<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 24, 1998
AMENDMENT NO. 1
CROSS TIMBERS OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-10662 75-2347769
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
810 HOUSTON STREET, SUITE 2000, FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 870-2800
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Page
----
(a) Financial statements of businesses acquired.
EEX Acquisition:
Report of Independent Public Accountants................. 4
Statements of Revenues and Direct Operating Expenses
for the Years Ended December 31, 1997 and 1996......... 5
Notes to Statements of Revenues and Direct Operating
Expenses............................................... 6-7
(b) Pro forma financial information.
Cross Timbers Oil Company:
Pro Forma Consolidated Financial Statements (Unaudited).. 8
Pro Forma Consolidated Balance Sheet at March 31, 1998... 9
Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1997................... 10
Pro Forma Consolidated Statement of Operations
for the Three Months Ended March 31, 1998.............. 11
Notes to Pro Forma Consolidated Financial Statements..... 12-15
(c) Exhibits.
Exhibit Number and Description
-------------------------------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Purchase and Sale Agreement between EEX Operating L.P. and
EEX Corporation as Seller and Cross Timbers Oil Company as
Buyer, dated February 12, 1998 (incorporated by reference to
Exhibit 2.1 of Form 8-K dated February 12, 1998)
2.2 Letter Amendment dated March 20, 1998 to Purchase and Sale
Agreement dated February 12, 1998, between EEX Operating
L.P., et al and Cross Timbers Oil Company (incorporated by
reference to Exhibit 2.2 of Form 8-K dated February 12,
1998)
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<PAGE>
Page
----
(23) Consents of experts
23.1 Consent of Arthur Andersen LLP 17
(99) Additional exhibits
99.1 Revolving Credit Agreement, dated April 17, 1998, among
the Company and certain commercial banks named therein
(incorporated by reference to Exhibit 99.1 of Form 8-K
dated February 12, 1998)
99.2 Conveyance of Production Payment between Cross Timbers
Oil Company as grantor and EEX Corporation as grantee,
dated April 24, 1998 (incorporated by reference to
Exhibit 99.2 of Form 8-K dated April 24, 1998)
99.3 Delivery Agreement between Cross Timbers Oil Company
and EEX Corporation, dated April 24, 1998 (incorporated
by reference to Exhibit 99.3 of Form 8-K dated April 24,
1998)
99.4 Gas Purchase Agreement between Cross Timbers Oil Company
and EEX Corporation, dated April 24, 1998 (incorporated
by reference to Exhibit 99.4 of Form 8-K dated April 24,
1998)
-3-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Cross Timbers Oil Company:
We have audited the accompanying statements of revenues and direct operating
expenses of the EEX Acquisition (see Note 1) for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
management of Cross Timbers Oil Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such statements present fairly, in all material respects, the
revenues and direct operating expenses of the EEX Acquisition described in Note
1 for the years ended December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
April 17, 1998
-4-
<PAGE>
EEX ACQUISITION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
REVENUES
Oil............................... $ 5,298 $ 5,734
Gas............................... 88,747 92,532
------- -------
Total........................... 94,045 98,266
------- -------
DIRECT OPERATING EXPENSES
Production........................ 6,933 8,055
Taxes on production and property.. 10,109 10,155
------- -------
Total........................... 17,042 18,210
------- -------
EXCESS OF REVENUES OVER
DIRECT OPERATING EXPENSES......... $77,003 $80,056
======= =======
</TABLE>
See Accompanying Notes to Statements of Revenues and Direct Operating Expenses.
-5-
<PAGE>
EEX ACQUISITION
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On April 24, 1998, Cross Timbers Oil Company ("the Company") acquired from
EEX Corporation and EEX Operating L.P. certain producing properties and
undeveloped acreage in the East Texas Basin ("EEX Acquisition") for a purchase
price of $265 million. The purchase price is expected to be reduced to $245
million by estimated net revenues from the effective date of January 1, 1998
through the closing date. The acquisition is subject to third party consents
and other typical purchase price adjustments.
Also on April 24, 1998, the Company sold a production payment, payable from
future production from certain properties acquired in the EEX Acquisition, to
EEX Corporation for $30 million. There was no gain or loss on this sale. Under
the terms of the production payment conveyance and the related delivery
agreement, the Company must deliver to EEX Corporation a total of approximately
34.3 billion cubic feet (27.8 billion cubic feet net to the Company's interest)
of gas during the 10-year period beginning January 1, 2002, with scheduled
deliveries by year, subject to certain variables. EEX Corporation will
reimburse the Company for all royalty and production and property tax payments
related to such deliveries. EEX Corporation will also pay the Company an
operating fee of $0.257 per Mcf for deliveries in 2002, which fee will be
escalated annually at a rate of 5.5%. Each December, beginning in 1998, the
Company has the option to repurchase a portion of this production payment, based
on a total cost of $30 million plus interest accrued from May 1, 1998 through
the repurchase date.
The EEX Acquisition, net of the sale of the production payment, was funded
by borrowings available under the Company's Revolving Credit Agreement with
commercial banks dated April 17, 1998. On April 27, 1998, such borrowings were
reduced by net proceeds of $133.3 million from the sale of 7,203,450 shares of
the Company's common stock in a public offering.
2. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Estimated Quantities of Proved Oil and Gas Reserves
The proved reserve information presented below has been estimated by the
Company's internal engineers, and reviewed by independent petroleum engineers,
using December 31, 1997 prices and costs. Proved reserves are estimated
quantities of crude oil and natural gas which, based on geologic and engineering
data, are estimated to be reasonably recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are those which are expected to be recovered through existing wells
with existing equipment and operating methods. Because of inherent
uncertainties and the limited nature of reservoir data, such estimates are
subject to change as additional information becomes available.
Proved Oil and Gas Reserves at December 31, 1997
Oil (Bbls) Gas (Mcf)
------------- ------------
(in thousands)
Proved reserves........................... 1,599 232,229
============= ============
Proved developed reserves................. 1,365 191,293
============= ============
-6-
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of year-end prices for oil
and gas and year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted future
net cash flows are calculated using a 10% rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, year-end prices, used to determine the standardized
measure of discounted cash flows, are influenced by seasonal demand and other
factors and may not be the most representative in estimating future revenues or
reserve data.
Standardized Measure of Discounted Future Net Cash Flows at December 31,
1997
(in thousands)
Future cash inflows........................ $ 590,952
Future costs:
Production................................ (187,402)
Development............................... (36,754)
---------
Future net cash inflows.................... 366,796
10% annual discount........................ (142,534)
---------
Standardized measure of discounted future
net cash flows before income taxes....... $ 224,262
=========
-7-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying Pro Forma Consolidated Financial Statements have been
prepared by recording pro forma adjustments to the historical consolidated
financial statements of Cross Timbers Oil Company ("the Company"). The Pro Forma
Consolidated Balance Sheet as of March 31, 1998 has been prepared as if the EEX
Acquisition, net of the production payment, and the Offering (as described in
Note 2) were consummated on March 31, 1998. The Pro Forma Consolidated Statement
of Operations for the three months ended March 31, 1998 has been prepared as if
the EEX Acquisition, net of the production payment, and the Offering were
consummated on January 1, 1998. The Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1997 has been prepared as if the EEX
Acquisition, net of the production payment, the 1997 Acquisitions and the
Offering were consummated on January 1, 1997.
The Pro Forma Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations that would have
occurred had the transactions been effected on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Consolidated Statement of Operations due to normal production declines,
changes in prices, future transactions and other factors. These statements
should be read in conjunction with the Company's audited consolidated financial
statements and the related notes for the year ended December 31, 1997 included
in the Company's 1997 Form 10-K, the Company's unaudited consolidated financial
statements and the related notes for the three months ended March 31, 1998
included in the Company's Form 10-Q for the quarter ended March 31, 1998 and the
statements of revenues and direct operating expenses of the EEX Acquisition for
the year ended December 31, 1997.
-8-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 3)
-------------------------------------------------------
EEX
Historical Acquisition (a) Offering (b) Pro Forma
----------- --------------- ------------ -----------
ASSETS (in thousands)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................... $ 11,570 $ - $ - $ 11,570
Accounts receivable, net.................... 38,318 - - 38,318
Other current assets........................ 13,241 - - 13,241
---------- -------------- ----------- ----------
Total Current Assets.................... 63,129 - - 63,129
---------- -------------- ----------- ----------
Property and Equipment, at cost
- successful efforts method.............. 1,019,079 188,500 - 1,207,579
Accumulated depreciation, depletion
and amortization....................... (252,357) - - (252,357)
---------- -------------- ----------- ----------
Net Property and Equipment.............. 766,722 188,500 - 955,222
---------- -------------- ----------- ----------
Other Assets.................................. 12,054 - - 12,054
---------- -------------- ----------- ----------
TOTAL ASSETS.................................. $ 841,905 $ 188,500 $ - $1,030,405
========== ============== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.... $ 54,560 $ - $ - $ 54,560
Accrued stock incentive compensation........ 727 - - 727
---------- -------------- ----------- ----------
Total Current Liabilities............... 55,287 - - 55,287
---------- -------------- ----------- ----------
Long-term Debt................................ 605,000 188,500 (133,304) 660,196
---------- -------------- ----------- ----------
Deferred Income Taxes Payable................. 18,883 - - 18,883
---------- -------------- ----------- ----------
Other Long-term Liabilities................... 2,917 - - 2,917
---------- -------------- ----------- ----------
Stockholders' Equity:
Series A convertible preferred stock
($.01 par value, 1,138,729 shares
issued, at liquidation value of $25)... 28,468 - - 28,468
Common stock ($.01 par value,
46,634,494 shares issued before the
Offering and 53,837,944 shares issued
after the Offering).................... 466 - 72 538
Additional paid-in capital.................. 212,578 - 133,232 345,810
Treasury stock (7,485,651 shares)........... (86,958) - - (86,958)
Retained earnings........................... 5,264 - - 5,264
---------- -------------- ----------- ----------
Total Stockholders' Equity.............. 159,818 - 133,304 293,122
---------- -------------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY....................... $ 841,905 $ 188,500 $ - $1,030,405
========== ============== =========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
-9-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 3)
----------------------------------------
EEX 1997
Acquisition Acquisitions
Historical (c) (d) Other Pro Forma
------------- ------------- ------------ ------------ -----------
REVENUES (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Oil and condensate........... $ 75,223 $ 5,298 $ 1,623 $ - $ 82,144
Gas and natural gas liquids.. 110,104 88,747 35,220 - 234,071
Gas gathering, processing
and marketing............. 9,851 - - - 9,851
Other........................ 5,494 - - - 5,494
-------- ------- ----------- ---------- ---------
Total Revenues............. 200,672 94,045 36,843 - 331,560
-------- ------- ----------- ---------- ---------
EXPENSES
Production................... 43,580 6,933 5,049 6,718 (e) 62,280
Exploration.................. 2,088 - - - 2,088
Taxes on production and
property.................... 16,405 10,109 3,574 - 30,088
Depreciation, depletion
and amortization.......... 47,721 - - 45,610 (g) 93,331
General and administrative... 15,818 - - (4,737) (e) 11,081
Gas gathering and processing. 8,517 - - - 8,517
Interest, net................ 26,677 - - 17,360 (h) 44,037
Trust development costs...... 665 - - - 665
-------- ------- ----------- ---------- ---------
Total Expenses............. 161,471 17,042 8,623 64,951 252,087
-------- ------- ----------- ---------- ---------
INCOME BEFORE INCOME TAX...... 39,201 77,003 28,220 (64,951) 79,473
Income Tax Expense............ 13,517 - - 13,692 (j) 27,209
-------- ------- ----------- ---------- ---------
NET INCOME.................... 25,684 77,003 28,220 (78,643) 52,264
Preferred Stock Dividends..... 1,779 - - - 1,779
-------- ------- ----------- ---------- ---------
EARNINGS AVAILABLE TO
COMMON STOCK................. $ 23,905 $77,003 $ 28,220 $ (78,643) $ 50,485
======== ======= =========== ========== =========
EARNINGS PER COMMON SHARE
Basic........................ $ 0.60 $ 1.07
======== =========
Diluted...................... $ 0.59 $ 1.05
======== =========
Weighted Average
Common Shares Outstanding.... 39,773 46,976
======== =========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
-10-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 3)
------------------------------
EEX
Acquisition
Historical (c) Other Pro Forma
------------ ---------------- ----------- ---------
REVENUES (in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Oil and condensate................ $15,062 $ 1,044 $ - $ 16,106
Gas and natural gas liquids....... 32,992 17,767 - 50,759
Gas gathering, processing
and marketing.................. 1,652 - - 1,652
Other............................. 915 - - 915
------- ------- ----------- --------
Total Revenues.................. 50,621 18,811 - 69,432
------- ------- ----------- --------
EXPENSES
Production........................ 12,508 1,962 1,086 (f) 15,556
Exploration....................... 1,368 - - 1,368
Taxes on production and property.. 5,104 2,137 - 7,241
Depreciation, depletion
and amortization............... 15,582 - 8,096 (g) 23,678
General and administrative........ 2,014 - (831)(f) 1,183
Gas gathering and processing...... 2,132 - - 2,132
Interest, net..................... 11,251 - 1,180 (i) 12,431
Trust development costs........... 267 - - 267
------- ------- ----------- --------
Total Expenses.................. 50,226 4,099 9,531 63,856
------- ------- ----------- --------
INCOME BEFORE INCOME TAX........... 395 14,712 (9,531) 5,576
Income Tax Expense................. 134 - 1,761 (j) 1,895
------- ------- ----------- --------
NET INCOME......................... 261 14,712 (11,292) 3,681
Preferred Stock Dividends.......... 445 - - 445
------- ------- ----------- -------
EARNINGS (LOSS) AVAILABLE TO
COMMON STOCK...................... $ (184) $14,712 (11,292) $ 3,236
======= ======= =========== =======
EARNINGS PER COMMON SHARE
Basic............................. $ 0.00 $ 0.07
======= =======
Diluted........................... $ 0.00 $ 0.07
======= =======
Weighted Average
Common Shares Outstanding......... 39,046 46,250
======= =======
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
-11-
<PAGE>
CROSS TIMBERS OIL COMPANY
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Pro Forma Consolidated Balance Sheet at March 31, 1998 has
been prepared assuming Cross Timbers Oil Company ("the Company") consummated the
EEX Acquisition, net of the production payment, and the Offering (Note 2) on
March 31, 1998. The Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1998 has been prepared assuming the Company consummated
the EEX Acquisition, net of the production payment, and the Offering on January
1, 1998. The accompanying Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1997 has been prepared assuming that the Company
consummated the EEX Acquisition, net of the production payment, the 1997
Acquisitions and the Offering on January 1, 1997. The Pro Forma Consolidated
Statements of Operations are not necessarily indicative of the results of
operations had the above described transactions occurred on the assumed dates.
2. ACQUISITIONS
EEX Acquisition
On April 24, 1998, Cross Timbers Oil Company ("the Company") acquired from
EEX Corporation and EEX Operating L.P. certain producing properties and
undeveloped acreage in the East Texas Basin ("EEX Acquisition") for a purchase
price of $265 million. The purchase price is expected to be reduced to $245
million by estimated net revenues from the effective date of January 1, 1998
through the closing date. The acquisition is subject to third party consents
and other typical purchase price adjustments.
Also on April 24, 1998, the Company sold a production payment, payable from
future production from certain properties acquired in the EEX Acquisition, to
EEX Corporation for $30 million. There was no gain or loss on this sale. Under
the terms of the production payment conveyance and the related delivery
agreement, the Company must deliver to EEX Corporation a total of approximately
34.3 billion cubic feet (27.8 billion cubic feet net to the Company's interest)
of gas during the 10-year period beginning January 1, 2002, with scheduled
deliveries by year, subject to certain variables. EEX Corporation will
reimburse the Company for all royalty and production and property tax payments
related to such deliveries. EEX Corporation will also pay the Company an
operating fee of $0.257 per Mcf for deliveries in 2002, which fee will be
escalated annually at a rate of 5.5%. Each December, beginning in 1998, the
Company has the option to repurchase a portion of this production payment, based
on a total cost of $30 million plus interest accrued from May 1, 1998 through
the repurchase date.
Under the terms of a separate gas purchase agreement, also entered into
with EEX Corporation on April 24, 1998, the Company has committed to sell all
production in certain properties in the EEX Acquisition to EEX Corporation at
market prices through the earlier of December 31, 2001, or until a total of
approximately 34.3 billion cubic feet (27.8 billion cubic feet net to the
Company's interest) of gas has been delivered.
The EEX Acquisition, net of the sale of the production payment, was funded
by borrowings available under the Company's Revolving Credit Agreement with
commercial banks dated April 17, 1998. On April 27, 1998, such borrowings were
reduced by net proceeds of $133.3 million from the sale of 7,203,450 shares of
the Company's common stock in a public offering ("Offering").
1997 Acquisitions
The acquisitions described in the following three paragraphs are
collectively referred to as the "1997 Acquisitions."
On December 1, 1997, the Company acquired interests in certain producing
oil and gas properties in the San Juan Basin of New Mexico from a subsidiary of
Amoco Corporation ("Amoco") at an estimated purchase price
-12-
<PAGE>
of $195 million, including $5.7 million value for warrants issued to Amoco to
purchase 937,500 shares of the Company's common stock at price of $15.31 per
share for a period of five years. Amoco elected to accept certain producing
properties owned by the Company valued at $15.7 million in lieu of cash,
reducing cash consideration to $173.6 million, which was primarily funded with
bank debt.
On May 14, 1997, the Company acquired primarily gas-producing properties in
Oklahoma, Kansas and Texas for an estimated adjusted purchase price of $39
million from a subsidiary of Burlington Resources Inc. The properties are
primarily operated interests. The Company funded the acquisition with bank debt
and cash flow from operations.
From January through May 1997, the Company purchased an additional 370,500
units of beneficial interest, or 6%, of the outstanding units of beneficial
interest in the Cross Timbers Royalty Trust at a cost of $5.4 million, funded
primarily with bank debt.
3. PRO FORMA ADJUSTMENTS
Pro forma adjustments necessary to adjust the Consolidated Balance Sheet
and Statement of Operations are as follows:
(a) To record the EEX Acquisition ($245 million), net of the sale of the
production payment ($30 million) and a deposit ($26.5 million) paid in
February 1998.
(b) To record net proceeds of $133,304,000 received by the Company upon
consummation of the Offering, reflecting the sale of 7,203,450 shares
of Common Stock by the Company to the public at a price of $19.50 per
share, less underwriters' discount and estimated expenses, resulting
in a $72,000 increase in Common Stock (equal to the par value of the
shares issued), and a $133,232,000 increase in additional paid-in
capital.
(c) To record revenue and direct operating expenses of the EEX Acquisition
for the year ended 1997 and three months ended March 31, 1998.
(d) To record revenue and direct operating expenses of the 1997
Acquisitions.
(e) To record the estimated increase in general and administrative expense
($2,735,000), an allocation from general and administrative expense to
production expense ($7,472,000, less billing to joint owners of
$754,000) attributable to the EEX Acquisition and the 1997
Acquisitions for the year ended 1997.
(f) To record the estimated increase in general and administrative expense
($315,000), an allocation from general and administrative expense to
production expense ($1,146,000, less billing to joint owners of
$60,000) attributable to the EEX Acquisition for the three months
ended March 31, 1998.
(g) To record estimated depreciation and depletion expense attributable to
the EEX Acquisition (and the 1997 Acquisitions for the year ended
December 31, 1997) using the unit-of-production method applied to the
cost of the properties acquired.
(h) To record the increase in interest expense ($26,558,000) for the year
ended 1997 attributable to increased long-term debt to finance the
purchase of the EEX Acquisition and the 1997 Acquisitions, less the
reduction in interest expense ($9,198,000) attributable to decreased
long-term debt upon application of net proceeds from the Offering.
Interest expense was determined using the weighted average interest
rate incurred by the Company under its revolving credit facilities,
assuming the entire cost of the acquisitions had been funded with bank
borrowings at January 1, 1997.
-13-
<PAGE>
(i) To record the increase in interest expense ($3,480,000) for the three
months ended March 31, 1998 attributable to increased long-term debt
to finance the EEX Acquisition, less the reduction in interest expense
($2,300,000) attributable to decreased long-term debt upon application
of net proceeds from the Offering. Interest expense was determined
using the weighted average interest rate incurred by the Company under
its revolving credit facilities, assuming the entire cost of the
acquisitions had been funded with bank borrowings at January 1, 1998.
(j) To record federal income tax at a corporate statutory rate of 34%
related to net pro forma adjustments.
4. PRO FORMA SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
Estimated Quantities of Pro Forma Proved Oil and Gas Reserves
Pro forma reserve estimates at December 31, 1997 are based on reports
prepared by independent petroleum engineers for proved reserves of the Company
and reports prepared by the Company's internal engineers and reviewed by
independent engineers for proved reserves of the EEX Acquisition, using December
31, 1997 prices and costs.
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids which, based on geologic and engineering data, are estimated
to be reasonably recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed reserves are those
which are expected to be recovered through existing wells with existing
equipment and operating methods. Because of inherent uncertainties and the
limited nature of reservoir data, such estimates are subject to change as
additional information becomes available.
<TABLE>
<CAPTION>
Pro Forma Proved Oil and Gas Reserves at December 31, 1997
Natural Gas
Oil (Bbls) Gas (Mcf) Liquids (Bbls)
------------------ ------------------ ---------------------
(in thousands)
<S> <C> <C> <C>
Proved reserves............ 49,453 1,048,004 13,810
================== ================== =====================
Proved developed reserves.. 35,200 869,003 11,494
================== ================== =====================
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Pro Forma
Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of year-end prices for oil
and gas and year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted future
net cash flows are calculated using a 10% rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, year-end prices, used to determine the standardized
measure of discounted cash flows, are influenced by seasonal demand and other
factors and may not be the most representative in estimating future revenues or
reserve data.
-14-
<PAGE>
Pro Forma Standardized Measure of Discounted Future Net Cash Flows at
December 31, 1997
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Future cash inflows......................................... $ 3,195,405
Future costs:
Production................................................. (1,166,719)
Development................................................ (177,348)
-----------
Future net cash inflows before income tax................... 1,851,338
Future income tax........................................... (342,985)
-----------
Future net cash flows....................................... 1,508,353
10% annual discount......................................... (673,230)
-----------
Standardized measure of discounted future net cash flows $ 835,123
===========
</TABLE>
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: July 2, 1998 By: BENNIE G. KNIFFEN
---------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
-16-
<PAGE>
EXHIBIT 23.1
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the incorporation
by reference in Registration Statement No. 333-56983 on Form S-3 of Cross
Timbers Oil Company and Cross Timbers Royalty Trust of our report dated April
17, 1998, included in Cross Timbers Oil Company's Current Report on Form 8-K/A
dated April 24, 1998, Amendment No. 1. It should be noted that we have not
audited any financial statements of the Company subsequent to December 31, 1997,
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
July 2, 1998
