Per common share (d)
$ (1.65)(b) $0000.60
Basic $ 0.50 $00 (0.28)(c) $ 00 0.09
$ (1.65)(b) $0000.59
Diluted $ 0.48 $00 (0.28)(c) $ 00 0.08
43,396
Weighted average common shares outstanding (d) 39,773 39,913 38,072 35,829
$ 0.16
Dividends declared per common share (d) $0000.15 $0000.13 $0000.13 $0000.13
$ 78,480
Operating cash flow (e) $089,979 $068,263 $040,439 $037,816
Year-end Consolidated Balance Sheet Data (a)
$1,051,011
Property and equipment, net $723,836 $450,561 $364,474 $244,555
1,207,594
Total assets 788,455 523,070 402,675 292,451
921,000
Long-term debt 539,000 314,757 238,475 142,750
177,451
Stockholders’ equity 170,243 142,668 130,700 113,333
Operating Data (a)
Average daily production:
12,598
Oil (Bbls) 10,905 9,584 9,677 9,497
229,717
Gas (Mcf) 135,855 101,845 78,408 58,182
3,347
Natural gas liquids (Bbls) 220 – – –
325,390
Mcfe 202,609 159,349 136,470 115,164
Average sales price:
$12.21
Oil (per Bbl) $18.90 $21.38 $17.09 $15.38
$02.07
Gas (per Mcf) $02.20 $01.97 $01.42 $01.81
$07.62
Natural gas liquids (per Bbl) $09.66 – – –
$00.53
Production expense (per Mcfe) $00.59 $00.67 $00.71 $00.77
$00.25
Taxes, transportation and other (per Mcfe) $00.22 $00.20 $00.17 $00.21
Proved reserves:
54,510
Oil (Bbls) 47,854 42,440 39,988 33,581
1,209,224
Gas (Mcf) 815,775 540,538 358,070 177,061
17,174
Natural gas liquids (Bbls) 13,810 – – –
1,639,331
Mcfe 1,185,759 795,178 597,998 378,547
(a) Significant producing property acquisitions in each of the years presented affect the comparability of year-to-year financial and operating data.
(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) Includes effect of a $20.3 million pre-tax, non-cash impairment charge recorded upon adoption of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
(d) Adjusted for the three-for-two stock splits effected on March 19, 1997 and February 25, 1998.
(e) Defined as cash provided by operating activities before changes in current assets and liabilities.
16

19. Cross Timbers Oil Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
General the most significant property included in the Enserch
Acquisition, at a cost of $12.5 million.
The following events affect the comparability of results of
operations and financial condition for the years ended December
• Gas-producing properties in the Ozona area of the Permian
31, 1998, 1997 and 1996, and may impact future operations and
Basin of West Texas. The Company acquired these mostly
financial condition. Throughout this discussion, the term “Mcfe”
operated interests for $28.1 million.
refers to thousands of cubic feet of gas equivalent quantities
produced for the indicated period, with oil quantities converted to
• 16% of the publicly traded outstanding units in Cross Timbers
Mcf on an energy equivalent ratio of one barrel to six Mcf.
Royalty Trust. The Company purchased these units at a total
cost of $12.8 million from July through December 1996.
Three-for-Two Stock Splits. The Company effected a three-for-two
stock split on March 19, 1997 and on February 25, 1998. All
1998, 1997 and 1996 Development and Exploration Programs.
common stock shares, treasury stock shares and per share amounts
Oil development was concentrated in the University Block 9 Field
have been retroactively restated to reflect both stock splits.
during 1998 and 1997, as well as the Prentice Northeast Unit of
West Texas during 1997 and 1996. Gas development focused on the
1998 Acquisitions. During 1998, the Company acquired oil- and
Hugoton Area during 1998, the Ozona Area in 1998 and 1997, the
gas-producing properties for a total cost of $340 million, including:
Fontenelle Unit during all three years and Major County, Oklahoma
during 1996. Exploration activity during 1998 was primarily
• The East Texas Basin Acquisition. The Company acquired
geological and geophysical analysis, including seismic studies, of
these primarily gas-producing properties for an estimated
undeveloped properties at a total cost of $8 million. This work was
purchase price of $245 million, later reduced to $215
concentrated in the Silurian Reef of Illinois, and Texas County and
million by a $30 million production payment sold to EEX
the Nemeha Ridge Area of Oklahoma. Exploratory expenditures
Corporation. This acquisition closed on April 24, 1998 and
were $2.1 million in 1997 and insignificant in 1996.
was funded by bank debt, partially repaid from proceeds of
the 1998 Common Stock Offering.
1999 Development and Exploration Program. The Company has
budgeted $60 million for its 1999 development and exploration
• The Alaska Cook Inlet Acquisition. In September 1998, the
program, which is expected to be funded primarily by cash flow from
Company acquired these oil-producing properties in
operations. The Company anticipates exploration expenditures will
exchange for 1,921,850 shares of the Company’s common
be less than 5% of the 1999 budget. The total capital budget,
stock along with certain price guarantees and a non-interest
including acquisitions, will be adjusted throughout 1999 to
bearing note payable of $6 million, resulting in an estimated
capitalize on opportunities offering the highest rates of return.
purchase price of $44.4 million.
1998 Common Stock Offering. In April 1998, the Company sold
• The Seagull Acquisition. This acquisition includes primarily
7,203,450 shares of common stock. Net proceeds of $133.1 million
gas-producing properties in northwest Oklahoma and the
were used to partially repay bank debt used to fund the East Texas
San Juan Basin of New Mexico. The Company acquired
Basin Acquisition.
these properties in November 1998 for an estimated
purchase price of $29.2 million, funded by bank borrowings.
1998 Issuance of Common Shares. In September 1998, the
Company issued from treasury stock 1,921,850 common shares to
1997 Acquisitions. During 1997, the Company acquired
subsidiaries of Shell Oil Company for the Alaska Cook Inlet
predominantly gas-producing properties for a total cost of $256
Acquisition.
million, funded primarily by bank borrowings and cash flow from
operations. The acquisitions include:
1997 Senior Subordinated Note Sales. The Company sold $125
million of 9 1⁄4% senior subordinated notes in April 1997 and $175
• The Amoco Acquisition. The Company purchased these
million of 8 3⁄4% senior subordinated notes in October 1997. Net
properties in the San Juan Basin of New Mexico in
proceeds of $121.1 million and $169.9 million were used to reduce
December 1997 for an estimated adjusted purchase price of
bank debt.
$195 million. This purchase price includes $5.7 million for
five-year warrants to purchase 937,500 shares of the
1997 and 1996 Conversion of Subordinated Notes. During
Company’s common stock at $15.31 per share.
November and December 1996, noteholders converted $27.7 million
principal of the 5 1⁄4% convertible subordinated notes into 2,696,521
• The Burlington Resources Acquisition. The Company
shares of common stock. In January 1997, noteholders converted
purchased these properties in Oklahoma, Kansas and Texas
the remaining principal of $29.7 million into 2,892,363 shares of
for an estimated adjusted purchase price of $39 million in
common stock.
May 1997.
1996 Preferred Stock Exchange. In September 1996, stockholders
• 6% of the publicly traded outstanding units in Cross Timbers
exchanged 2,979,249 shares of common stock for 1,138,729 shares
Royalty Trust, at a cost of $5.4 million.
of Series A convertible preferred stock pursuant to the Company’s
exchange offer.
1996 Acquisitions. During 1996, the Company acquired primarily
gas-producing properties for a total cost of $106 million funded
Treasury Stock Purchases. Since May 1996, the Board of Directors
primarily by bank debt. These acquisitions include:
has authorized the purchase of a total of 10.5 million shares of the
Company’s common stock as part of its strategic acquisition plans.
• The Enserch Acquisition. This acquisition closed in July
The Company purchased on the open market 4.3 million shares at a
1996 at a cost of $39.4 million and primarily consisted of
cost of $65.6 million in 1998, 2.4 million shares at a cost of $28
operated gas-producing properties in the Green River Basin
million in 1997 and 2.9 million shares at a cost of $30.7 million in
of southwestern Wyoming. In November 1996, the
1996.
Company acquired additional interests in the Fontenelle Unit,