2. COMPANY PROFILE
Cross Timbers Oil Company, established in 1986, is engaged in
the acquisition, exploitation and development of quality, long-
lived producing oil and gas properties. Since going public in 1993,
Cross Timbers has grown value per share at greater than 30%
annual compounded growth rates. Cross Timbers operates 81% of
its properties, which are concentrated in Texas, Oklahoma,
Kansas, Wyoming and New Mexico. 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.
On the Cover
“Homesteaders”
In the late 1880s, public land was made available in the
Cherokee Strip west of Enid in northwestern Oklahoma. The
“Oklahoma Land Rush” attracted settlers and immigrants seeking
a new life out West.
About the Report
The history of the petroleum industry in the United States is
interwoven into the history of frontier settlement. Even before the
Indian encampments had faded from the landscape of America’s
plains, many states had already begun producing oil. The pioneers
who settled the land and those who produce its oil and gas
resources share certain entrepreneurial characteristics: indepen-
dence, optimism and a willingness to take risks.
The rich and colorful history of the frontier is part of the
culture in areas where Cross Timbers Oil Company is active today.
The scenes depicted in this report are the work of actor-artist
Buck Taylor, whose paintings reflect the spirit of individualism
and self-reliance common to those who settled the West.
(See inside back cover.)
CONTENTS
To Our Shareholders . . . . . . . . 2
Operations Review . . . . . . . . . . 4
Selected Financial Data . . . . . 16
Management’s Discussion
and Analysis . . . . . . . . . . . . . . 17
Financial Statements . . . . . . . 23
Corporate Information . . . . . . 38
3. FINANCIAL HIGHLIGHTS
1996 1995 1994
In thousands except production, per share and per unit data
Financial
$00161,391
Total revenues $0112,905 $0096,275
$00030,973 $ 0(17,019)(a)
Income (loss) before income tax and extraordinary item $0004,778
$00019,790 $ 0(10,538)(a)
Earnings (loss) available to common stock $0003,048
$000000.74 $ 000(0.42)(a)
Per common share (b) $00000.13
$00068,263
Operating cash flow (c) $0040,439 $0037,816
$00523,070
Total assets $0402,675 $0292,451
Long-term debt
$00285,000)(d)
Senior $0172,000 $0068,000
$00029,757)(e)
Convertible subordinated notes $0066,475 $0074,750
$00142,668)(e)
Total stockholders’ equity $0130,700 $0113,333
25,631)(e)
Common shares outstanding at year-end (b) 27,577 23,887
Production
Daily production
9,584
Oil (Bbls) 9,677 9,497
101,845
Gas (Mcf) 78,408 58,182
26,558
BOE 22,745 19,194
Average price
$000021.38
Oil (per Bbl) $00017.09 $00015.38
$000001.97
Gas (per Mcf) $00001.42 $00001.81
Proved Reserves
42,440
Oil (Bbls) 39,988 33,581
540,538
Gas (Mcf) 358,070 177,061
132,530
BOE 99,666 63,091
Abbreviations
Bbl barrel
Mcf thousand cubic feet
BOE barrels of oil equivalent (six Mcf equal one Bbl)
(a) Includes effect of a $20.3 million pre-tax, non-cash impairment charge recorded upon adoption of Statement of Financial Accounting Standards No. 121.
(b) Adjusted for the three-for-two stock split effected on March 19, 1997.
(c) Cash provided by operating activities before changes in working capital.
(d) On April 2, 1997, the Company sold $125 million of senior subordinated notes. Net proceeds of $121.1 million were used to reduce senior debt.
(e) In January 1997, $29.7 million principal amount of the convertible subordinated notes was converted into 1,928,242 shares of common stock, after the adjustment in (b) above.
Total Revenues Proved Reserves
Daily BOE Production
Operating Cash Flow
(in thousands)
(in millions of dollars) (in millions of BOE)
(in millions of dollars)
30
175 70 140
150 60 120
25
100
125 50
20
100 40 80
15
75 30 60
10
40
50 20
5
25 10 20
0 0
0
0
1993 1994 1995 1996 1993 1994 1995 1996
1993 1994 1995 1996
1993 1994 1995 1996
1
4. TO OUR SHAREHOLDERS
During 1996 Cross Timbers again The Permian Basin properties are Kansas and Texas for $39.5 million from
posted record results: located in the Northern Val Verde area. a subsidiary of Burlington Resources Inc.
They are primarily operated interests in The transaction is effective April 1, 1997
B Record total revenues – $161.4
the Henderson, Ozona and Davidson and should close in May 1997.
million – up 43% from 1995;
Ranch fields of Crockett County, Texas. The properties are primarily operated
B Record earnings available to
Cross Timbers’ internal engineers interests concentrated in northwestern
common stock – $19.8 million
($.74 per share); estimate proved reserves attributable to Oklahoma and the panhandle areas of
the Val Verde Basin acquisition to be Oklahoma and Texas and in southwestern
B Record operating cash flow – $68.3
million – up 69% from 1995; 36 billion cubic feet of natural gas and Kansas. Cross Timbers’ internal engineers
280,000 barrels of oil. estimate proved reserves attributable to
B Record natural gas production –
101,845 Mcf per day – up 30% the acquisition to be 36.5 billion cubic
from 1995; feet equivalent of natural gas, of which
Since we went public in
B Record proved reserves – 132.5 more than 97% is gas.
1993 we’ve grown reserves
million BOE – up 33% from 1995; Approximately 30% of the purchase
per share by 32% annually
B Record present value (before income price is attributable to 124 square miles
taxes) of reserves – $946 million. and cash flow per share by (79,500 net acres) of undeveloped acreage
primarily located in Texas County,
26% while keeping debt
Since we went public in 1993 we’ve
Oklahoma. More than 71,000 of the
grown reserves per share by 32% annually
around $2.20 per BOE.
undeveloped acres purchased are for
and cash flow per share by 26% while
deep rights below Cross Timbers’
keeping debt around $2.20 per BOE.
This acquisition expands our reserve existing Texas County Hugoton Chase
Our goal at that time was to double
base in the Val Verde Basin. Our engi- production.
value per share by 1998. That goal has
neers have already identified 60 locations Additionally, in the area of portfolio
been achieved ahead of schedule and
for additional development, 32 of which management, the Company has entered
replaced by more aggressive goals for
we plan to drill during 1997. We believe into definitive agreements to sell non-
1997 (see adjacent graph).
there is additional upside through further strategic producing properties aggregat-
In May 1996 we announced our plans
infill and step-out drilling. ing approximately $15 million. Closings
for 1997:
The Green River Basin properties on these sales are expected during the
B Increase reserves to 5.4 BOE
were purchased in two transactions dur- second quarter of 1997.
per share – 4.8 at year-end 1996
ing 1996. As a result of these acquisi-
(split adjusted); 1996 DEVELOPMENT
tions, Cross Timbers now operates the
B Increase cash flow to $3.67 The Company drilled 100 wells and
Fontenelle Unit with a 97% working
per share – $2.57 for 1996 completed 125 workovers during 1996.
(split adjusted); interest, and owns interests in the nearby Drilling was balanced between oil and
Nitchie Gulch and Pine Canyon fields.
B Maintain debt at $2.20 per BOE – gas wells with a success rate of 97%.
$2.17 at year-end 1996. Proved reserves attributable to the Development of oil reserves on the
acquisitions in the Green River Basin are
With our growth in reserves and Prentice Northeast Unit in West Texas
estimated to be 118 billion cubic feet of
production to date, we are confident that and the Southeast Maljamar Unit in
natural gas. Since assuming operations of
we will achieve these goals assuming our southeastern New Mexico has been
the Fontenelle Unit, Cross Timbers has
1997 prices average $20.00 per barrel of particularly successful with initial pro-
drilled 10 wells that are in various stages
oil and $2.00 per thousand cubic feet duction rates per well averaging 100 and
of completion. Production is up 30%
of gas. 40 barrels of oil per day, respectively.
from the time of acquisition as a result of Based upon this success, we increased the
ACQUISITIONS
this development. Twenty wells are number of wells drilled in these units
During 1996 Cross Timbers acquired
planned for 1997 with as many as 50 during 1996 to 28 wells in the Prentice
more than $100 million in producing
additional wells to be drilled in the Unit Northeast Unit, up from the original
properties, establishing two new core
during the next several years. budget for 10 wells, and 11 wells in the
areas – the Green River Basin in south-
In March 1997 Cross Timbers agreed Southeast Maljamar Unit, up from
western Wyoming and the Ozona Area of
to acquire producing properties and five wells.
the Permian Basin in West Texas.
undeveloped acreage in Oklahoma,
2
5. Value Creation
1997 CAPITAL BUDGET for up to three million common shares
(split adjusted). Through year-end, two
Cross Timbers has set its 1997 capital
5
million shares had been repurchased at a
budget at $120 million. The budget
4.8
cost of about $30 million. This program
includes $70 million for the Company’s 4
has since been completed and an addi-
ongoing development program and $50 3.6
tional two million share program has
million for acquisitions. We’ve already 3
2.7 been authorized.
2.1
made or committed to make 1997
$2.27 $2.26 2
$2.17
$2.11 Through the placement of $125
acquisitions totaling $52 million. These
million in Senior Subordinated Notes
expenditures are expected to be funded 1
previously discussed, Cross Timbers has
through internally generated sources,
substantially increased its financial flexi-
including cash flow and selective 0
1993 1994 1995* 1996**
bility. The note offering also locks in an
asset sales. BOE per share
attractive interest rate for 10 years and
It is likely that additional acquisition Debt per BOE
has, in general, less restrictive covenants
opportunities will be available during the * Including effect of Tyrone
sale/leaseback transaction
than bank debt.
remainder of 1997. In preparation for ** Pro forma with effect of
note conversion
these opportunities, the Company has SUMMARY
the Tubb Formation and plans to recom-
recently sold $125 million of 9.25% Cross Timbers is poised to achieve its
plete up to 22 wells and drill up to 20
Senior Subordinated Notes. Proceeds stated goals for 1997. This means that we
wells to the Tubb during 1997. Subject
were used to repay outstanding indebted- will have enjoyed cash flow growth
to drilling success, we have substantial
ness under the Company’s senior bank averaging more than 50% annually for
additional opportunities in this area.
credit facility. We expect more than $100 1996 and 1997.
Cross Timbers has acquired more
million to be available under the bank As we look toward 1998 and beyond,
than 8,700 net acres prospective in the
facility to fund future acquisitions. we believe that Cross Timbers has the
Cotton Valley Pinnacle Reef play, cur-
The Company plans to drill 173 wells quality, long-lived reserve base and the
rently the most exciting domestic explo-
in 1997, including 114 gas and 59 oil, technical and operating staff to continue
ration play. These wells produce at initial
and plans 80 workover/recompletion increasing value per share by more than
rates up to 50 million cubic feet per day
activities. Natural gas development will 25% annually. Continued achievement of
with estimated proved reserves up to 80
focus in the Fontenelle Unit in south- this extraordinary growth is only possible
billion cubic feet. Eleven reef anomalies
western Wyoming, the Ozona Area in through the effort and dedication of our
have been identified by 2-D seismic on
West Texas, both areas acquired in 1996, employees and the guidance of our direc-
Cross Timbers’ acreage and these will be
and in Major County, Oklahoma. tors. Our thanks to them and to you, our
further refined with the help of 3-D seis-
Oil drilling will continue the success- fellow shareholders, for your support.
mic. Because we have long-term leases,
ful development of the Company’s largest As in past years, we again state our
we can lessen our risk by allowing other
oil-producing property, the Prentice dedication to achieving exceptional
operators to test geologic concepts near
Northeast Unit in Terry County of West growth in shareholder value on a per
our acreage prior to our drilling.
Texas. Development will also be acceler- share basis. We are confident in our
ated in the University Block 9 Field, CAPITAL STRUCTURE ability to continue to deliver the results
where the Company recently increased its that you have come to expect.
During 1996 the Company called for
working interest to 100%. the redemption of its 51⁄4% Convertible
Approximately 10% to 20% of the Notes. The last were converted into com-
budget will be allocated to higher-risk mon stock in January 1997 and in total,
Bob R. Simpson
projects, including step-out development stockholders’ equity was increased by $57
Chairman and Chief Executive Officer
wells and exploratory drilling. The higher- million. We believe the preference of
risk activity will initially focus on two these noteholders to receive common
areas: the Tubb Formation in Lea County, stock instead of cash reflects an
New Mexico and the Cotton Valley optimistic outlook for Cross Timbers’ Steffen E. Palko
Pinnacle Reef play in East Texas. The stock price. Vice Chairman and President
Company has accumulated more than In May 1996 Cross Timbers
4,500 net acres that are prospective for April 15, 1997
announced a stock repurchase program
3
6. OPERATIONS REVIEW
1996 represented a year of accelerated attractive rates of return. Additionally, Rocky Mountains
activity for Cross Timbers and the energy exploratory projects, reflecting a slightly The Company invested $57 million
industry. Rising oil and gas prices and more aggressive management stance, now in natural gas properties in the Green
growing global oil demand – projected comprise 10% to 20% of our drilling River Basin of southwestern Wyoming.
to be at least 2% annually through the budget. As a result of these acquisitions, the
year 2000 – helped fur- Cross Timbers also maintained its Company now operates and owns more
Cross Timbers acquired ther revitalize the busi- practice of establishing a short-term than 97% of the Fontenelle Unit –
ness and to set a tone action plan and long-range strategy for including 100% of the related gathering
more than $100 million
for optimism, opportu- every well it operates, a unique commit- and compression facilities – and owns
of producing properties
nities and prosperity as ment for an independent of its size. Every both operated and non-operated interests
during 1996. New core
1997 began. well receives an extensive technical evalu- in the nearby Nitchie Gulch and Pine
operating areas were During 1996 Cross ation and is reviewed at least annually, Canyon fields.
established in both the Timbers expanded into from the field employee up through The Company’s proved reserves in the
two new core operating engineering to the Company president. Green River Basin are estimated to be
Green River Basin in
areas – the Green River 118 billion cubic feet of natural gas. Net
southwestern Wyoming
ACQUISITIONS
Basin of Wyoming and production from this area averages more
and the Ozona Area of the Ozona Area of the Cross Timbers acquired more than than 18.5 million cubic feet of gas per
the Permian Basin in Permian Basin in West $100 million of producing properties day, up about 30% as a result of
Texas – adding gather- during 1996. New core operating areas aggressive development subsequent to
West Texas, and our
ing and processing facil- were established in both the Green River acquisition of the properties.
existing franchises were
ities at the same time. Basin in southwestern
expanded in Oklahoma Our traditional phi- Wyoming and the
and Texas. losophy for adding value Ozona Area of the MAJOR
WYOMING
PRODUCING
to the Company and our Permian Basin in
Fontenelle
AREAS
Area
dedication to quality are unchanged: We West Texas, and our
buy producing properties with over- existing franchises
looked potential and concentrate our were expanded in
COLORADO
expertise and technological advancements Oklahoma and Texas. KANSAS
to develop projects that produce Hugoton Area
Major
County
Summary of Proved Reserves by Area Elk City
NEW OKLAHOMA
SEC Assumptions MEXICO
(in thousands)
Prentice N.E.
Oil Gas BOE Present Russell
Area (Bbls) (Mcf) BOE Value(a) Percent
University
Tubb Play
Permian Basin 31,274 77,655 44,217 $346,520 36.6% Block 9
Mid-Continent 8,512 165,334 36,068 306,730 32.4% TEXAS
Hugoton ,362 161,318 27,248 167,160 17.7%
Ozona Area
Rocky Mountain 1,673 127,554 22,932 107,269 11.3%
Other (b) ,619 8,677 2,065 18,471 2.0%
Total 42,440 540,538 132,530 $946,150 100.0%
(a) Before income tax
(b) Includes 16% ownership of Cross Timbers Royalty Trust
Abbreviations:
Bbl barrel
Mcf thousand cubic feet
BOE barrel of oil equivalent (six Mcf equal one Bbl)
4
7. “INDIANS OF THE GREAT PL AINS”
Astride the horse, the Plains Indians were
superb hunters and fierce warriors.
They were a nomadic people who depended
on the huge herds of buffalo that roamed
from Texas to Canada.
5
8. FONTENELLE FIELD
The acquisitions in the Green River
Frontier Sandstone
Depositional Model
Basin have proven to be particularly well
timed. The prices received for gas
Marsh
produced in the Rocky Mountain area
Tidal Chann
el
improved substantially since our Lagoon
purchase as a result of a significant nar-
Upper
Shorefa
rowing of the differential between Rocky ce
Barrier
Beach
Mountain prices and Henry Hub prices. Lower
Comple Shorefa
x ce
Four major pipeline projects stretching
from the Rockies to the Midwest are
Well locations for the 1997 drilling program are based on the depositional systems
scheduled to come on line in 1997 and
shown in this model.
1998, which could further alleviate price
differentials. correlate to the most productive wells. barrels of oil. Current net daily produc-
Cross Timbers acquired operations of By delineating the geometry of these tion averages 8.1 million cubic feet of gas
the Fontenelle Unit in late July and by facies, Cross Timbers will improve and 43 barrels of oil.
year-end had increased its ownership drilling results and economic benefits. Approximately two-thirds of the
interest to 97%. The field has 88 gross The Company drilled 10 Frontier reserves and value in these properties are
(85net) wells that produce from the wells during 1996 with initial flow rates from wells operated by the Company.
Frontier Formation on the Moxa Arch. averaging one million cubic feet per day. These properties are distinguished by
The field covers about 16,000 acres and is Proposed wells for 1997 were identified their high Btu content (1200 Btu/cubic
currently developed on 160-acre spacing. by mapping and identifying the trend of foot), low operating costs (about $0.30
The Frontier Formation is a geolog- the most productive sandstones. Many of per Mcf equivalent) and excellent devel-
ically complex, low-permeability sand- the proposed wells are in areas that can opment potential, including infill
stone. Because of the low permeability of extend productive areas of the field and drilling, field extension and delineation
the Frontier, upside potential exists add significant new drilling opportuni- drilling and the possibility of horizontal
through 80- and 40-acre infill drilling. ties in the future. Also, we plan to drilling in the Strawn Formation.
Cores and electric logs suggest the restimulate selected wells that were poorly Cross Timbers immediately examined
Frontier Formation includes an upper stimulated upon original completion. the operational efficiencies of the fields
shoreface and a tidal channel facies which and successfully reduced compression
Permian Basin costs in the Henderson Field by 25%.
OZONA AREA
In December 1996, the Additional gathering and compression
Crockett County,Texas
Company acquired properties system work is planned here for 1997 to
Upton Reagan Irion
located in the Ozona Area of further reduce our compression costs,
Crockett County
Schleicher
Central Basin the Permian Basin in Crockett which are currently more than 50% of
Platform
County, Texas for about $27.5 lease operating costs.
DAVIDSON
RANCH FIELD
million. These properties – 88 Budget plans for 1997 are to drill 32
OZONA
FIELD
gross (49.1 net) Company- wells, of which 16 are planned for the
SONORA
FIELD
operated wells and 124 gross Henderson (Canyon) Field and 16 are
Sutton
HENDERSON
(26.3 net) wells operated by planned for the Ozona (Canyon/Strawn)
FIELD
others – have estimated net Field. The proposed wells will be primar-
Val Verde
reserves of 36 billion cubic ily infill wells with spacing between 40
CTOC Properties feet of gas and 280 thousand and 160 acres.
6
9. “THE TRAIL HOME”
Cross Timbers Oil Company is headquartered in
Fort Worth, Texas, whose Stockyards
at one time were the largest in the country.
Not only were herds of cattle taken to market in
“Cowtown,” but large remudas (herds of saddle horses)
and mules were sold to the cowboys
for their daily chores.
7
10. Mid-Continent cess in these areas, we increased the num- many as 20 wells to the Tubb Formation
ber of wells drilled in these units during during 1997. Subject to drilling success,
Cross Timbers continues to make
1996 from those originally budgeted. the Company has substantial additional
strategic acquisitions in its core operating
Development of gas reserves centered opportunities in this area.
areas. The Company expects to close in
on the Major County, Oklahoma area The Cotton Valley Pinnacle Reef
May 1997 on a $39.5 million acquisition
(36 wells), the Green River Basin in wells are highly prolific, producing at
of producing properties and undeveloped
Wyoming (10 wells) and the Hugoton initial rates up to 50 million cubic feet
acreage in southwestern Kansas, north-
Field in Kansas (5 wells). Our success in per day with estimated proved reserves
western Oklahoma and the panhandle
these areas set up additional prospective up to 80 billion cubic feet. Cross Timbers
areas of Oklahoma and Texas. Our inter-
locations for drilling in 1997. has acquired more than 8,700 net acres
nal engineers estimate proved reserves
prospective in the Cotton Valley play.
attributable to the acquisition to be 36.5
Operated Wells Drilled The acreage includes 3,200 net acres held
billion cubic feet of natural gas equiva-
by production in Wood County, Texas
lent, of which more than 97% is gas. 175
and 5,500 net acres leased in Van Zandt,
Current net daily production averages 150
Smith and Henderson counties.
5.5 million cubic feet of gas equivalent 125
Advancements in 3-D seismic tech-
from 130 gross (65 net) wells with a 100
nology have allowed for better definition
reserve-to-production index of 17.5 years. 75
of the Pinnacle Reef build-up, making
About 30% of the purchase price is
50
this an attractive exploration play. Eleven
attributable to 124 square miles (79,500
25
reef anomalies have been identified by
net acres) of undeveloped acreage located
0
2-D seismic on Cross Timbers’ acreage
1994 1995 1996 1997
primarily in Texas County, Oklahoma.
(est.)
and these will be further refined with the
This acquisition adds deep rights to
In February 1997, Cross Timbers set help of 3-D seismic. Because we have
our existing Hugoton assets, which are
its 1997 development budget at $70 long-term leases, we can lessen our risk
among our most important, while
million. With this budget, the Company by allowing other operators to test geo-
extending our franchise in northwestern
plans to drill 173 wells in 1997, includ- logic concepts near our acreage prior to
Oklahoma. The undeveloped acreage is
ing 114 gas and 59 oil, and plans 80 our drilling.
viewed as highly prospective, and 3-D
workover/recompletion activities. Natural gas development will be
seismic technology, successful for opera-
About 10% to 20% of the develop- focused on two newly acquired interests
tors in adjoining areas, will be employed
ment budget will be allocated to – the Fontenelle Unit in southwestern
in its development.
higher-risk projects, including step-out Wyoming and the Ozona Area in West
DEVELOPMENT development wells and exploratory Texas – and in Major County, Oklahoma.
drilling. The higher-risk activity will Oil drilling will continue the success-
The Company drilled 100 wells and
focus on the Tubb Formation in Lea ful development of the Company’s largest
completed 125 workovers during 1996.
County, New Mexico and the Cotton oil-producing property, the Prentice
Drilling was balanced between oil and
Valley Pinnacle Reef play in East Texas. Northeast Unit in Terry County, West
gas wells with a success rate of 97%.
In New Mexico the Company has Texas. Development will be accelerated
Development of oil reserves on the
accumulated more than 6,200 gross on the University Block 9 Field, where
Prentice Northeast Unit in West Texas
(4,500 net) acres that are prospective for the Company recently increased its work-
and the Southeast Maljamar Unit in
the Tubb Formation. The Company plans ing interest to 100%.
southeastern New Mexico has been par-
to recomplete up to 22 wells and drill as
ticularly successful. Based upon the suc-
8
11. “BUFFALO HUNTER”
In the early 1800s, Comanches in the area now
known as Lubbock hunted the “Texas Herd.”
Not only did the Plains Indians use the buffalo
for food, clothing and shelter,
but they depended on the animal for
spiritual inspiration as well.
9
12. Permian Basin UNIVERSITY BLOCK 9 from 4,800 to 10,800 feet. Exploitation
Andrews County,Texas
potential exists through restimulations,
Prentice Northeast Unit
recompletions, infill drilling and sec-
The Prentice Northeast Unit is Cross
ondary recovery operations in the Middle
DEPTH (FEET) FORMATION
Timbers’ largest oil property, producing
Clear Fork and San Andres formations.
2,650 barrels of oil and 580 thousand WOLFCAMP
Cross Timbers owns 25 gross
8500
cubic feet of gas per day net to the
(23.4 net) operated wells and 139 gross
Company from 153 gross (140 net) wells. quot;PENNquot;
RESERVOIRS
8900
(43.6 net) wells operated by others.
The Unit is located on the prolific
Current net daily oil and gas production
Northwest Shelf of the Permian Basin
is about 990 barrels of oil and 530 thou-
and produces from the Glorieta and
sand cubic feet of gas. During 1996, the
Upper Clear Fork formations at depths
Company performed four recompletions
ranging from 6,000 to 7,000 feet. The UD
10,400
to the Glorieta and San Andres. The
Prentice Field has been separated into DEVONIAN
Company and its working interest part-
several waterflood units for secondary
This schematic illustrates the potential for drilling
ners plan to drill five Middle Clear Fork
operations, and tertiary recovery potential and recompletions to multiple horizons at
University Block 9.
and Glorieta wells during 1997.
also exists through carbon dioxide
increase the drilling program. The infill
flooding. A tertiary recovery study and
University Block 9
program continued to outperform
development plan for this field will be
This Andrews County, Texas field,
estimates with average daily initial pro-
completed this year.
discovered in 1953, produces from
ducing rates in excess of 100 barrels of
Cross Timbers has drilled 40 ten-acre
Wolfcamp, Pennsylvanian and Devonian-
oil per well. In addition, development of
infill wells in the Unit during the past
aged carbonates at 8,500, 8,900 and
the deeper reservoirs discovered in the
two years. A successful 12-well infill
10,400 feet, respectively. The Wolfcamp
1995 program was expanded by more
pilot program was initiated in 1995. The
and Pennsylvanian reservoirs were
than a mile to the east of the current
1996 drilling program, initially designed
unitized for secondary recovery operations
drilling area. This could significantly
for 10 wells, was increased to 28 ten-acre
in 1960 and 1970, respectively, but
increase the number of available
infill wells.
operated by different companies under
development locations within the Unit.
The favorable results of the early
inefficient and costly conditions. The
Based on this success, the Company
wells, coupled with rising crude oil
Devonian was produced on a lease-by-
expects to drill 26 ten-acre infill wells
prices, prompted the Company to
lease basis by several different operators,
during 1997. In addition, five
leaving it underdeveloped and creating a
20-acre infill wells are scheduled
PRENTICE NORTHEAST UNIT
Terry County,Texas significant opportunity for Cross Timbers.
for 1997 to test additional por-
Cross Timbers recently completed an
tions of the field and the deeper
acquisition which gave it a 100% work-
reservoirs in select areas of
ing interest and operations of the
the Unit.
Wolfcamp Unit, Penn Unit and 13 of the
Russell Field 14 active Devonian wells. As operator of
all zones, Cross Timbers can selectively
This field, located in Gaines
recomplete existing wells and drill new
County in West Texas, produces
wells with the potential to complete in
from the San Andres, Glorieta,
any horizon. The Company owns an
Middle Clear Fork and Devonian
interest in 42 wells that it operates, with
formations at depths ranging
10
13. “WEST OF THE L AW”
In the 1800s, horse thieves and cattle
rustlers ran rampant in the panhandles of
Oklahoma and Texas. The frontier could be
a dangerous place, especially in these
“badlands” or “no man’s land.”
11
14. Mid-Continent
current net daily production about 950 to the Company-operated Tyrone Plant.
barrels of oil and one million cubic feet The Company also completed the
Hugoton Area
of gas. installation and start-up of a residue
Ongoing development of the
During 1996, the Company drilled compressor and 11.5 miles of high pres-
Hugoton Field, the largest U.S. gas field,
and completed two Devonian wells, sure residue pipeline in August 1996.
increased our 1996 daily production
which produced at initial rates of 200 These installations have enabled the
more than five million cubic feet. The
barrels of oil per day. During 1997, the Company to operate the Tyrone Plant
Company owns an interest in 349 gross
Company plans to drill 10 more wells more efficiently and to increase gas prices
(327.9 net) wells that it operates and 116
targeting the Devonian, four wells target- through access to three additional inter-
gross (25.8 net) wells operated by others.
ing Pennsylvanian-aged reservoirs and state pipelines.
Current net daily production in the area
one infill well in the Wolfcamp Unit. The success in 1996 should continue
is 34.4 million cubic feet.
This aggressive development plan is through 1997 with a program that
Efficiency of Operations
expected to double field production dur- includes the drilling of 10 wells primarily
(Production Expenses) $/BOE
ing 1997. Development potential in Kansas and 11 workovers in Kansas
$ 6.00
includes proper wellbore utilization, and Oklahoma. Seven of the proposed
$ 5.00
recompletions, infill drilling and wells are Chase infill wells in Kansas,
$ 4.00
improvement of waterflood efficiency. two are Council Grove development
$ 3.00
wells, and the remaining well is a Chase
$ 2.00
Maljamar Area replacement well in Oklahoma. The
The Southeast Maljamar Unit is 1997 workover program concentrates on
$ 1.00
located in southeastern New Mexico opening additional intervals in the Chase
$0
1993 1994 1995 1996
where oil is produced from sandstones in Group. These intervals will increase
the Grayburg Formation at depths of producing rates and add reserves to the
The drilling of five wells in Kansas
4,300 feet. The field, which has been Hugoton Field.
developed more reserves and proved addi-
producing since 1943, was unitized for tional horizons to exploit. The Kansas B
Major County
secondary recovery operations 30 years #6 and #7 penetrated the Council Grove
ago. Cross Timbers owns a 100% work- Cross Timbers is one of the largest
Formation to develop horizons not now
ing interest in the 28-well Unit. producers in the Anadarko Basin fields
producing on this lease. The wells are
Cross Timbers completed a highly of Ringwood, Northwest Okeene and
currently testing and could result in the
successful pilot 10-acre infill program in Cheyenne Valley in Major County,
drilling of three additional Council
1995, continuing in 1996 by drilling 12 Oklahoma with 426 gross (364.2 net)
Grove producers on this lease and pro-
wells in the Unit and surrounding leases. operated wells and an interest in 199
mote further development on other
The infill wells averaged 40 barrels of oil gross (45.4 net) wells operated by others.
operated leases.
per day upon completion and area pro- Current net daily production is about
Pumping units were installed on 53
duction increased 300 percent to more 32.7 million cubic feet of gas and 930
wells to increase production rates in the
than 500 net barrels per day. The barrels of oil from zones ranging from
area by 3.4 million cubic feet per day.
Company has budgeted an additional five 6,500 to 9,400 feet.
Also, our Timberland Gathering sub-
wells in 1997 for the Unit along with The Company develops the Major
sidiary installed new compression on a
four conversions to complete a “pattern County area primarily through mechani-
portion of the gathering system to
flood” in the heart of the Unit. cal improvements, restimulations,
further increase production rates by two
recompletions to shallower zones and
million cubic feet per day. About 70% of
development drilling. During 1996, the
our Hugoton gas production is delivered
12
15. “THE COWBOYS”
At the end of a cattle drive the cowboys celebrated
in true western fashion by “going to town.”
The uniquely independent traits of the
traditional cowboy have become part of our
national heritage and culture.
13
16. Proved Reserves
Company participated in the drilling of replacement costs in the industry. During
(in millions of BOE)
33 gross (25.9 net) wells. It has budgeted 1996 the Company produced 3.5 million
140
132.5
21 wells in Major County for 1997, with barrels of oil and 37.3 billion cubic feet
68%
120
the primary drilling area in the western of gas.
99.7 100
60%
portion of the county. The Mississippian Natural gas reserves increased 51% to
80
and Chester formations will be targeted. 541 billion cubic feet from 358 billion
63.1
60
47%
A subsidiary of the Company has cubic feet in 1995. Oil reserves grew 6%
49.3
57% 40
32%
operated a gathering system and pipeline to 42 million barrels, compared with 40
40%
53%
20
in the Major County area since 1994, million barrels at year-end 1995. Proved
43%
0
collecting gas from 425 wells through developed reserves account for 83% of
1993 1994 1995 1996
300 miles of pipeline. The system has an year-end total proved reserves on a
Gas
Oil
estimated daily capacity of 40 million BOE basis.
cubic feet of gas with current throughput As of December 31, 1996, estimated
GAS MARKETING
of about 30 million cubic feet, 70% of future net cash flows before income tax
which is produced from Company-oper- 1996 was a landmark year for Cross were $1.7 billion, based on flat price and
ated wells. During 1994 and 1995, the Timbers Energy Services with operating cost assumptions, compared to $713
gathering system was converted from income increasing more than 200% to million in the previous year. The present
centralized to field compression through $3.1 million. This performance was the value before income tax, discounted at
the installation of four field compression result of a 31% increase in gas sales 10%, was $946 million, up 133% from
stations. Field compression has allowed volumes and a 119% improvement in the year-end 1995 level of $406 million.
the system to operate more efficiently sales margins per thousand cubic feet. In Values are based on 1996 year-end prices
and to expand into previously inacces- 1996, Cross Timbers Energy Services of $24.25 per barrel of oil and $3.02 per
sible areas. marketed more than 50 billion cubic feet thousand cubic feet of natural gas. Based
of gas. on prices of $20.00 per barrel and $2.00
Proved Oil and Gas Reserves Cross Timbers Energy Services per thousand cubic feet the discounted
(a)
(in thousands) December 31, 1996
maintains a diverse natural gas supply present value before income tax at year-
Oil Gas
(Bbls) (Mcf) BOE
and customer base serving utilities, end 1996 was $600 million.
Proved developed 31,883 466,412 109,618
municipalities and a variety of industrial For the year, Cross Timbers’ daily oil
Proved undeveloped 10,557 74,126 22,912
Total proved 42,440 540,538 132,530
and commercial end users. In 1996, it production averaged 9,584 barrels of oil,
Estimated future net cash flows,
purchased gas from about 50 compared to 9,677 barrels in 1995. Daily
before income tax $1,737,024
producers/suppliers and sold to approxi- gas production averaged 101.8 million
Present value before income
tax, discounted at 10% $946,150
mately 80 customers in 20 states. cubic feet in 1996, up from 78.4 million
Changes in Proved Reserves cubic feet in 1995. Increased gas produc-
(a)
(in thousands) RESERVES & PRODUCTION tion resulted from producing property
Oil Gas
(Bbls) (Mcf) BOE
Cross Timbers’ estimated proved oil acquisitions and from 1995 and 1996
December 31, 1995 39,988 358,070 99,666
and gas reserves at year-end 1996 were development activity. Oil prices increased
Revisions 2,361 29,379 7,258
Extensions and discoveries 2,220 37,480 8,467
132.5 million barrels of oil equivalent to an average of $21.38 per barrel from
Production (3,508) (37,275) (9,721)
Purchases in place 1,552 153,400 27,119
(BOE), up 33% from 99.7 million BOE $17.09 per barrel in 1995. Gas prices for
Sales in place (173) (516) (259)
December 31, 1996 42,440 540,538 132,530 at the end of 1995. The Company the year climbed to an average of $1.97
(a) Based on SEC assumptions. replaced 438% of its 1996 oil and gas per thousand cubic feet compared with
Abbreviations:
Bbls barrels production of 9.7 million BOE at a cost $1.42 in 1995.
Mcf thousand cubic feet
BOE barrels of oil equivalent (six Mcf equal one Bbl)
of $3.51 per BOE, one of the lowest
14
17. “BUTTERFIELD STAGECOACH ROBBERS”
San Antonio, Texas was one of the earliest hubs
of the stagecoach, an important means of
transporting letters, newspapers and valuables.
Between 1847 and 1881, more than 50 different
lines operated out of this city.
Highwaymen were always a threat.
15
18. Cross Timbers Oil Company
SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
In thousands except production, per share and per unit data
CONSOLIDATED STATEMENT OF OPERATIONS
AND CASH FLOWS DATA (a)
Revenues:
$075,013
Oil $060,349 $053,324 $039,747 $031,921
73,402
Gas 40,543 38,389 34,649 31,994
12,032
Gas gathering, processing and marketing 7,091 4,274 3,717 3,943
944
Other 4,922 288 69 (502)(b)
$161,391
Total revenues $112,905 $096,275 $078,182 $067,356
$019,790
Earnings (loss) available to common stock $ (10,538)(c) $003,048 $0 (4,012)(d) $004,744
$0000.74
Per common share (e) (f) $ 00(0.42)(c) $0000.13 $00 (0.18)(d) –
$00000 – – –
Pro forma earnings (loss) (g) $000(251) $003,233
$00000 – – –
Per common share/unit (f) (g) $00 (0.01) $0000.17
26,609
Weighted average common shares/units outstanding (f) 25,382 23,886 21,788 18,582
$0000.20
Dividends/distributions declared per common share/unit (f) (h) $0000.20 $0000.20 $0000.20 $0000.10
$068,263
Operating cash flow (i) $040,439 $037,816 $027,925 $027,033
YEAR-END CONSOLIDATED BALANCE SHEET DATA (a)
$450,561
Property and equipment, net $364,474 $244,555 $228,551 $149,484
523,070
Total assets 402,675 292,451 258,019 176,831
314,757
Long-term debt 238,475 142,750 111,750 79,000
142,668
Owners’ equity 130,700 113,333 115,168 76,056
OPERATING DATA (a)
Average daily production:
9,584
Oil (Bbls) 9,677 9,497 6,968 4,749
101,845
Gas (Mcf) 78,408 58,182 51,260 51,205
26,558
Barrels of oil equivalent (BOE) 22,745 19,194 15,511 13,283
Average sales price:
$21.38
Oil (per Bbl) $17.09 $15.38 $15.63 $18.37
$01.97
Gas (per Mcf) $01.42 $01.81 $01.85 $01.71
$04.05
Production costs (per BOE) $04.26 $04.62 $05.16 $04.47
$01.23
Production and property taxes (per BOE) $01.04 $01.23 $01.19 $01.19
Proved reserves:
42,440
Oil (Bbls) 39,988 33,581 21,082 16,666
540,538
Gas (Mcf) 358,070 177,061 169,119 172,199
132,530
BOE 99,666 63,091 49,269 45,366
(a) Significant producing property acquisitions in 1993, 1994, 1995 and 1996 affect the comparability of year-to-year financial and operating data.
(b) Includes a $2.4 million loss on sale of Royalty Trust Units in the initial public offering for the Royalty Trust.
(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) Includes effect of a one-time, non-cash accounting charge of $4 million for net deferred income tax liabilities recorded upon the merger of the Company with the former Partnership.
(e) Historical net income (loss) per common share is not provided for 1992 since the results of the former Partnership, as a nontaxable entity, are not comparable to the Company.
(f) Adjusted for the three-for-two stock split effected on March 19, 1997.
(g) As if all former Partnership income was subject to corporate income tax, exclusive of the charge in (d) above.
(h) Excludes non-recurring distributions of the former Partnership.
(i) Defined as cash provided by operating activities before changes in working capital.
16
