CROSS TIMBERS OIL CO, 424B5, 1998-04-22

CROSS TIMBERS OIL CO
424B5, 1998-04-22
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

Filed pursuant to Rule 424(b)(5)
SEC File No. 333-46909

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 10, 1998)

7,500,000 SHARES

[LOGO OF CROSS TIMBERS OIL COMPANY APPEARS HERE]

CROSS TIMBERS OIL COMPANY

COMMON STOCK

---------------
Of the 7,500,000 shares of common stock, par value $0.01 per share ("Common
Stock"), of Cross Timbers Oil Company (the "Company") offered hereby,
7,203,450 shares are being sold by the Company and 296,550 shares are being
sold by the Selling Stockholder. See "Selling Stockholder." The Company will
not receive any of the proceeds from the sale of Common Stock offered by the
Selling Stockholder.

Of the shares of Common Stock being offered hereby, 6,000,000 shares (the
"U.S. Shares") are being offered in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters and 1,500,000 shares (the "International
Shares") are being offered outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the
"Offerings") by the International Managers. The Price to Public and
Underwriting Discount per share are identical for both Offerings and the
closings for both Offerings are conditioned upon each other. See
"Underwriting."

The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "XTO." On April 21, 1998, the last reported sale price of the Common
Stock on the NYSE was $20 5/16 per share. See "Price Range of Common Stock and
Dividend Policy."

SEE "ADDITIONAL RISK FACTORS" ON PAGE S-11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.

---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $19.50 $.925 $18.575 $18.575
- -------------------------------------------------------------------------------
Total(3)........... $146,250,000 $6,937,500 $133,804,084 $5,508,416
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the U.S. Underwriters and International Managers
an option for 30 days to purchase up to 900,000 and 225,000 additional
shares of Common Stock, respectively, at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholder will be
$168,187,500, $7,978,125, $154,700,959 and $5,508,416, respectively. See
"Underwriting."

---------------

The U.S. Shares are offered by the several U.S. Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to
approval of counsel for the U.S. Underwriters and certain other conditions.
The U.S. Underwriters reserve the right to withdraw, cancel or modify such
offer and reject orders in whole or in part. It is expected that delivery of
the U.S. Shares will be made in New York, New York on or about April 27, 1998.

---------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
SALOMON SMITH BARNEY

---------------

The date of this Prospectus Supplement is April 21, 1998.
<PAGE>

[MAP OF PRINCIPAL PRODUCING AREAS APPEARS HERE]

[CROSS TIMBERS OIL COMPANY
LOGO APPEARS HERE]
CROSS TIMBERS OIL COMPANY
PRINCIPAL PRODUCING AREAS

----------------

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

S-2
<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus Supplement or incorporated herein by reference.
Unless otherwise indicated, the information in this Prospectus Supplement
assumes that the Underwriters' over-allotment option will not be exercised.
References herein to the "Company" refer to Cross Timbers Oil Company and to
its predecessors. Certain terms relating to the oil and gas business are
defined in "Glossary of Certain Oil and Gas Terms." Unless otherwise stated
herein, (i) pro forma information included in this Prospectus Supplement
includes the effect of recent acquisitions (see "Recent Developments"),
including the East Texas Acquisition (see "Risk Factors--Closing of the East
Texas Acquisition") and (ii) per share amounts relating to common stock of the
Company give effect to three-for-two stock splits effected March 19, 1997 and
February 25, 1998. The proved oil and gas reserves of the Company as of
December 31, 1997 set forth in this Prospectus Supplement were estimated by
Miller and Lents, Ltd., an independent engineering firm ("Miller and Lents").
All the proved oil and gas reserves expected to be acquired in the East Texas
Acquisition (see "Recent Developments") were estimated by the Company and
reviewed by Miller and Lents.

THE COMPANY

Cross Timbers Oil Company is a leading United States independent energy
company engaged in the acquisition, development and exploration of oil and
natural gas properties, and in the production, processing, marketing and
transportation of oil and natural gas. The Company has consistently increased
proved reserves, production and cash flow since its inception in 1986, and
believes it is one of the most efficient domestic onshore operators in the
industry. The Company has grown primarily through acquisitions of reserves,
followed by aggressive development activities and the purchase of additional
interests in or near such reserves. The Company's oil and gas reserves are
principally located in relatively long-lived fields with well-established
production histories concentrated in western Oklahoma, the Permian Basin of
West Texas and New Mexico, the San Juan Basin of New Mexico, the Hugoton Field
of Oklahoma and Kansas and the Green River Basin of Wyoming. With the East
Texas Acquisition, the Company will acquire reserves in the East Texas Basin of
Texas and Louisiana. See "Recent Developments."

The Company has achieved substantial growth in proved reserves, production,
revenues and EBITDA over the last five years. The Company increased proved
reserves by 336% from 45.4 million BOE as of December 31, 1992 to 197.6 million
BOE as of December 31, 1997 at an average acquisition and development finding
cost of $3.94 per BOE. Production increased from 5.7 million BOE in 1993 to
12.3 million BOE in 1997, and oil and gas revenues and EBITDA increased from
$74.4 million and $30.4 million, respectively, in 1993 to $185.3 million and
$113.6 million, respectively, in 1997. The Company's average daily production
for 1997 was 10,905 Bbls of oil, 220 Bbls of NGLs and 135,855 Mcf of natural
gas, or a total of 33,768 BOE. The Company's average daily production for
December 1997 was 11,690 Bbls of oil, 2,596 Bbls of NGLs and 167,157 Mcf of
natural gas, or a total of 42,146 BOE.

As of December 31, 1997, the Company's estimated proved oil and gas reserves
totaled 47.9 million Bbls of oil, 13.8 million Bbls of NGLs and 815.8 Bcf of
natural gas, or a total of 197.6 million BOE. Approximately 80% of these
reserves, on a BOE basis, were proved developed reserves. The average reserve-
to-production index for the Company's oil and gas proved reserves at December
31, 1997 was 13.3 years. As of December 31, 1997, the Company owned interests
in 7,018 gross (2,483 net) wells and was the operator of wells representing 82%
of the present value of cash flows before income taxes (discounted at 10%) from
estimated proved reserves. The discounted present value of cash flows before
income taxes from the Company's estimated proved reserves was $782.3 million at
December 31, 1997, based on then current oil and gas prices of $15.50 per
barrel and $2.20 per Mcf, respectively. The Company has established a
successful development record and from 1993 to 1997 drilled 624 gross (321.5
net) wells, of which 607 gross (310.8 net) were commercially successful. The
Company

S-3
<PAGE>

believes that production in 1998 and 1999 will increase significantly as a
result of acquisitions completed in 1996 and 1997, the continued development of
existing properties and the drilling of certain higher-risk prospects.

From inception in 1986 through December 31, 1997, the Company replaced 147%
of its production through extensions, discoveries and revisions at an average
cost of $2.56 per BOE and during 1997, replaced 200% of its production at a
cost of $3.75 per BOE. Over the last three years, the Company increased, on a
BOE basis, proved reserves per share from 1.8 at year-end 1994 to 5.0 at year-
end 1997. The Company incurred capital expenditures in 1997 of $92.6 million
for exploration and development, and it has budgeted $70 million to $90 million
for capital expenditures in 1998.

The following table sets forth the total amount spent by the Company to
acquire and develop its proved reserves and the amount of such reserves on a
BOE basis, from inception in 1986 to December 31, 1997:

<TABLE>
<CAPTION>
AVERAGE COST
COSTS BOE (a) PER BOE
---------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition of producing properties.... $ 882,070 186,288 $4.73
Exploration and development of
properties............................ 255,387 99,575 $2.56
---------- -------
Total................................ $1,137,457 285,863 $3.98
========== =======
</TABLE>
- --------
(a) Amounts set forth include proved reserves, on a BOE basis, acquired or
added through development since inception of the Company in 1986, and
therefore include proved reserves acquired or developed and subsequently
produced, distributed or sold.

RECENT DEVELOPMENTS

East Texas Acquisition. On February 25, 1998, the Company announced that it
had entered into a definitive agreement to acquire proved reserves of 270 Bcfe
and undeveloped acreage in the East Texas Basin (the "East Texas Acquisition")
for $265 million from EEX Corporation and EEX Operating L.P. The properties
(the "East Texas Properties"), located in East Texas and northwestern
Louisiana, produce primarily from the Travis Peak, Cotton Valley and Rodessa
formations between 7,000 feet and 12,000 feet. The East Texas Properties
include 784 gross (600 net) active wells and related gathering facilities. Upon
closing, the Company will operate wells representing more than 97% of the value
of the properties, which have a reserve-to-production index of almost nine
years. The acquisition also includes more than 12,800 net undeveloped acres
located primarily in Anderson County, Texas. After giving effect to the
acquisition on a pro forma basis, approximately 74% of the Company's proved
reserves at December 31, 1997 would have been natural gas. Excluding this
acquisition, natural gas constituted 69% of proved reserves at that date.

The preliminary purchase price of $265 million is expected to be reduced to
approximately $245 million by purchase price adjustments for revenues less
expenses from the January 1, 1998 effective date through the anticipated
closing date in late April 1998. The purchase price is subject to third party
consents and other purchase price adjustments. The consummation of the East
Texas Acquisition is not a condition of the Offerings. See "Additional Risk
Factors--Closing of the East Texas Acquisition."

The Company's internal engineers estimate proved reserves attributable to the
acquisition to be 260 Bcf of natural gas and 1.6 million Bbls of oil, or a
total of 270 Bcfe, concentrated in about 88,000 gross (59,000 net) acres at
December 31, 1997. Current net daily production is approximately 80 Mmcfe.
Proved developed reserves represent 94% of the value of the properties, with
direct production costs, excluding production and severance taxes, estimated to
be $0.25 per Mcfe.

S-4
<PAGE>

The East Texas Properties, which are characterized by complex geology and
multiple pay zones, offer numerous production enhancement and development
drilling opportunities. The Company believes various opportunities will also be
available to enhance the value of the East Texas Properties through
modification and installation of artificial lift, improvements to gas
compression, workovers, restimulations and recompletions. In addition, more
than 100 locations have been identified for drilling during the next few years.
Production from the Travis Peak Formation--first established in the 1940s and
the most prolific gas-producing formation in the East Texas Basin--represents
80% of the acquired production. Undeveloped acreage and acreage held by the
acquired production also adds to the Company's growing acreage inventory for
Cotton Valley Reef exploration.

San Juan Acquisition. During the last quarter of 1997, the Company acquired
producing properties located in the San Juan Basin of northwestern New Mexico
from a subsidiary of Amoco Corporation (the "San Juan Acquisition"). The San
Juan Acquisition, which closed December 1, 1997, increased proved reserves at
December 31, 1997 by approximately 1.2 million Bbls of oil, 13.8 million Bbls
of NGLs and 217 Bcf of natural gas, or a total of 51.2 million BOE. The
adjusted purchase price paid by the Company was approximately $195 million,
including five-year warrants to purchase 937,500 shares of Common Stock at an
exercise price of $15.31 per share.

The Company has identified 139 infill well sites in the San Juan Acquisition
properties, primarily in the Dakota and Fruitland Coal formations relating to
8.6 million BOE of proved undeveloped reserves that the Company expects will
require approximately $17.3 million to drill and complete. The Company plans to
drill 20 operated wells during 1998. In addition, the Company plans to evaluate
more than 150 potential infill well sites relating to unproved reserves over
the next year.

Results of Operations for the Three Months Ended March 31, 1997 and 1998. On
April 17, 1998, the Company announced first quarter 1998 net income of $261,000
compared to net income of $11.1 million for first quarter 1997. After preferred
dividends, earnings (loss) available to common stock for the quarter was
($184,000) or $0.00 per share compared to $10.7 million or $0.26 per share for
first quarter 1997 (adjusted for the February 1998 3-for-2 stock split).
Results for the quarter include a 41% increase in gas production to a daily
rate of 176.7 Mmcf per day, and a 15% increase in oil production to a daily
rate of 11,959 Bbls. Total revenues for the quarter were $50.6 million, a 5%
decrease from first quarter 1997 revenues of $53.5 million. Decreased revenues
and earnings are primarily the result of a 35% and 25% decrease in average oil
and gas prices, respectively, from first quarter 1997 to 1998. See "Recent
Developments-Results of Operations for the Three Months Ended March 31, 1997
and 1998."

COMPANY STRENGTHS

The Company believes that its historical success and future prospects are
directly related to its unique combination of strengths, including the
following:

Quality of Existing Properties. The Company's properties are characterized by
relatively long reserve lives and highly predictable well production profiles.
Based on current production from 2,483 net producing wells, the average
reserve-to-production index for the Company's proved reserves at December 31,
1997 was 13.3 years. In general, these properties have extensive production
histories and contain significant reserves and production enhancement
opportunities. While the Company's properties are geographically diversified,
the producing fields are concentrated within each core area, allowing for
substantial economies of scale in production and cost-effective application of
reservoir management techniques gained from prior operations.

Substantial Inventory of Drilling Projects. The Company has generated an
inventory of approximately 950 potential development drilling locations within
its existing properties (of which 480 have been attributed proved undeveloped
reserves), which should continue to support future net reserve additions. The
San Juan Acquisition added 289 of such locations (139 of which were attributed
proved undeveloped reserves). The Company expects

S-5
<PAGE>

that an additional 100 locations will be included in the East Texas Properties
(48 of which will be attributed proved undeveloped reserves).

Proven Acquisition Program. The Company employs a disciplined acquisition
program refined by senior management over more than 20 years to augment its
core properties and expand its reserve base. The Company's 50 engineering and
geoscience professionals use their expertise and experience gained through the
management of existing core properties to target acquisition opportunities in
the same geographic area or with similar geological and reservoir
characteristics. Following an acquisition, these professionals implement
development programs based on their expertise and experience to enhance
production and reduce costs. Since its inception, the Company has completed
producing property acquisitions for an aggregate purchase price of $882
million, representing 186 million BOE of proved reserves. Further, the Company
has increased this acquired reserve base by 54% through developing incremental
proved reserves of 100 million BOE. In 1996 and 1997, the Company acquired 86
million BOE of proved reserves at an average acquisition cost of $4.17 per BOE.
The San Juan Acquisition accounted for 51 million BOE of such proved reserves.
The East Texas Properties will provide an additional 45 million BOE.

Efficient Operations. The Company believes that the nature of its properties,
along with the operating expertise and experience of its personnel in its
principal geographic regions, have allowed the Company to lower its average
lease operating expense ratios per BOE produced. The Company is the operator of
properties representing 82% of the present value of cash flows before income
taxes (discounted at 10%) from estimated proved reserves, allowing it to
control expenses, capital allocation and the timing of development and
exploration activities in its fields. This control and the Company's operating
expertise have allowed it to reduce substantially production costs of acquired
properties. The Company has reduced its average production costs per BOE
produced from $5.16 for the year ended December 31, 1993 to $3.54 for the year
ended December 31, 1997. The Company's average production costs per BOE
produced for the fourth quarter of 1997 was $3.38 ($2.91 pro forma after giving
effect to the East Texas Acquisition).

Experienced Management and Technical Staff. Bob R. Simpson, Steffen E. Palko
and certain senior management of the Company have worked together for more than
20 years. Mr. Simpson and Mr. Palko were co-founders of the Company in 1986 and
previously served as executive officers of Southland Royalty Company, one of
the largest U.S. independent oil and gas producers prior to its acquisition by
Burlington Northern, Inc. in 1985. In addition, the Company has 50 engineering
and geoscience professionals dedicated to its properties with an average of 17
years of experience. Executive officers and directors of the Company own
approximately 10% of the Common Stock (including stock options). No member of
management is a Selling Stockholder in the Offerings.

BUSINESS STRATEGY

The Company's business strategy focuses on growth in value per share through
the selective acquisition of high-quality, long-lived, geologically complex oil
and gas producing properties and through enhancing the value of these
properties by reducing operating costs, improving efficiency and increasing
production and reserves.

Acquiring Long-lived Operated Properties. The Company seeks to acquire long-
lived, onshore operated producing properties that (i) contain geologically
complex multiple-producing horizons with the potential for increases in
reserves and production, (ii) are in the Company's core operating areas or in
areas with similar geological and reservoir characteristics and (iii) present
opportunities to reduce expenses through more efficient operations. The Company
believes that the properties it acquires provide opportunities to increase
production and reserves through the implementation of mechanical and
operational improvements, workovers, behind-pipe completions, secondary-
recovery operations, new development wells and other development activities.
The Company also seeks to acquire facilities related to gathering, processing,
marketing and transporting oil and gas in areas where it owns reserves. Such
facilities can enhance profitability by increasing production and reducing
gathering, processing, marketing and transportation costs. In addition,
ownership of such facilities provides marketing flexibility, including access
to additional markets.

S-6
<PAGE>

Increasing Production and Reserves. A principal component of the Company's
strategy is to increase production and reserves through aggressive management
of operations and low-risk development drilling. The Company believes that its
principal properties possess geological and reservoir characteristics that make
them well suited for production increases through development and drilling
programs. The Company has generated an inventory of approximately 950 potential
drilling locations for this program. The Company also reviews operations and
mechanical data on operated properties to determine if actions can be taken to
reduce operating costs or increase production. These actions include
installing, repairing and upgrading lifting equipment, redesigning downhole
equipment to improve production from different zones, modifying gathering and
other surface facilities and conducting restimulations and recompletions. The
Company may also initiate, upgrade or revise existing secondary-recovery
operations and drill development wells. As a result of its efforts, proved
reserves added by the Company through revisions, extensions and discoveries
equaled 163% of production over the five-year period ended December 31, 1997
and 200% of production for 1997.

Exploration Activities. The Company's strategy has evolved to include
allocation of 10% to 20% of its annual capital budget (excluding acquisitions)
to higher-risk projects. The Company attempts to select projects that it
believes will have the potential to add substantially to proved reserves and
cash flow. The Company believes that it can prudently and successfully add
growth potential through exploratory activities given improved technology, its
experienced technical staff and its expanded base of operations.

THE OFFERINGS

<TABLE>
<C> <S>
Common Stock offered by the Company (1):
U.S. Offering................................ 5,762,760 shares
International Offering....................... 1,440,690 shares
---------
7,203,450 shares
=========

Common Stock offered by Selling Stockholder (1):
U.S. Offering................................ 237,240 shares
International Offering....................... 59,310 shares
---------
296,550 shares
=========

Common Stock outstanding after the Offerings.... 46,378,353 shares (2)
Use of Proceeds................................. To reduce outstanding revolving bank in-
debtedness incurred in connection with
recent acquisitions. The Company will
not receive any proceeds from the sale
of the shares of Common Stock offered by
the Selling Stockholder. See "Use of
Proceeds."
NYSE Symbol..................................... XTO
</TABLE>
- --------
(1) Excluding an aggregate of 1,125,000 shares of Common Stock subject to
purchase upon exercise by the Underwriters of their over-allotment options.
(2) Excludes 1,607,000 shares subject to employee stock options, 1,168,000 of
which are presently exercisable.

RISK FACTORS

An investment in the Common Stock involves certain risks that a potential
investor should carefully evaluate prior to making such an investment. See
"Additional Risk Factors" on page S-11 of this Prospectus Supplement and "Risk
Factors" beginning on page 3 of the accompanying Prospectus.

S-7
<PAGE>

SUMMARY HISTORICAL FINANCIAL DATA

The following table presents, as of the dates and for the periods indicated,
summary financial data for the Company. The financial information for each of
the five years in the period ended December 31, 1997 has been derived from the
Company's audited consolidated financial statements. The Company's audited
consolidated financial statements as of December 31, 1996 and 1997, and for the
years ended December 31, 1995, 1996, and 1997, are incorporated herein by
reference. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein and the Company's consolidated financial statements and the
notes thereto incorporated herein by reference. The pro forma financial data
set forth below is unaudited and does not necessarily represent results that
would have occurred if the acquisitions had taken place on the basis assumed
and is not necessarily indicative of future combined operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
1993 1994 1995(a) 1996 1997 1997(b) 1997(c)
-------- -------- -------- -------- -------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA(d):
Revenues:
Oil and condensate..... $ 39,747 $ 53,324 $ 60,349 $ 75,013 $ 75,223 $ 82,144 $ 82,144
Gas and natural gas
liquids............... 34,649 38,389 40,543 73,402 110,104 234,071 234,071
Gas gathering,
processing and
marketing............. 3,717 4,274 7,091 12,032 9,851 9,851 9,851
Other.................. 69 288 4,922 944 5,494 5,494 5,494
-------- -------- -------- -------- -------- ---------- ----------
Total revenues......... 78,182 96,275 112,905 161,391 200,672 331,560 331,560
-------- -------- -------- -------- -------- ---------- ----------
Expenses:
Production............. 29,223 32,368 35,338 39,365 43,580 62,280 62,280
Exploration............ -- -- -- -- 2,088(e) 2,088 2,088
Taxes on production and
property.............. 6,706 8,586 8,646 11,944 16,405 30,088 30,088
Depreciation, depletion
and amortization...... 25,108 31,709 36,892 37,858 47,721 93,331 93,331
Impairment(a).......... -- -- 20,280 -- -- -- --
General and
administrative........ 9,863 8,532 13,156 16,420 15,818 11,081 11,081
Gas gathering and
processing............ 1,492 1,646 2,528 6,905 8,517 8,517 8,517
Interest net........... 5,464 8,034 12,523 17,072 26,677 55,305 46,107
Trust development
costs................. 695 622 561 854 665 665 665
-------- -------- -------- -------- -------- ---------- ----------
Total expenses......... 78,551 91,497 129,924 130,418 161,471 263,355 254,157
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
income tax and
extraordinary item.... (369) 4,778 (17,019) 30,973 39,201 68,205 77,403
Income tax expense..... 3,643 1,730 (5,825) 10,669 13,517 23,378 26,505
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)
before extraordinary
item.................. (4,012) 3,048 (11,194) 20,304 25,684 44,827 50,898
Extraordinary item..... -- -- 656 -- -- -- --
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)...... (4,012) 3,048 (10,538) 20,304 25,684 44,827 50,898
Preferred stock
dividends............. -- -- -- 514 1,779 1,779 1,779
-------- -------- -------- -------- -------- ---------- ----------
Earnings (loss)
available to common
stock................. $ (4,012)(f) $ 3,048 $(10,538) $ 19,790 $ 23,905 $ 43,048 $ 49,119
======== ======== ======== ======== ======== ========== ==========
Earnings per common
share(g):
Basic.................. $ (0.12) $ 0.09 $ (0.28) $ 0.50 $ 0.60 $ 1.08 $ 1.05
Diluted................ $ (0.12) $ 0.08 $ (0.28) $ 0.48 $ 0.59 $ 1.05 $ 1.02
Weighted average shares
outstanding(g)........ 32,682 35,829 38,072 39,913 39,773 39,773 46,976
CONSOLIDATED BALANCE
SHEET DATA(d):
Property and equipment,
net................... $228,551 $244,555 $364,474 $450,561 $723,836 $ 968,836 $ 968,836
Total assets........... 258,019 292,451 402,675 523,070 788,455 1,033,455 1,033,455
Long-term debt......... 111,750 142,750 238,475 314,757 539,000 784,000 650,696
Shareholders' equity... 115,168 113,333 130,700 142,668 170,243 170,243 303,547
OTHER FINANCIAL DATA(d):
EBITDA(h).............. $ 30,351 $ 44,777 $ 54,068 $ 85,541 $113,599 $ 216,841 $ 216,841
Capital expenditures... 105,228 49,608 190,311 146,568 347,441 N/A N/A
Cash provided by
operating activities.. 32,209 42,293 32,938 59,694 98,006 N/A N/A
</TABLE>
- --------
Footnotes on following page

S-8
<PAGE>

Footnotes
(a) In 1995, the Company recorded a 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.
(b) Includes pro forma adjustments for the effects of the San Juan Acquisition
and other acquisitions during 1997 and the effects of the expected East
Texas Acquisition as though these transactions occurred on January 1, 1997
for purposes of the consolidated statement of operations data and December
31, 1997 for purposes of the consolidated balance sheet data.
(c) Includes additional pro forma adjustments for the effects of the Offerings
and application of the net proceeds as discussed under "Use of Proceeds."
(d) Significant producing property acquisitions in each of the years presented
affect the comparability of period-to-period financial operating and other
data.
(e) Primarily includes geological and geophysical costs related to the 1997
exploration program. Exploration expenses were not material in prior
periods.
(f) Includes effect of a one-time, non-cash accounting charge of $4 million for
net deferred income tax liabilities recorded upon the merger between the
Company with the former partnership.
(g) After giving effect to 3-for-2 stock splits on March 19, 1997 and February
25, 1998.
(h) Earnings before interest, income tax and depreciation, depletion,
amortization and impairment. EBITDA is not intended to represent cash flow
in accordance with generally accepted accounting principles and does not
represent the measure of cash available for distribution. EBITDA is not
intended as an alternative to earnings available to common stock or net
income.

S-9
<PAGE>

SUMMARY RESERVE AND OPERATING DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(a)
-------- -------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT DAILY PRODUCTION AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES(b):
Oil (Bbls)............. 21,082 33,581 39,988 42,440 47,854 49,453
Gas (Mcf).............. 169,119 177,061 358,070 540,538 815,775 1,075,775
Natural gas liquids
(Bbls)................ -- -- -- -- 13,810 13,810
Barrels of oil
equivalent (BOE)...... 49,269 63,091 99,666 132,530 197,627 242,559
Estimated future net
cash flows, before
income tax............ $309,244 $406,128 $712,907 $1,737,024 $1,484,542 $1,903,114
Present value of
estimated future net
cash flows, discounted
at 10%:
Before income tax...... $189,968 $247,946 $405,706 $ 946,150(c) $ 782,322 $1,029,721
After income tax....... 173,294 213,146 335,156 706,481 642,109 855,823
AVERAGE DAILY
PRODUCTION:
Oil (Bbls)............. 6,968 9,497 9,677 9,584 10,905 11,860
Gas (Mcf).............. 51,260 58,182 78,408 101,845 135,855 270,142
Natural gas liquids
(Bbls)................ -- -- -- -- 220 2,704
Barrels of oil
equivalent (BOE)...... 15,511 19,194 22,745 26,558 33,768 59,588
AVERAGE SALES PRICE(d):
Oil (per Bbl).......... $ 15.63 $ 15.38 $ 17.09 $ 21.38 $ 18.90 $ 18.98
Gas (per Mcf).......... $ 1.85 $ 1.81 $ 1.42 $ 1.97 $ 2.20 $ 2.27
Natural gas liquids
(per Bbl)............. -- -- -- -- $ 9.66 $ 10.61
Production Costs (per
BOE).................. $ 5.16 $ 4.62 $ 4.26 $ 4.05 $ 3.54 $ 2.86
Production and property
taxes (per BOE)....... $ 1.19 $ 1.23 $ 1.04 $ 1.23 $ 1.33 $ 1.38
RESERVE ADDITIONS
(BOE)(b):
Acquisitions........... 12,351 4,486 31,508 27,118 58,425
Extensions, discoveries
and revisions......... (2,744) 16,840 15,426 15,725 24,729
-------- -------- -------- ---------- ----------
Total additions........ 9,607 21,326 46,934 42,843 83,154
======== ======== ======== ========== ==========
Costs incurred:
Acquisitions........... $ 87,064 $ 28,100 $131,342 $ 105,815 $ 255,627
Development and
exploration........... 19,462 21,826 21,061 45,038 88,643
-------- -------- -------- ---------- ----------
Total costs incurred... $106,526 $ 49,926 $152,403 $ 150,853 $ 344,270
======== ======== ======== ========== ==========
</TABLE>
- --------
(a) Pro forma data assume the San Juan Acquisition, other 1997 acquisitions and
the East Texas Acquisition (see "Recent Developments") had been completed
on January 1, 1997 for purposes of average daily production and average
sales price data and on December 31, 1997 for purposes of proved reserve
data.
(b) Proved reserves are estimated annually using oil and gas prices and
production and development costs as of December 31 of each year, without
escalation.
(c) Calculated using the Company's average oil price of $24.25 per Bbl and
average gas price of $3.02 per Mcf at December 31, 1996. Based on an oil
price of $20.00 per Bbl and a gas price of $2.00 per Mcf at December 31,
1996 the discounted present value of cash flows before income taxes of the
Company's proved reserves as of December 31, 1996 would have been $599.9
million.
(d) Average sales price data includes the effects of hedging activities which
have not been significant.

S-10
<PAGE>

ADDITIONAL RISK FACTORS

An investment in the Company involves a significant degree of risk.
Prospective purchasers should give careful consideration to the specific
factors set forth below and under "Risk Factors" in the Prospectus, as well as
the other information set forth in this Prospectus Supplement, before
purchasing the Common Stock offered hereby.

SUBSTANTIAL INDEBTEDNESS

At December 31, 1997, the Company had $539 million of indebtedness as
compared to the Company's stockholders' equity of $170.2 million. See "Use of
Proceeds" and "Capitalization." The Company may incur additional indebtedness
under its bank revolving credit agreement and intends to finance the East
Texas Acquisition with funds borrowed under the revolving credit agreement.
After giving effect to the East Texas Acquisition, total indebtedness, as of
December 31, 1997, would not have exceeded $784 million.

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, development, production, exploration and
abandonment of its oil and natural gas reserves. The Company intends to
finance such capital expenditures primarily with funds provided by operations
and borrowing under its bank revolving credit agreement. Costs incurred for
exploration and development increased from approximately $45.6 million in 1996
(excluding producing property acquisitions) to approximately $92.6 million in
1997. Annual exploration and development expenditures in 1998 are expected to
be from $70 million to $90 million, depending on drilling results, future
acquisitions and commodity prices.

The Company believes that, after debt service, it will have sufficient cash
provided by operating activities and availability under its bank revolving
credit agreement to fund planned capital expenditures through 1998. If
revenues decrease as a result of lower oil and gas prices or otherwise, the
Company may have limited ability to expend the capital necessary to replace
its reserves or to maintain production at current levels, resulting in a
decrease in production over time. If the Company's cash flow from operations
is not sufficient to satisfy its capital expenditure requirements, there can
be no assurance that additional debt or equity financing will be available to
meet these requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

CLOSING OF THE EAST TEXAS ACQUISITION

The closing of the Offerings is not conditioned upon the closing of the East
Texas Acquisition, which is subject to the conditions contained in the
purchase agreement for the acquisition. Although the Company believes that
such conditions will be fully satisfied on or before the scheduled closing
date of April 24, 1998, the purchase agreement may be terminated by either
party if the closing does not occur by May 1, 1998.

If the closing of the East Texas Acquisition does not occur, the financial
condition and business of the Company, including the Company's oil and gas
production, will be different than if the acquisition is completed. For the
month of December 1997, 27.7% of the Company's BOE production was oil, 6.2%
was NGLs and 66.1% was gas. After giving pro forma effect to the East Texas
Acquisition, however, such December 1997 BOE production would have been 21.0%
oil, 4.5% NGLs and 74.5% gas.

Current borrowings outstanding under the Company's revolving credit facility
are $304 million (which includes $26.5 million incurred to finance a down
payment on the East Texas Acquisition). If the East Texas Acquisition is
completed, the Company anticipates having, after giving effect to the
Offerings, approximately $186 million of available borrowing capacity under
its bank revolving credit facility. If the East Texas Acquisition is not
consummated, such availability would be $221 million. Borrowings available
under such increased capacity, in turn, could be used to finance new
acquisitions, development and exploration or for other purposes not yet
identified. See "Management Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties."

S-11
<PAGE>

FORWARD-LOOKING STATEMENTS

Certain statements contained herein under "Prospectus Supplement Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Recent Developments" and "Business and Properties," in addition
to certain statements contained elsewhere herein and in the documents
incorporated herein by reference are "Forward-looking Statements" and are thus
prospective. Such statements include, among others, (a) statements regarding
the Company's future acquisition and development plans and objectives and
related expenditures, revenues and cash flows, including without limitation
statements regarding (1) production and cash flows, (2) number and location of
planned wells, (3) anticipated completion of the Company's plan regarding
expenditures for property acquisitions and repurchases of the Company's Common
Stock, and the anticipated source of the funds necessary to complete the plan
and (4) the Company's capital expenditure budgets for acquisition and
development, respectively, and (b) statements regarding the Company's
anticipated aggregate annual dividends to be paid on its Common Stock.
Statements of assumptions related to or underlying such forward-looking
statements include, without limitation, statements regarding (i) the quality
of the Company's properties with regard to, among other things, anticipated
reserve and production enhancement opportunities and quantity of proved
reserves, (ii) the Company's ability to prudently add growth potential through
exploration, (iii) anticipated domestic hydrocarbon demand during 1998, (iv)
the adequacy of the Company's sources of liquidity during 1998, (v) the
expected insignificant impact on the Company's 1998 expenditures from
regulatory compliance, (vi) the expected insignificant impact on the Company's
liquidity during 1998 from production imbalances, (vii) the expected
immaterial adverse impact of a loss of any current oil or gas purchaser from
the Company, (viii) regulatory approval and the enactment of new legislation
in Oklahoma to realize in-fill drilling potential and (ix) similarity of the
impact on the Company to the impact on other oil and gas producers of rules
promulgated by the Federal Energy Regulatory Commission. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. The most significant of such
risks, uncertainties and other factors are discussed under "Additional Risk
Factors" on page S-11 of this Prospectus Supplement and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
beginning on page S-24 of this Prospectus Supplement, and prospective
purchasers are urged to carefully consider such factors.

S-12
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offerings are estimated to be
approximately $133.3 million (approximately $154.2 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated expenses of the
Offerings. The Company intends to apply the net proceeds from the Offerings to
repay outstanding indebtedness under the Company's bank revolving credit
facility, which bears interest at a floating rate based on LIBOR, currently
7%, and matures on June 30, 2003. Indebtedness under the revolving credit
agreement was incurred to finance recent acquisitions of oil and gas producing
properties. See "Recent Developments." The Company will not receive any
proceeds from the sale of shares of Common Stock offered by the Selling
Stockholder.

CAPITALIZATION

The following table sets forth, as of December 31, 1997, (i) the actual
capitalization of the Company at that date, (ii) the pro forma capitalization
of the Company, giving effect to the East Texas Acquisition and (iii) the pro
forma capitalization of the Company, as adjusted to reflect the Offerings
contemplated hereby, assuming application of the net proceeds from the
Offerings as described in "Use of Proceeds."

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA(a) AS ADJUSTED(b)
--------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Bank revolving credit
agreement.................... $ 239,000(c) $ 484,000(d) $350,696
9 1/4% senior subordinated
notes........................ 125,000 125,000 125,000
8 3/4% senior subordinated
notes........................ 175,000 175,000 175,000
--------- --------- --------
Total long-term debt........ 539,000 784,000 650,696
--------- --------- --------
Stockholders' equity:
Series A convertible preferred
stock, $.01 par value,
1,138,729 shares issued and
outstanding.................. 28,468 28,468 28,468
Common Stock, $.01 par value,
46,310,710 shares issued
before the Offerings and
53,514,160 shares issued
after the Offerings.......... 463 463 535
Additional paid-in capital.... 210,954 210,954 344,186
Treasury stock (6,860,779
shares)...................... (76,656) (76,656) (76,656)
Retained earnings............. 7,014 7,014 7,014
--------- --------- --------
Total stockholders' equity.. 170,243 170,243 303,547
--------- --------- --------
Total capitalization........ $ 709,243 $ 954,243 $954,243
========= ========= ========
</TABLE>
- --------
(a) Includes pro forma adjustments for the effect of the East Texas
Acquisition but does not include adjustments for the effects of the
Offerings. See "Pro Forma Consolidated Financial Statements."
(b) Includes pro forma adjustments for the effects of the Offerings and
application of the net proceeds as discussed under "Use of Proceeds." In
the event the East Texas Acquisition is not consummated, adjusted pro
forma long-term debt would be $405.7 million.
(c) Includes $10 million in short-term borrowings that are classified as long-
term debt because of the Company's intent and ability to refinance this
debt on a long-term basis.
(d) After giving effect to the East Texas Acquisition, which is expected to
close in late April 1998, borrowings under the revolving credit agreement
would not have exceeded $484 million. The borrowing commitment under the
amended revolving credit agreement is $575 million.

S-13
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has been listed on the NYSE under the symbol "XTO" since
May 12, 1993. The following table sets forth, for the periods indicated, the
high and low prices of the Common Stock reported on the New York Stock
Exchange Composite Tape. The prices below have been adjusted to reflect the 3-
for-2 stock splits effected on March 19, 1997, and February 25, 1998.

<TABLE>
<CAPTION>
SALES PRICE
---------------
DIVIDEND
LOW HIGH DECLARED
------- ------- --------
<S> <C> <C> <C>
1996:
First Quarter..................................... $ 6.938 $ 8.328 $.033
Second Quarter.................................... 7.563 11.438 .033
Third Quarter..................................... 8.500 12.781 .033
Fourth Quarter.................................... 10.000 11.891 .033
1997:
First Quarter..................................... $10.422 $13.719 $.037
Second Quarter.................................... 9.828 13.750 .037
Third Quarter..................................... 12.328 16.375 .037
Fourth Quarter.................................... 13.297 19.125 .037
1998:
First Quarter..................................... $14.672 $21.125 $.04
Second Quarter (through April 21, 1998)........... 19.375 21.125 --
</TABLE>

The closing price of the Common Stock on the NYSE on April 21, 1998, was
$20.3125. As of March 1, 1998, the Company had approximately 320 stockholders
of record.

DIVIDEND POLICY

The Company currently pays quarterly cash dividends of $0.04 per common
share, or a total of $6.3 million ($7.4 million after the Offerings) annually.
The determination of the amount of future dividends, if any, to be declared
and paid is in the sole discretion of the Company's Board of Directors and
will depend on the Company's financial condition, earnings and funds from
operations, the level of its capital expenditures, dividend restrictions in
its financing agreements, its future business prospects and other matters as
the Board of Directors deems relevant. The Company's revolving credit
agreement and indentures relating to its senior subordinated notes restrict
specific payments and distributions, including cash dividends. At December 31,
1997, the Company had $22.5 million available for the payment of dividends.
This amount is increased by a percentage of net income and the proceeds from
the issuance of common stock.

S-14
<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 the Company. The Pro Forma Consolidated Balance Sheet
as of December 31, 1997 has been prepared as if the pending East Texas
Acquisition and the Offerings, as described in Note 1, were consummated on
December 31, 1997. The Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1997 has been prepared as if the San Juan Acquisition
and certain other 1997 acquisition transactions (collectively, the "1997
Acquisitions"), the East Texas Acquisition and the Offerings were consummated
on January 1, 1997.

The Pro Forma Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations which would have
occurred had the transactions occurred 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.

S-15
<PAGE>

CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
ADJUSTMENTS FOR PRO FORMA
EAST TEXAS ADJUSTMENTS FOR AS ADJUSTED
ACQUISITION OFFERINGS FOR
HISTORICAL (NOTE 3)(a) PRO FORMA (NOTE 3)(b) OFFERINGS
---------- --------------- ---------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 3,816 $ -- $ 3,816 $ -- $ 3,816
Accounts receivable,
net................... 43,996 -- 43,996 -- 43,996
Other current assets... 4,350 -- 4,350 -- 4,350
--------- -------- ---------- --------- ----------
Total Current Assets.. 52,162 -- 52,162 -- 52,162
--------- -------- ---------- --------- ----------
Property and Equipment,
at cost................ 961,368 245,000 1,206,368 -- 1,206,368
Accumulated
depreciation,
depletion and
amortization.......... (237,532) -- (237,532) -- (237,532)
--------- -------- ---------- --------- ----------
Net Property and
Equipment............ 723,836 245,000 968,836 -- 968,836
--------- -------- ---------- --------- ----------
Other Assets............ 12,457 -- 12,457 -- 12,457
--------- -------- ---------- --------- ----------
Total Assets............ $ 788,455 $245,000 $1,033,455 $ -- $1,033,455
========= ======== ========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities... $ 54,339 $ -- $ 54,339 $ -- $ 54,339
Accrued stock incentive
compensation.......... 554 -- 554 -- 554
--------- -------- ---------- --------- ----------
Total Current
Liabilities.......... 54,893 -- 54,893 -- 54,893
--------- -------- ---------- --------- ----------
Long-term Debt.......... 539,000 245,000 784,000 (133,304) 650,696
--------- -------- ---------- --------- ----------
Deferred Income Taxes
Payable................ 21,320 -- 21,320 -- 21,320
--------- -------- ---------- --------- ----------
Other Long-term
Liabilities............ 2,999 -- 2,999 -- 2,999
--------- -------- ---------- --------- ----------
Stockholders' Equity:
Series A Convertible
Preferred Stock
($.01 par value,
1,138,729 shares
issued at liquidation
value of $25)......... 28,468 -- 28,468 -- 28,468
Common stock ($.01 par
value,
46,310,710 shares
issued before the
Offerings and
53,514,160 shares
issued after the
Offerings)............ 463 -- 463 72 535
Additional paid-in
capital............... 210,954 -- 210,954 133,232 344,186
Treasury stock
(6,860,779 shares).... (76,656) -- (76,656) -- (76,656)
Retained earnings...... 7,014 -- 7,014 -- 7,014
--------- -------- ---------- --------- ----------
Total Stockholders'
Equity............... 170,243 -- 170,243 133,304 303,547
--------- -------- ---------- --------- ----------
Total Liabilities and
Stockholders' Equity... $ 788,455 $245,000 $1,033,455 $ -- $1,033,455
========= ======== ========== ========= ==========
</TABLE>

See Notes to Pro Forma Consolidated Financial Statements.

S-16
<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) PRO FORMA
-------------------------------------------------------- AS ADJUSTED
1997 EAST TEXAS FOR
HISTORICAL ACQUISITIONS(c) ACQUISITION(d) OTHER OFFERINGS(e) OFFERINGS
---------- --------------- -------------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and condensate..... $ 75,223 $ 1,623 $ 5,298 $ -- $ -- $ 82,144
Gas and natural gas
liquids............... 110,104 35,220 88,747 -- -- 234,071
Gas gathering,
processing and
marketing............. 9,851 -- -- -- -- 9,851
Other.................. 5,494 -- -- -- -- 5,494
-------- ------- ------- -------- ------- --------
Total Revenues........ 200,672 36,843 94,045 -- -- 331,560
-------- ------- ------- -------- ------- --------
EXPENSES
Production............. 43,580 5,049 6,933 6,718 (f) -- 62,280
Exploration............ 2,088 -- -- -- -- 2,088
Taxes on production and
property.............. 16,405 3,574 10,109 -- -- 30,088
Depreciation, depletion
and amortization...... 47,721 -- -- 45,610 (g) -- 93,331
General and
administrative........ 15,818 -- -- (4,737)(f) -- 11,081
Gas gathering and
processing............ 8,517 -- -- -- -- 8,517
Interest, net.......... 26,677 -- -- 28,628 (h) (9,198) 46,107
Trust development
costs................. 665 -- -- -- -- 665
-------- ------- ------- -------- ------- --------
Total Expenses........ 161,471 8,623 17,042 76,219 (9,198) 254,157
-------- ------- ------- -------- ------- --------
INCOME BEFORE INCOME
TAX.................... 39,201 28,220 77,003 (76,219) 9,198 77,403
Income tax.............. 13,517 -- -- 9,861 (i) 3,127 26,505
-------- ------- ------- -------- ------- --------
NET INCOME.............. 25,684 28,220 77,003 (86,080) 6,071 50,898
======= ======= ======== =======
Preferred stock
dividends.............. 1,779 1,779
-------- --------
EARNINGS AVAILABLE TO
COMMON STOCK........... $ 23,905 $ 49,119
======== ========
EARNINGS PER COMMON
SHARE:
Basic.................. $ 0.60 $ 1.05
======== ========
Diluted................ $ 0.59 $ 1.02
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 39,773 46,976
======== ========
</TABLE>

See Notes to Pro Forma Consolidated Financial Statements.

S-17
<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 December 31, 1997
has been prepared assuming the Company consummated the pending East Texas
Acquisition on December 31, 1997. The accompanying Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1997 has been prepared
assuming that the Company consummated the San Juan Acquisition and certain
other 1997 acquisition transactions (collectively, the "1997 Acquisitions")
and the pending East Texas Acquisition on January 1, 1997. The 1997
Acquisitions and the East Texas Acquisition were funded by long-term
borrowings under the Company's revolving credit facility. Pro forma amounts
are also shown adjusted for the sale of 7,203,450 shares of Common Stock at
$19.50 per share in the proposed public offerings and the application of
$133,304,000 estimated net proceeds therefrom to reduce indebtedness under the
Company's revolving credit facility, as if such sale occurred on December 31,
1997 for the Pro Forma Consolidated Balance Sheet and on January 1, 1997 for
the Pro Forma Consolidated Statement of Operations.

The historical results of operations for the year ended December 31, 1997
were derived from the Company's 1997 audited consolidated financial statements
incorporated by reference in this Prospectus Supplement. The Pro Forma
Consolidated Statement of Operations is not necessarily indicative of the
results of operations had the above described transactions occurred on the
assumed dates.

2. ACQUISITIONS

The San Juan Acquisition closed December 1, 1997 for an estimated adjusted
purchase price of $195 million, including $5.7 million for five-year warrants
to purchase 937,500 shares of the Company's common stock at $15.31 per share,
and consisted of primarily gas-producing properties in the San Juan Basin of
New Mexico. Also included in the 1997 Acquisitions are (i) an acquisition of
producing properties in May 1997 from a subsidiary of Burlington Resources,
Inc. for approximately $39 million and (ii) the acquisition of additional
units of beneficial interest in Cross Timbers Royalty Trust over the first
half of 1997 at a cost of $5.4 million.

On February 25, 1998, the Company announced it had entered into a definitive
agreement with EEX Corporation ("EEX") for the East Texas Acquisition. The
transaction is expected to close in late April 1998 with an effective date of
January 1, 1998. After purchase price adjustments, the preliminary purchase
price of $265 million is expected to be reduced to $245 million.

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 East Texas Acquisition that is expected to close after
December 31, 1997, funded by borrowings under the Company's revolving
credit facility.

(b) To record estimated net proceeds to be received by the Company upon
consummation of the Offerings, 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,
resulting in a $72,000 increase in Common Stock (equal to the par value of
the shares issued), and $133,232,000 increase in additional paid-in
capital. Such proceeds are to be used to reduce indebtedness under the
Company's revolving credit facility.

(d) To record revenue and direct operating expenses of the East Texas
Acquisition.

(e) To record reduced interest expense attributable to the decrease in
long-term debt upon application of net proceeds from the Offerings and
related increase in federal income tax at 34%. Reduction in interest
expense was determined using the weighted average interest rate incurred by
the Company under its revolving credit facility.

S-18
<PAGE>

(f) To record the estimated increase in general and administrative
expense ($2,735,000) and an allocation from general and administrative
expense to production expense ($7,472,000 less billing to joint owners of
$754,000) attributable to the 1997 Acquisitions and the East Texas
Acquisition for the year ended December 31, 1997.

(g) To record estimated depreciation and depletion expenses attributable
to the 1997 Acquisitions and the East Texas Acquisition using the unit-of-
production method applied to the cost of the properties acquired.

(h) To record interest expense attributable to the increase in long-term
debt to finance the purchase of the 1997 Acquisitions and East Texas
Acquisition. 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.

(i) To record federal income tax at a corporate statutory rate of 34%
related to net pro forma adjustments other than Offering 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 East Texas Acquisition.

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.

PRO FORMA PROVED OIL AND GAS RESERVES AT DECEMBER 31, 1997

<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF) NGLS (BBLS)
---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved Reserves................................ 49,453 1,075,775 13,810
====== ========= ======
Proved Developed Reserves...................... 35,200 895,474 11,494
====== ========= ======
</TABLE>

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.

S-19
<PAGE>

PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AT DECEMBER
31, 1997

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Future cash inflows........................................... $3,262,889
Future costs:
Production.................................................. (1,182,427)
Development................................................. (177,348)
----------
Future net cash flows before income tax....................... 1,903,114
Future income tax............................................. (350,389)
----------
Future net cash flows......................................... 1,552,725
10% annual discount........................................... (696,902)
----------
Standardized measure.......................................... $ 855,823
==========
</TABLE>

5. PRO FORMA DATA EXCLUDING THE EAST TEXAS ACQUISITION

The following are pro forma consolidated results of operations and balance
sheet data, presented on the basis described in Note 1, including the effects
of the Offerings, but excluding the effects of the East Texas Acquisition:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
Revenues.................................................... $ 237,515
Expenses.................................................... 204,719
---------
Income before income tax.................................... 32,796
Income tax.................................................. 11,150
---------
Net income.................................................. $ 21,646
=========
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA
Net property and equipment.................................. $ 723,836
=========
Total assets................................................ $ 788,455
=========
Long-term debt.............................................. $ 405,696
=========
</TABLE>

S-20
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

S-21
<PAGE>

S-22
<PAGE>

SUMMARY RESERVE AND OPERATING DATA

S-23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Cross Timbers Oil Company ("the Company") was organized in October 1990 to
ultimately acquire the business and properties of predecessor entities that
were created from 1986 through 1989. The Company completed its initial public
offering of common stock in May 1993.

The Company follows the successful efforts method of accounting (see Note 1
to Consolidated Financial Statements). As of October 1, 1995, the Company
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, recording a pre-tax, non-cash
impairment charge of $20.3 million. The Company has implemented the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, but
continues to record compensation of stock-based awards using Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. As
of December 31, 1997, the Company adopted SFAS No. 128, Earnings Per Share,
which requires that basic and diluted earnings per share be reported for all
periods. In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, Reporting of Comprehensive Income, and SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. The Company will be
required to comply with the provisions of these statements in its 1998
financial statements. The Company has not assessed the effect that these new
standards will have on its consolidated financial statements and/or
disclosures.

In addition to the adoption of accounting principles described above, the
following events affect the comparative results of operations and/or financial
condition for the years ended December 31, 1997, 1996 and 1995, and/or may
impact future operations and financial condition. Throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations,
references to barrels of oil equivalent ("BOE") refer to quantities of
production for the indicated period (with gas quantities converted to barrels
on an energy equivalent ratio of six Mcf to one barrel).

Three-for-Two Stock Splits. The Company effected a three-for-two stock split
on March 19, 1997, and on February 25, 1998. All common stock shares, treasury
stock shares and per share amounts have been retroactively restated to reflect
both stock splits.

1998 Acquisition. On February 25, 1998, the Company announced it had entered
into a definitive agreement with EEX Corporation to acquire producing
properties and undeveloped acreage in East Texas. The transaction is expected
to close in late April 1998 with an effective date of January 1, 1998 and to
be financed through bank lines of credit. After purchase price adjustments,
the preliminary purchase price of $265 million is expected to be reduced to
$245 million.

1997 Acquisitions. During 1997, the Company acquired predominantly gas-
producing properties for a total cost of $256 million. The San Juan
Acquisition, the largest of these acquisitions, closed December 1, 1997 for an
estimated adjusted purchase price of $195 million, including $5.7 million for
five-year warrants to purchase 937,500 shares of the Company's common stock at
$15.31 per share, and consisted of producing oil and gas properties in the San
Juan Basin of New Mexico. 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.
During 1997, the Company acquired an additional 6% of the publicly traded
outstanding units of beneficial interest in Cross Timbers Royalty Trust, at a
cost of $5.4 million. These 1997 acquisitions were primarily funded by bank
borrowings and cash flow from operations (see "Liquidity and Capital
Resources--Financing" below). See Note 10 to Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "Consolidated Financial Statements") incorporated by
reference herein.

1996 Acquisitions. In 1996, the Company acquired primarily gas-producing
properties for a total cost of $106 million. The Enserch Acquisition, the
largest of these acquisitions, closed in July 1996 at a cost of $39.4 million
and primarily consisted of operated interests in the Green River Basin of
southwestern Wyoming. In

S-24
<PAGE>

November 1996, the Company acquired additional interests in the Fontenelle
Unit, the most significant property included in the Enserch Acquisition, at a
cost of $12.5 million. In December 1996, the Company acquired primarily
operated interests in gas-producing properties in the Ozona area of the
Permian Basin of West Texas for $28.1 million. From July through December
1996, the Company acquired 16% of the publicly traded outstanding units of
beneficial interest in Cross Timbers Royalty Trust at a total cost of $12.8
million. These 1996 acquisitions were primarily funded by bank borrowings. See
Note 10 to Consolidated Financial Statements.

1995 Acquisitions. During 1995, the Company acquired predominantly gas-
producing properties for a total cost of $131 million, and a gas processing
plant and gathering facility for $29 million. The Santa Fe Acquisition, the
largest of these acquisitions, closed on August 1, 1995 and consisted of
mostly operated properties and related facilities in the Hugoton Field of
Kansas and Oklahoma. The 1995 acquisitions were primarily funded by bank
borrowings and proceeds from the 1995 common stock offering and asset sales.
See Note 10 to Consolidated Financial Statements.

1997, 1996 and 1995 Development and Exploration Programs. During 1997, the
Company drilled 60 oil and 109 gas wells and completed 100 recompletions and
workovers. During 1996, the Company drilled 48 oil wells and 52 gas wells and
completed 125 recompletions and workovers. In 1995, the Company drilled 40
wells and performed 61 recompletions and workovers. Oil development was
concentrated in the Prentice Northeast Unit of West Texas during these three
years, as well as the University Block 9 Field during 1997. Gas development
focused on the Ozona Field of West Texas in the last half of 1997, the
Fontenelle Unit of southwestern Wyoming during 1997 and 1996 and Major County,
Oklahoma during 1996 and 1995. Exploration activity during 1997 was primarily
geological and geophysical analysis, including seismic, of undeveloped
properties at total cost of $2.1 million. Exploration activity was
concentrated in Cleveland and Texas counties of Oklahoma, Henderson County,
Texas, Lea County, New Mexico and the Illinois Basin. Exploratory expenditures
were insignificant in 1996 and 1995.

1998 Development and Exploration Program. The Company has budgeted $70 to
$90 million for its 1998 development and exploration program which is expected
to be funded primarily by cash flow from operations. Exploration expenditures
are expected to be 10% to 15% of the 1998 budget. The total capital budget,
including acquisitions, will be adjusted throughout 1998 to capitalize on
opportunities offering the highest rates of return.

1997 Senior Subordinated Notes. The Company sold $125 million of 9 1/4%
senior subordinated notes on April 2, 1997 and $175 million of 8 3/4% senior
subordinated notes on October 28, 1997. Net proceeds of $121.1 million and
$169.9 million from the 9 1/4% Notes and 8 3/4% Notes, respectively, were used
to reduce bank borrowings under the Company's loan agreement. See Note 2 to
Consolidated Financial Statements.

1997 and 1996 Conversion of Subordinated Notes. During November and December
1996, $27.7 million principal of the Company's 5 1/4% convertible subordinated
notes was converted by noteholders into 2,696,521 shares of common stock. In
January 1997, the remaining principal of $29.7 million was converted by
noteholders into 2,892,363 shares of common stock and $29,000 was redeemed.

1996 Preferred Stock Exchange. In September 1996, pursuant to the Company's
exchange offer, a total of 2,979,249 shares of common stock were exchanged for
1,138,729 shares of Series A convertible preferred stock. See Note 5 to
Consolidated Financial Statements.

1995 Common Stock Offering. In August 1995, the Company sold 5,062,500
shares of common stock. The net proceeds of $29.5 million from this offering
were used to partially fund the Santa Fe Acquisition.

1997 and 1996 Treasury Stock Purchases. As part of its 1997 and 1996
strategic acquisition plans, the Board of Directors has authorized the
purchase of a total of 7.5 million shares of the Company's common stock.
During 1997 and 1996, the Company purchased 2.4 million and 2.9 million shares
of common stock on the open

S-25
<PAGE>

market at a total cost of $28 million and $30.7 million, respectively. An
additional 484,000 shares have been purchased through March 20, 1998 at a cost
of $7.5 million. These purchases were primarily funded by bank borrowings. As
of March 20, 1998, 1.7 million treasury shares remain available to purchase.

Investment in Equity Securities. During 1997 and 1996, the Company acquired
less than 5% of two publicly traded independent oil and gas producers at a
total cost of $6.5 million and $16.1 million, respectively. During 1997, the
Company sold its investment in equity securities at a gain of $2.4 million.
The Company realized a gain of $1.6 million upon the sale of an investment in
equity securities during 1995.

Property Sales. In 1997, 1996 and 1995, sales of producing properties
resulted in net gains of $1.8 million, $500,000 and $3 million, respectively.

Stock Incentive Compensation. Stock incentive compensation includes stock
appreciation right ("SAR") compensation and performance share compensation,
and is the result of these stock awards and subsequent increases in the
Company's stock price. See Note 9 to Consolidated Financial Statements
incorporated by reference herein. During 1997, stock incentive compensation
totaled $3.7 million, which included SAR compensation of $400,000 (cash
payments of $300,000) and non-cash performance share compensation of $3.3
million. In 1996, stock incentive compensation totaled $6.2 million, which
included SAR compensation of $3.7 million (cash payments of $7.1 million,
partially offset by prior accruals) and non-cash performance share
compensation of $2.5 million. During 1995, stock incentive compensation
totaled $5.1 million, which included SAR compensation of $2.3 million (cash
payments of $800,000) and non-cash performance share compensation of $2.8
million. Exercises and forfeitures under the 1991 Stock Incentive Plan have
reduced outstanding stock incentive units (including SARs) from 836,000 at
year-end 1995 to 51,000 at year-end 1996, and 25,000 at year-end 1997.

Extraordinary Item. During 1995, the Company recognized an extraordinary
gain of $700,000 (net of income tax of $300,000) as a result of the purchase
and early retirement of $8.3 million principal amount of the Company's 5 1/4%
convertible subordinated notes. In 1996, the Company redeemed, purchased and
retired a total of $9 million principal amount of the notes at a loss before
income tax of $400,000. This loss was not presented as an extraordinary item
because it was not material to 1996 earnings.

Product Prices. Oil and gas prices are affected not only by supply and
demand factors, but are also subject to substantial seasonal, political and
other fluctuations that are generally beyond the ability of the Company to
control or predict.

Crude oil prices are generally affected by global politics and supply,
particularly among OPEC members. The average posted per barrel price of West
Texas Intermediate ("WTI") oil, a benchmark crude, was $18.63, $20.45 and
$16.77 in 1997, 1996 and 1995, respectively. Despite the anticipation of and
eventual resumption of Iraqi exports, oil prices reached their highest levels
since the 1990 Persian Gulf War during fourth quarter 1996 and January 1997.
After demand slightly outpaced supply in January 1997, the crude oil market
remained in balance during most of the year, supporting prices in the range of
$17 to $20 per barrel, before sliding to an average posted WTI price of $16.18
in December. Further declines in 1998 have resulted in an average posted WTI
price of $14.22 for January and February. The recent weakening in oil prices
is due to increased OPEC production following its November 1997 decision to
increase quotas, as well as increased non-OPEC production from the North Sea
and Latin America. The price decline has also been attributed to mild winters
in the U.S. and Europe and the sudden drop in demand from depressed economies
in the Far East. After hitting a decade-low of $11.00, prices in late March
1998 began to increase upon news that some of the major oil exporting
countries planned to meet regarding curtailment of production. Based on 1997
production, the Company estimates that a $1.00 per barrel increase or decrease
in the average oil sales price would result in approximately a $3.8 million
change in 1998 annual income before income tax.

Natural gas prices are generally influenced by national and regional supply
and demand, which is often dependent upon the weather. Specific gas prices are
also based on the location of production, pipeline capacity,

S-26
<PAGE>

gathering charges and the energy content of the gas. Throughout most of 1995,
gas prices were relatively weak, primarily because of unseasonably warm
weather. Gas prices increased in fourth quarter 1995 and continued their
upward spiral through February 1996 because of low storage levels and colder
than expected weather. Generally because of colder weather, storage concerns
and U.S. economic growth, prices remained relatively high during most of 1996
and 1997, reaching their highest levels since 1985. Gas prices declined,
however, in December 1997 and have remained lower in first quarter 1998,
primarily because of an abnormally mild winter in the central and eastern U.S.
and elevated storage levels. Despite continued growth in domestic demand, 1998
gas prices will largely depend on the weather, gas storage levels, increased
supplies resulting from domestic exploration and Canadian imports, and price
competition from other energy sources. Based on 1997 production, the Company
estimates that a $0.10 per Mcf increase or decrease in the average gas sales
price would result in approximately a $4.5 million change in 1998 annual
income before income tax. See Note 6 to Consolidated Financial Statements
incorporated by reference herein regarding commodity price hedging instruments
the Company has entered to reduce its exposure to gas price fluctuations.

RESULTS OF OPERATIONS

1997 Compared to 1996

Earnings available to common stock for 1997 were $23.9 million as compared
with $19.8 million for 1996. This significant improvement in earnings was the
result of higher gas prices and increased gas production from the 1996 and
1997 acquisitions and development programs. Results for 1997 and 1996 included
the effects of stock incentive compensation of $3.7 million and $6.2 million,
respectively. Also included in 1997 results were net gains on sale of
properties and equity securities of $1.8 million and $2.4 million,
respectively, and lawsuit settlement proceeds of $1.3 million. A $500,000 gain
on sale of properties was included in 1996 results. Earnings for 1997 and 1996
were reduced by dividends of $1.8 million and $500,000, respectively, on
preferred stock issued in September 1996.

Revenues for 1997 were $200.7 million, or 24% above 1996 revenues of $161.4
million. Oil revenue remained constant as a 13% increase in oil production was
offset by a 12% decrease in oil prices from an average of $21.38 in 1996 to
$18.90 in 1997 (see "General--Product Prices" above). Increased production was
primarily because of the 1997 acquisitions and development programs.

Gas revenue increased $36.7 million or 50% because of a 33% increase in
production combined with a 12% price increase (see "General--Product Prices"
above). Increased gas production was attributable to the 1996 and 1997
acquisitions and development programs. Gas revenues for 1997 also included
$800,000 from San Juan Basin natural gas liquids production attributable to
the December 1997 San Juan Acquisition.

Gas gathering, processing and marketing revenues decreased $2.2 million
primarily because of a decrease in margin and gas volumes. Other revenues
increased $4.6 million primarily because of increased net gains on sale of
properties and equity securities and lawsuit settlement proceeds received in
1997.

Expenses for 1997 totaled $161.5 million as compared with total 1996
expenses of $130.4 million. All expenses other than general and administrative
expense increased in 1997 primarily because of the 1996 and 1997 acquisitions
and exploration and development programs.

Production expense increased $4.2 million or 11%. Per BOE, production
expense decreased from $4.05 to $3.54. This decrease is primarily because of
the lower operating costs of gas-producing properties acquired in 1996 and
1997, the timing of workovers, increasing production without comparable
increases in lifting costs and other operating efficiencies initiated after
acquiring operated properties. Exploration expenses for 1997 totaled $2.1
million, and were predominantly geological and geophysical costs related to
the 1997 exploration program. Exploration costs in 1996 and prior were
included in production expense since not significant.

Taxes on production and property increased 37% or $4.5 million because of
increased oil and gas revenues, as well as increased property taxes related to
the 1996 and 1997 acquisitions. Taxes on production and property per BOE
increased 8% from $1.23 to $1.33 because of increased gas prices and higher
property tax rates.

S-27
<PAGE>

Depreciation, depletion and amortization ("DD&A") increased $9.9 million, or
26%, primarily because of the 1996 and 1997 acquisitions and development
programs. On a BOE basis, DD&A decreased slightly from $3.89 in 1996 to $3.87
in 1997.

General and administrative expense decreased $602,000, or 4%, because of a
$2.5 million decrease in stock incentive compensation, partially offset by
increased expenses from Company growth. Excluding stock incentive
compensation, general and administrative expense per BOE was $0.99 in 1997 as
compared to $1.04 in 1996.

Gas gathering and processing expense increased $1.6 million or 23%. This
increase was primarily because of rental expense related to the Tyrone plant
and gathering system lease that began in March 1996 and the Major County,
Oklahoma gathering system lease that began in November 1996. This increase
offsets related decreases in DD&A and interest.

Interest expense increased $9.6 million or 56% because of a 36% increase in
weighted average borrowings to partially fund the 1996 and 1997 acquisitions
and purchases of treasury stock, combined with a 20% increase in the weighted
average interest rate. Weighted average principal outstanding during 1997 was
$351 million at an average interest rate of 7.6% compared with weighted
average principal of $259 million at 6.4% for 1996. Interest expense per BOE
increased from $1.76 in 1996 to $2.16 in 1997 primarily as the result of an
increase in the weighted average interest rate (primarily attributable to the
senior subordinated notes sold in April and October 1997), as well as the
result of financing expenditures for other than oil and gas producing
properties (investment in equity securities and treasury stock purchases) with
bank and other short-term borrowings.

1996 Compared to 1995

Earnings available to common stock for 1996 were $19.8 million as compared
to a net loss of $10.5 million for 1995. Significantly improved results were
because of higher oil and gas prices and increased gas production from the
1995 and 1996 acquisitions and development programs. Additionally, 1995
results included a $20.3 million, pre-tax, non-cash impairment charge recorded
upon adoption of SFAS 121. Results for 1996 and 1995 included the effects of
stock incentive compensation of $6.2 million and $5.1 million, respectively.
Also included in 1995 results were net gains on sale of properties and equity
securities of $3 million and $1.6 million, respectively, and a $700,000
extraordinary gain on the Company's purchase and retirement of a portion of
its convertible subordinated notes. Earnings for 1996 have been reduced by
dividends of $500,000 on preferred stock that was issued in September 1996.

Revenues for 1996 were $161.4 million, or 43% above 1995 revenues of $112.9
million. Oil revenue increased $14.7 million or 24% primarily because of a 25%
increase in oil prices from an average of $17.09 in 1995 to $21.38 in 1996
(see "General--Product Prices" above). The Company's 1996 average oil price
was above the average WTI price of $20.45 because of improved oil marketing
margins. Oil production declined 1% from 1995 to 1996 primarily because of
property sales and natural decline, largely offset by the effects of the 1995
and 1996 acquisitions and development programs.

Gas revenue increased $32.9 million or 81% because of a 39% price increase
(see "General--Product Prices" above) combined with a 30% increase in
production. Increased gas production was attributable to the 1995 and 1996
acquisitions and development programs.

Gas gathering, processing and marketing revenues increased $4.9 million
primarily because of revenues from the gas processing plant and gathering
facility acquired as part of the Santa Fe Acquisition on August 1, 1995. Other
revenues decreased $4 million primarily because of net gains on sale of
properties and equity securities in 1995.

Expenses for 1996 totaled $130.4 million as compared with total 1995
expenses of $129.9 million. Expenses for 1995 included the $20.3 million
impairment charge recorded upon adoption of SFAS No. 121 in October 1995. All
expenses other than impairment increased in 1996 primarily because of the 1995
and 1996 acquisitions.

S-28
<PAGE>

Production expense increased $4 million or 11%. Per BOE, production expense
decreased from $4.26 to $4.05. This decrease is primarily because the 1995 and
1996 acquisitions were predominantly gas-producing properties that generally
have lower production costs per BOE.

Taxes on production and property increased 38% or $3.3 million because of
increased oil and gas revenues. Taxes on production and property per BOE
increased 18% from $1.04 to $1.23 primarily because of higher oil and gas
prices.

DD&A increased $1 million, or 3%, primarily because of the 1995 and 1996
acquisitions and development programs. On a BOE basis, DD&A decreased from
$4.44 in 1995 to $3.89 in 1996. Decreased DD&A per BOE is the result of
increased proved reserve estimates at January 1, 1996, reduced depletable
costs resulting from the SFAS 121 provision recorded in fourth quarter 1995,
and the sale and operating leaseback of the Tyrone gas processing plant and
related gathering system.

General and administrative expense increased $3.3 million, or 25%, because
of Company growth and increased stock incentive compensation. Excluding stock
incentive compensation, general and administrative expense per BOE was $1.04
in 1996 as compared to $0.97 in 1995.

Gas gathering and processing expense increased from $2.5 million in 1995 to
$6.9 million in 1996. This increase was primarily because of rental expense
related to the Tyrone plant and gathering system lease that began in March
1996. This increase offsets related decreases in DD&A and interest.

Interest expense increased $4.5 million or 36% primarily because of
increased debt to partially fund the 1995 and 1996 acquisitions and purchases
of treasury stock and equity securities. Weighted average principal
outstanding during 1996 was $259 million at an average interest rate of 6.4%
compared with weighted average principal of $195.1 million at 6.2% for 1995.
Interest expense per BOE increased from $1.51 in 1995 to $1.76 in 1996
primarily because of financing expenditures for other than oil and gas
producing properties with bank and other short-term borrowings.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flow from operating
activities, public offerings of equity and debt, and bank debt. The Company's
cash requirements, other than for operations, are generally for the
acquisition, exploration and development of oil and gas properties, and debt
and dividend payments. The Company believes that its sources of liquidity are
adequate to fund its cash requirements during 1998.

Cash provided by operating activities was $98 million in 1997, compared with
$59.7 million in 1996 and $32.9 million in 1995. The fluctuation from 1996 to
1997 was primarily because of increased gas prices and production, combined
with the timing of cash receipts. Before changes in working capital, cash flow
from operations was $90 million, $68.3 million and $40.4 million in 1997, 1996
and 1995, respectively.

The 1997, 1996 and 1995 acquisitions were primarily financed by proceeds
from long-term debt borrowings. The 1995 acquisitions were also partially
funded by proceeds from a public offering of common stock. Exploration and
development expenditures and dividend payments have generally been funded by
cash flow from operations.

Financial Condition

Total assets increased from $523 million at December 31, 1996 to $788
million at December 31, 1997, primarily because of the 1997 acquisitions. As
of December 31, 1997, total capitalization of the Company was $709 million, of
which 76% was long-term debt. This compares with capitalization of $457
million at December 31, 1996, of which 69% was long-term debt. The increase in
the debt-to-capitalization ratio from year-end 1996 to 1997 is because of
increased borrowings under the Company's loan agreement to fund the 1997
acquisitions and other capital expenditures (see "Financing" below).

S-29
<PAGE>

Working Capital

The Company generally uses available cash to reduce bank debt and,
therefore, does not maintain large cash and cash equivalent balances. Short-
term liquidity needs are satisfied by bank commitments under the loan
agreement (see "Financing" below). Because of this, and since the Company's
principal source of operating cash flows (i.e., proved reserves to be produced
in the following year) cannot be reported as working capital, the Company
often has low or negative working capital.

Financing

On November 21, 1997, the Company entered into a new revolving credit
agreement with commercial banks ("loan agreement"). As of December 31, 1997,
the loan agreement had a borrowing base and commitment of $365 million with
resulting unused borrowing capacity of $136 million. The interest rate on
borrowings at December 31, 1997 was 7.1%. The Company has negotiated a new
loan agreement that increases its credit line to $575 million. The Company
periodically renegotiates its credit facilities to increase the borrowing
commitment and extend the revolving facility; however, there is no assurance
that the Company will continue to do so in the future. After the anticipated
closing of the East Texas Acquisition in April 1998 and after giving effect to
the Offerings, the Company expects the borrowing base and commitment to be
$575 million and the available unused borrowing capacity to be approximately
$186 million.

Under the loan agreement, the borrowing base is redetermined annually based
on the value and expected cash flow of the Company's proved oil and gas
reserves. If outstanding borrowings are greater than the redetermined
borrowing base, outstanding borrowings must be reduced to the level of the
redetermined borrowing base within a specified period. Otherwise, borrowings
under the loan agreement do not mature until June 30, 2003, but may be prepaid
at any time without penalty.

During 1995, the Company purchased and retired $8.3 million principal amount
of its 5 1/4% convertible subordinated notes ("5 1/4% Notes"), resulting in an
extraordinary gain of $700,000. During 1996, the Company redeemed, purchased
and retired a total of $9 million principal amount of the notes at a loss of
$400,000, and holders of the 5 1/4% Notes converted principal of $27.7 million
into 2,696,521 shares of common stock. In January 1997, the remaining $29.7
million of the 5 1/4% Notes was converted by noteholders into 2,892,363 shares
of common stock and $29,000 was redeemed.

In August 1995, the Company sold 5.1 million shares of common stock for net
proceeds of $29.5 million that were used to partially fund the Santa Fe
Acquisition. In September 1996, pursuant to the Company's exchange offer, a
total of 2,979,249 shares of common stock were exchanged for 1,138,729 shares
of Series A convertible preferred stock.

In April 1997, the Company sold $125 million of 9 1/4% senior subordinated
notes ("9 1/4% Notes") and in October 1997, the Company sold $175 million of 8
3/4% senior subordinated notes ("8 3/4% Notes"). Net proceeds of $121.1
million and $169.9 million from the sale of 9 1/4% Notes and the 8 3/4% Notes,
respectively, were used to reduce bank borrowings under the loan agreement.
See Note 2 to Consolidated Financial Statements.

The Company filed a shelf registration statement with the Securities and
Exchange Commission that became effective on April 10, 1998, to potentially
offer securities which may include debt securities, preferred stock, common
stock or warrants to purchase debt securities, preferred stock or common
stock. The securities will be offered at an aggregate offering price not to
exceed $400 million, at prices and on terms to be determined at the time of
the sale. Net proceeds from the sale will be used for general corporate
purposes, including reduction of bank borrowings under the loan agreement. The
shares of Common Stock offered by this Prospectus Supplement are registered
pursuant to such shelf registration statement.

S-30
<PAGE>

Capital Expenditures

In May 1997, the Company announced its plan to make strategic acquisitions
totaling $260 to $280 million from that date through the end of 1999. As a
result of closing the San Juan Acquisition in December 1997 at an estimated
cost of $195 million and the expected closing of the East Texas Acquisition in
April 1998 at an estimated cost of $245 million, the Company has significantly
exceeded this goal. Acquisition costs totaled $255.6 million, $105.8 million
and $131.3 million during 1997, 1996 and 1995, respectively. Producing
property acquisitions include purchases of outstanding beneficial units
("Units") of Cross Timbers Royalty Trust at a cost of $5.4 million for 6% of
the Units in 1997 and $12.8 million for 16% of the Units in 1996. As of
December 31, 1997, the Company owned 1,326,300 Units; the Board of Directors
has authorized a total purchase of up to two million Units. Acquisitions were
primarily funded by bank debt. See Note 10 to Consolidated Financial
Statements.

The Company continues to pursue acquisitions that meet its criteria,
although there are no assurances that such properties will be available. The
Company plans to fund future acquisitions through a combination of cash flow
from operations and bank borrowings; proceeds from public equity and debt
transactions may also be utilized.

In 1997, exploration and development cash expenditures totaled $90.5 million
compared with the budget of $70 million. On an incurred basis, exploration and
development costs for 1997 totaled $88.6 million. In 1996, exploration and
development cash expenditures totaled $32.3 million, compared with the budget
of $40 million. The Company has budgeted $70 to $90 million for the 1998
development program. As it has done historically, the Company expects to fund
the 1998 development program from cash flow from operations. Since there are
no material long-term commitments associated with this budget, the Company has
the flexibility to adjust its actual development expenditures in response to
changes in product prices, industry conditions, and the effects of the
Company's acquisition and development programs.

A minor portion of the Company's existing properties are operated by third
parties which control the timing and amount of expenditures required to
develop the Company's interests in such properties. Therefore, the Company can
give no assurances regarding the timing or amount of such expenditures.

To date, the Company's expenditures to comply with environmental or safety
regulations have not been significant, and the Company currently does not
expect such expenditures to be significant during 1998. However, developments
such as new regulations, enforcement policies or claims for damages could
result in significant future costs.

Dividends

The Board of Directors has declared quarterly dividends of $0.033 per common
share since the Company's inception through 1996 and $0.037 per common share
in 1997. In January 1998, the Board of Directors increased the quarterly
dividend to $0.04 per share, or $6.2 million annually. Continued dividend
payments are dependent upon available cash flow, as well as other factors. In
addition, the Company's loan agreement restricts the amount of common stock
dividends to 25% of operating cash flow for the last four quarters.

Cumulative dividends on Series A convertible preferred stock are paid
quarterly, when declared by the Board of Directors, based on an annual rate of
$1.5625 per share, or $1.8 million annually.

Year 2000

The Company is in the process of reviewing and making necessary
modifications to its computer systems for year 2000 compliance. Costs incurred
to date to modify the Company's computer systems have not been material, and
future costs are not expected to be material. Timely completion of such
modifications is not considered to be a material risk to the Company. The
Company currently does not have information regarding the year 2000 compliance
status of its major suppliers and customers. In the event that any of the
Company's

S-31
<PAGE>

significant suppliers or customers does not timely achieve year 2000
compliance, the Company's operations could be adversely affected.

PRODUCTION IMBALANCES

The Company has gas production imbalance positions that are the result of
partial interest owners selling more or less than their proportionate share of
gas on jointly owned wells. Imbalances are generally settled by
disproportionate gas sales over the remaining life of the well or by cash
payment by the overproduced party to the underproduced party. The Company uses
the entitlement method of accounting for natural gas sales. At December 31,
1997, the Company's consolidated balance sheet includes a net receivable of
$5.1 million for a net underproduced balancing position of 1,114,000 Mcf of
natural gas and 8,049,000 Mcf of carbon dioxide. Production imbalances do not
have, and are not expected to have, a significant impact on the Company's
liquidity or operations.

DERIVATIVES

The Company uses derivatives on a limited basis to hedge interest rate and
product price risks, as opposed to their use for trading purposes. To reduce
variable interest rate exposure on debt, the Company had entered into a series
of interest rate swap agreements, the last of which expired September 1996.
The Company had no other significant derivative transactions or balances from
1994 to 1997. During the first quarter of 1998, the Company entered into
several derivative transactions to hedge its exposure to price fluctuations
for gas production from January 1998 through December 2000. See Note 6 to
Consolidated Financial Statements.

On November 19, 1997, the Company's Board of Directors adopted a policy
limiting the Company's exposure to derivative instruments. Commodity price
hedging is limited to no more than 100% of the Company's oil, gas or NGL
production for a six-month period and no more than 50% for a twelve-month
period. Interest rate hedges are limited to notional balances not exceeding
the Company's outstanding indebtedness. Hedging transactions will be limited
to futures and forward sales contracts, standard options and swaps.

S-32
<PAGE>

RECENT DEVELOPMENTS

EAST TEXAS ACQUISITION

On February 25, 1998, the Company announced that it had entered into a
definitive agreement to acquire proved reserves of 270 Bcfe and undeveloped
acreage in the East Texas Acquisition for $265 million from EEX Corporation
and EEX Operating L.P. The East Texas Properties, located in East Texas and
northwestern Louisiana, produce primarily from the Travis Peak, Cotton Valley
and Rodessa formations between 7,000 feet and 12,000 feet. The East Texas
Properties include 784 gross (600 net) active wells and related gathering
facilities. Upon closing, the Company will operate wells representing more
than 97% of the value of the properties, which have a reserve-to-production
index of almost nine years. The acquisition also includes more than 12,800 net
undeveloped acres located primarily in Anderson County, Texas. After giving
effect to the acquisition on a pro forma basis, approximately 74% of the
Company's proved reserves at December 31, 1997 would have been natural gas.
Excluding this acquisition, natural gas constituted 69% of proved reserves at
that date.

The Company's internal engineers estimate proved reserves attributable to
the acquisition to be 260 Bcf of natural gas and 1.6 million Bbls of oil, or a
total of 270 Bcfe, concentrated in about 88,000 gross (59,000 net) acres at
December 31, 1997. Current net daily production is approximately 80 Mmcfe.
Proved developed reserves represent 94% of the value of the properties, with
direct production costs, excluding production and severance taxes, estimated
to be $0.25 per Mcfe.

The East Texas Properties, which are characterized by complex geology and
multiple pay zones, offer numerous production enhancement and development
drilling opportunities. The Company believes various opportunities will also
be available to enhance the value of the East Texas Properties through
modification and installation of artificial lift, improvements to gas
compression, workovers, restimulations and recompletions. In addition, more
than 100 locations have been identified for drilling during the next few
years. Production from the Travis Peak Formation--first established in the
1940s and the most prolific gas-producing formation in the East Texas Basin--
represents 80% of the acquired production. Undeveloped acreage and acreage
held by the acquired production also adds to the Company's growing acreage
inventory for Cotton Valley Reef exploration.

SAN JUAN ACQUISITION

During the last quarter of 1997, the Company acquired producing properties
located in the San Juan Basin of northwestern New Mexico from a subsidiary of
Amoco Corporation. The San Juan Acquisition, which closed December 1, 1997,
increased proved reserves at December 31, 1997 by approximately 1.2 million
Bbls of oil, 13.8 million Bbls of NGLs and 217 Bcf of natural gas, or a total
of 51.2 million BOE. The adjusted purchase price paid by the Company was
approximately $195 million, including five-year warrants to purchase 937,500
shares of Common Stock at an exercise price of $15.31 per share.

The Company has identified 139 infill well sites in the San Juan Acquisition
properties, primarily in the Dakota and Fruitland Coal formations relating to
8.6 million BOE of proved undeveloped reserves that the Company expects will
require approximately $17.3 million to drill and complete. The Company plans
to drill 20 operated wells during 1998. In addition, the Company plans to
evaluate more than 150 potential infill well sites relating to unproved
reserves over the next year.

S-33
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

The following are results of operations for the three months ended March 31,
1998, announced on April 17, 1998, compared with results for the three months
ended March 31, 1997.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
(IN THOUSANDS, EXCEPT PRODUCTION, PER SHARE AND PER 1997 1998
UNIT AMOUNTS) ------------------------
<S> <C> <C> <C>
Revenues:
Oil and condensate.................................. $ 19,914 $ 15,062
Gas and natural gas liquids......................... 29,524 32,992
Total revenues...................................... 53,494 50,621
Net income............................................ $ 11,095 $ 261
Earnings (loss) available to common stock............. $ 10,650 $ (184)
Earnings per common share:
Basic............................................... $ 0.26 $ 0.00
Diluted............................................. $ 0.25 $ 0.00
Average sale price:
Oil (per Bbl)....................................... $ 21.36 $ 13.99
Gas (per Mcf)....................................... $ 2.62 $ 1.96
Natural gas liquids (per Bbl)....................... -- $ 8.47
Average daily production:
Oil (Bbls).......................................... 10,359 11,959
Gas (Mcf)........................................... 125,245 176,675
Natural gas liquids (Bbls).......................... -- 2,332
</TABLE>

First quarter 1998 net income was $261,000 compared to net income of $11.1
million for first quarter 1997. After preferred dividends, earnings (loss)
available to common stock for the quarter was ($184,000) or $0.00 per share
compared to $10.7 million or $0.26 per share for the first quarter 1997
(adjusted for the February 1998 3-for-2 stock split). Results for the quarter
include a 41% increase in gas production to a daily rate of 176.7 Mmcf per
day, and a 15% increase in oil production to a daily rate of 11,959 Bbls.
Total revenues for the quarter were $50.6 million, a 5% decrease from first
quarter 1997 revenues of $53.5 million. Decreased revenues and earnings are
primarily the result of a 35% and 25% decrease in average oil and gas prices,
respectively, from first quarter 1997 to 1998.

S-34
<PAGE>

BUSINESS AND PROPERTIES

Cross Timbers Oil Company is a leading United States independent energy
company engaged in the acquisition, development and exploration of oil and
natural gas properties, and in the production, processing, marketing and
transportation of oil and natural gas. The Company has consistently increased
proved reserves, production and cash flow since its inception in 1986, and
believes it is one of the most efficient domestic onshore operators in the
industry. The Company has grown primarily through acquisitions of reserves,
followed by aggressive development activities and the purchase of additional
interests in or near such reserves. The Company's oil and gas reserves are
principally located in relatively long-lived fields with well-established
production histories concentrated in western Oklahoma, the Permian Basin of
West Texas and New Mexico, the San Juan Basin of New Mexico, the Hugoton Field
of Oklahoma and Kansas and the Green River Basin of Wyoming. With the East
Texas Acquisition, the Company will acquire reserves in the East Texas Basin
of Texas and Louisiana. See "Recent Developments."

The Company has achieved substantial growth in proved reserves, production,
revenues and EBITDA over the last five years. The Company increased proved
reserves by 336% from 45.4 million BOE as of December 31, 1992 to 197.6
million BOE as of December 31, 1997 at an average acquisition and development
finding cost of $3.94 per BOE. Production increased from 5.7 million BOE in
1993 to 12.3 million BOE in 1997, and oil and gas revenues and EBITDA
increased from $74.4 million and $30.4 million, respectively, in 1993 to
$185.3 million and $113.6 million, respectively, in 1997. The Company's
average daily production for 1997 was 10,905 Bbls of oil, 220 Bbls of NGLs and
135,855 Mcf of natural gas, or a total of 33,768 BOE. The Company's average
daily production for December 1997 was 11,690 Bbls of oil, 2,596 Bbls of NGLs
and 167,157 Mcf of natural gas, or a total of 42,146 BOE.

As of December 31, 1997, the Company's estimated proved oil and gas reserves
totaled 47.9 million Bbls of oil, 13.8 million Bbls of NGLs and 815.8 Bcf of
natural gas, or a total of 197.6 million BOE. Approximately 80% of these
reserves, on a BOE basis, were proved developed reserves. The average reserve-
to-production index for the Company's oil and gas proved reserves at December
31, 1997 was 13.3 years. As of December 31, 1997, the Company owned interests
in 7,018 gross (2,483 net) wells and was the operator of wells representing
82% of the present value of cash flows before income taxes (discounted at 10%)
from estimated proved reserves. The discounted present value of cash flows
before income taxes from the Company's estimated proved reserves was $782.3
million at December 31, 1997, based on then current oil and gas prices of
$15.50 per barrel and $2.20 per Mcf, respectively. The Company has established
a successful development record and from 1993 to 1997 drilled 624 gross (321.5
net) wells, of which 607 gross (310.8 net) were commercially successful. The
Company believes that production in 1998 and 1999 will increase significantly
as a result of acquisitions completed in 1996 and 1997, the continued
development of existing properties and the drilling of certain higher-risk
prospects.

S-35
<PAGE>

COMPANY STRENGTHS

The Company believes that its historical success and future prospects are
directly related to its unique combination of strengths, including the
following:

Quality of Existing Properties. The Company's properties are characterized
by relatively long reserve lives and highly predictable well production
profiles. Based on current production from 2,483 net producing wells, the
average reserve-to-production index for the Company's proved reserves at
December 31, 1997 was 13.3 years. In general, these properties have extensive
production histories and contain significant reserves and production
enhancement opportunities. While the Company's properties are geographically
diversified, the producing fields are concentrated within each core area,
allowing for substantial economies of scale in production and cost-effective
application of reservoir management techniques gained from prior operations.

Proven Acquisition Program. The Company employs a disciplined acquisition
program refined by senior management over more than 20 years to augment its
core properties and expand its reserve base. The Company's 50 engineering and
geoscience professionals use their expertise and experience gained through the
management of existing core properties to target acquisition opportunities in
the same geographic area or with similar geological and reservoir
characteristics. Following an acquisition, these professionals implement
development programs based on their expertise and experience to enhance
production and reduce costs. Since its inception, the Company has completed
producing property acquisitions for an aggregate purchase price of $882
million, representing 186 million BOE of proved reserves. Further, the Company
has increased this acquired reserve base by 54% through developing incremental
proved reserves of 100 million BOE. In 1996 and 1997, the Company acquired 86
million BOE of proved reserves at an average acquisition cost of $4.17 per
BOE. The San Juan Acquisition accounted for 51 million BOE of such proved
reserves. The East Texas Properties will provide an additional 45 million BOE.

S-36
<PAGE>

production costs of acquired properties. The Company has reduced its average
production costs per BOE produced from $5.16 for the year ended December 31,
1993 to $3.54 for the year ended December 31, 1997. The Company's average
production costs per BOE produced for the fourth quarter of 1997 was $3.38
($2.91 pro forma after giving effect to the East Texas Acquisition).

Experienced Management and Technical Staff. Bob R. Simpson, Steffen E. Palko
and certain senior management of the Company have worked together for more
than 20 years. Mr. Simpson and Mr. Palko were co-founders of the Company in
1986 and previously served as executive officers of Southland Royalty Company,
one of the largest U.S. independent oil and gas producers prior to its
acquisition by Burlington Northern, Inc. in 1985. In addition, the Company has
50 engineering and geoscience professionals dedicated to its properties with
an average of 17 years of experience. Executive officers and directors of the
Company own approximately 10% of the Common Stock (including stock options).
No member of management is a Selling Stockholder in the Offerings.

BUSINESS STRATEGY

The Company's business strategy focuses on growth in value per share through
the selective acquisition of high-quality, long-lived, geologically complex
oil and gas producing properties and through enhancing the value of these
properties by reducing operating costs, improving efficiency and increasing
production and reserves.

Acquiring Long-lived Operated Properties. The Company seeks to acquire long-
lived, onshore operated producing properties that (i) contain geologically
complex multiple-producing horizons with the potential for increases in
reserves and production, (ii) are in the Company's core operating areas or in
areas with similar geological and reservoir characteristics and (iii) present
opportunities to reduce expenses through more efficient operations. The
Company believes that the properties it acquires provide opportunities to
increase production and reserves through the implementation of mechanical and
operational improvements, workovers, behind-pipe completions, secondary-
recovery operations, new development wells and other development activities.
The Company also seeks to acquire facilities related to gathering, processing,
marketing and transporting oil and gas in areas where it owns reserves. Such
facilities can enhance profitability by increasing production and reducing
gathering, processing, marketing and transportation costs. In addition,
ownership of such facilities provides marketing flexibility, including access
to additional markets.

Increasing Production and Reserves. A principal component of the Company's
strategy is to increase production and reserves through aggressive management
of operations and low-risk development drilling. The Company believes that its
principal properties possess geological and reservoir characteristics that
make them well suited for production increases through development and
drilling programs. The Company has generated an inventory of approximately 950
potential drilling locations for this program. The Company also reviews
operations and mechanical data on operated properties to determine if actions
can be taken to reduce operating costs or increase production. These actions
include installing, repairing and upgrading lifting equipment, redesigning
downhole equipment to improve production from different zones, modifying
gathering and other surface facilities and conducting restimulations and
recompletions. The Company may also initiate, upgrade or revise existing
secondary-recovery operations and drill development wells. As a result of its
efforts, proved reserves added by the Company through revisions, extensions
and discoveries equaled 163% of production over the five-year period ended
December 31, 1997 and 200% of production for 1997.

S-37
<PAGE>

SIGNIFICANT PROPERTIES

The following table summarizes proved reserves and discounted present value,
before income tax, of proved reserves by the Company's major operating areas
at December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
PROVED RESERVES DISCOUNTED
-------------------------- PRESENT VALUE
NATURAL GAS BEFORE INCOME TAX
OIL GAS LIQUIDS OF
(BBLS) (MCF) (BBLS) PROVED RESERVES
------ ------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Permian Basin.................... 38,960 99,687 -- $ 233,739 29.9%
Mid-Continent.................... 5,721 167,563 -- 175,605 22.4%
San Juan Basin................... 1,228 221,986 13,810 168,787 21.6%
Hugoton.......................... 260 161,299 -- 111,468 14.3%
Rocky Mountain................... 1,279 154,846 -- 80,791 10.3%
Other(a)......................... 406 10,394 -- 11,932 1.5%
------ ------- ------ ---------- -------
Total.......................... 47,854 815,775 13,810 $ 782,322 100.0%
====== ======= ====== ========== =======
</TABLE>
- --------
(a) Includes 375,000 Bbls and 8,790,000 Mcf and discounted present value
before income tax of $9,922,000 related to the Company's 22% ownership of
Cross Timbers Royalty Trust Units at December 31, 1997.

Permian Basin Area

Prentice Field. The Prentice Field is located in Terry and Yoakum Counties,
Texas. In 1993, the Company acquired its initial interest in the Prentice
Northeast Unit in three separate transactions, accumulating a 62.1% interest.
In January 1994, the Company purchased an additional 29.4% interest in the
Prentice Northeast Unit, increasing the Company's total ownership to 91.5%.
The Company assumed operations of the Unit effective March 1, 1994. Current
net production from the 186-well Unit is approximately 3,350 Bbls of oil and
500 Mcf of gas per day. The Company also owns an interest in 80 gross (1.7
net) nonoperated wells.

Discovered in 1950, the Prentice Field produces from carbonate reservoirs in
the Clear Fork and Glorieta formations at depths ranging from 6,000 to 7,000
feet. The Prentice Field has been separated into several waterflood units for
secondary recovery operations. The Prentice Northeast Unit was formed in 1964
with waterflood operations commencing a year later. Development potential
exists through infill drilling and improvement of waterflood efficiency.
Tertiary recovery potential also exists through carbon dioxide flooding.

During 1997, the Company drilled 31 gross (28.4 net) development wells in
the Prentice Northeast Unit. Twenty-four of these wells were 10-acre infill
wells and the remaining seven wells were strategically located to extend the
prospective area for infill development in the central and northern portion of
the Unit. The Company plans to drill a total of up to 25 wells during 1998
depending upon oil prices.

Russell Field. The Russell Field is located in Gaines County, Texas. The
Company owns an interest in 25 gross (23.4 net) wells that it operates and 137
gross (42.6 net) wells operated by others. Current net daily oil and gas
production is approximately 900 Bbls and 470 Mcf.

The Russell Field, discovered in 1943, produces from the San Andres,
Glorieta, Middle Clear Fork and Devonian formations at depths ranging from
4,800 to 10,800 feet. Development potential exists through restimulations,
recompletions, infill drilling, and the implementation of secondary recovery
operations in the Middle Clear Fork and San Andres formations.

Ozona Area. The Company acquired interests in 1996 in the Henderson, Ozona,
and Davidson Ranch fields located in Crockett County, Texas. The Company has
interests in 111 gross (64.9 net) wells that it operates and 133 gross (27.5
net) wells operated by others. Current net daily production is approximately
11.3 Mmcf and 58 Bbls.

S-38
<PAGE>

Oil and gas were first discovered in the Ozona area in 1962. Production is
from the Pennsylvanian Canyon sandstones and Strawn carbonates at depths
ranging from 6,500 to 9,000 feet. Development potential for this area includes
infill drilling, field extension and delineation drilling, and the possibility
of horizontal drilling in the Strawn Formation.

During 1997, the Company drilled a total of 23 gross (15.4 net) operated
wells and participated in 14 gross (2.3 net) wells operated by others, making
it one of the Company's most active gas development areas. The Company plans
to drill or participate in drilling a total of 34 wells during 1998.

University Block 9. The University Block 9 Field is located in Andrews
County, Texas. The Company owns a 100% working interest in 55 wells that it
operates. Current net daily production is approximately 2,570 Bbls of oil and
2,160 Mcf of gas.

The University Block 9 Field was discovered in 1953. Productive zones are of
Wolfcamp, Pennsylvanian and Devonian age at 8,400, 8,700 and 10,400 feet,
respectively. The Company operates the Wolfcamp Unit, Penn Unit and 23 of the
24 active Devonian wells. Development potential includes proper wellbore
utilization, recompletions, infill drilling and improvement of waterflood
efficiency.

This field was one of the Company's most active oil development areas during
1997, where the Company drilled 16 wells, 6 of which were in the process of
drilling at year-end. During 1998, the Company plans to drill up to 20 wells
depending upon oil prices.

Mid-Continent Area

Major County Area. The Company is one of the largest producers in the
Ringwood, Northwest Okeene and Cheyenne Valley fields in Major County,
Oklahoma. The Company operates 451 gross (389.4 net) wells and has an interest
in 202 gross (45.8 net) wells operated by others. Current net daily oil and
gas production is approximately 1,050 Bbls and 33,300 Mcf.

Oil and gas were first discovered in the Major County area in 1945. The
fields in the Major County area are located in the Anadarko Basin and are
characterized by oil and gas production from a variety of structural and
stratigraphic traps. Productive zones range from 6,500 to 9,400 feet and
include the Oswego, Red Fork, Chester, Manning, Mississippian, Hunton and
Arbuckle formations.

The Company develops the Major County area primarily through mechanical
improvements, restimulations, recompletions to shallower zones and development
drilling. During 1997, the Company participated in the drilling of 32 gross
(24.8 net) wells in the western portion of the County, targeted at the
Mississippian and Chester formations. The Company has budgeted 24 wells in
Major County for 1998.

A subsidiary of the Company operates a gathering system and pipeline in the
Major County area. The gathering system collects gas from 425 wells through
300 miles of pipeline in the Major County area. The gathering system has
current throughput of approximately 28,500 Mcf per day, 70% of which is
produced from Company-operated wells. Estimated capacity of the gathering
system is 40,000 Mcf per day. Gas is delivered to a processing plant owned and
operated by a third party, and then transmitted by a 26-mile Company-operated
pipeline to connections with other pipelines.

Since 1994, the Company has operated its Major County gathering system.
Through its direct maintenance and management, the Company has achieved
operating cost reductions and improved reliability. During 1994 and 1995, the
gathering system was converted from centralized to field compression through
the installation of four field compression stations. Field compression has
allowed the system to operate more efficiently and to expand into previously
inaccessible areas.

Elk City Field. The Elk City Field is located in Beckham and Washita
Counties of western Oklahoma. The Company operates the Elk City Unit with 35
gross (31.6 net) wells and owns an interest in 9 gross (1.5 net)

S-39
<PAGE>

wells operated by others. Current net production of the Elk City Field is
approximately 160 Bbls of oil and 4,500 Mcf of gas per day.

The Elk City Field was discovered in 1947 and has been extensively
developed. Production is from the Hoxbar (9,500 feet), Atoka (13,100 feet) and
Morrow (15,500 feet) zones. The Company's primary development activities in
this field have been to initiate mechanical efficiencies and to recomplete
additional productive intervals. Recompletions and zone isolations have been
successful and additional opportunities for these types of workovers remain in
the field. Recent recompletions to the Atoka Formation have resulted in
significant reserve additions. There are several other deep wellbores with
similar recompletion potential.

Hugoton Area

The Hugoton Field, discovered in 1922, covers parts of Texas, Oklahoma and
Kansas and is the largest gas field in the United States. It is estimated that
5 million productive acres exist in the entire field. The Company owns an
interest in 390 gross (365.9 net) wells that it operates and 84 gross (18.8
net) wells operated by others. Current net production averages approximately
35,900 Mcf of gas per day and 125 Bbls of oil per day.

Approximately 70% of the Company's Hugoton gas production is delivered to
the Tyrone Plant, a gas processing plant operated by the Company. In May 1996,
the Company completed the installation of a field compressor on the southern
end of the Tyrone gathering system. This unit compresses gas from 45 wells, 39
of which are owned by the Company, and has resulted in a significant
production increase. The Company also completed the installation and start-up
of a residue compressor and 11.5 miles of high pressure residue pipeline
during August 1996. The installation of these facilities allows the Company to
operate the Tyrone Plant more efficiently and allows access to three
additional interstate pipelines.

While much of the Kansas portion of the Hugoton Field has been infill
drilled on 320-acre spacing, the Company believes that there are up to 40
additional potential infill drilling locations. The Oklahoma portion is
drilled on 640-acre spacing. The Company believes that there are approximately
200 potential infill drilling locations, subject to regulatory approval and
possibly new legislation being enacted in Oklahoma.

During 1997, the Company drilled 18 gross (12.1 net) wells to the Chester,
Council Grove and Chase formations. The Company plans to drill 12 wells during
1998.

Rocky Mountain Area

San Juan Basin. The San Juan Basin of northwestern New Mexico and
southwestern Colorado contains the largest reserves of natural gas in the
Rocky Mountains and, within the United States, is second in size only to the
Hugoton Field. The Company acquired most of its interests in the San Juan
Basin in December 1997 from Amoco Corporation. The Company owns an interest in
616 gross (498 net) wells that it operates and 974 gross (177.2 net) wells
operated by others. Of these wells, 60 gross (49.8 net) operated wells and 20
gross (3.6 net) non-operated wells are dual completions. Current net daily
production averages approximately 39,000 Mcf of gas, 230 Bbls of oil and 2,500
Bbls of natural gas liquids.

The Company has identified 139 infill wellsites, primarily in the Dakota and
Fruitland Coal formations, relating to 8.6 million BOE of proved undeveloped
reserves that the Company expects will require approximately $17.3 million to
drill and complete. In addition, the Company plans to evaluate more than 150
potential infill wellsites over the next year. The Company plans to drill 20
operated wells during 1998.

Green River Basin. The Green River Basin is located in southwestern Wyoming.
The Company has interests in 147 gross (137.3 net) wells that it operates and
48 gross (8.2 net) wells operated by others in the Fontenelle, Nitchie Gulch
and Pine Canyon fields. Current net daily production is approximately 28,100
Mcf of gas and 60 Bbls of oil.

S-40
<PAGE>

Gas production was discovered in the Fontenelle area in the early 1970's.
The producing reservoirs are the Cretaceous Frontier and Dakota sandstones at
depths ranging from 7,500 to 10,000 feet. Development potential for the fields
in this area include restimulations, recompletions and development drilling.

During 1997, the Company drilled 32 gross (29 net) wells in the Fontenelle
Unit. The Company plans to drill approximately 15 wells during 1998.

During 1997, the Company also installed additional field compression to
lower overall field operating pressures and to improve overall field
performance. The Company also completed an interconnect to another pipeline in
the southeastern part of the Fontenelle field that added an additional market
for the gas.

RESERVES

The following are estimated quantities of proved reserves and cash flows
therefrom as of December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996 1997
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved developed:
Oil (Bbls)................................... 28,946 31,883 33,835
Gas (Mcf).................................... 320,230 466,412 677,710
Natural gas liquids (Bbls)................... -- -- 11,494
Proved undeveloped:
Oil (Bbls)................................... 11,042 10,557 14,019
Gas (Mcf).................................... 37,840 74,126 138,065
Natural gas liquids (Bbls)................... -- -- 2,316
Total proved:
Oil (Bbls)................................... 39,988 42,440 47,854
Gas (Mcf).................................... 358,070 540,538 815,775
Natural gas liquids (Bbls)................... -- -- 13,810
Estimated future net cash flows:
Before income tax............................ $712,907 $1,737,024 $1,484,542
After income tax............................. $581,888 $1,286,037 $1,193,167
Present value of estimated future net cash
flows, discounted at 10%:
Before income tax............................ $405,706 $ 946,150 $ 782,322
After income tax............................. $335,156 $ 706,481 $ 642,109
</TABLE>

Miller and Lents, Ltd. ("Miller and Lents"), an independent petroleum
engineering firm, prepared the estimates of the Company's proved reserves and
the future net cash flow (and present value thereof) attributable to proved
reserves at December 31, 1997, 1996 and 1995. As prescribed by the Securities
and Exchange Commission, such proved reserves were estimated using oil and gas
prices and production and development costs as of December 31 of each such
year, without escalation. See Note 12 to Consolidated Financial Statements for
additional information regarding estimated proved reserves.

There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating subsurface accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of
any reserve estimate is a function of the quality of available data and the
interpretation thereof. As a result, estimates by different engineers often
vary, sometimes significantly. In addition, physical factors such as the
results of drilling, testing and production subsequent to the date of an
estimate, as well as economic factors such as change in product prices, may
justify revision of such estimates. Accordingly, oil and gas quantities
ultimately recovered will vary from reserve estimates.

S-41
<PAGE>

During 1997, the Company filed estimates of oil and gas reserves as of
December 31, 1996 with the U.S. Department of Energy on Form EIA-23. These
estimates are consistent with the reserve data reported in Note 12 to
Consolidated Financial Statements for the year ended December 31, 1996, with
the exception that Form EIA-23 includes only reserves from properties operated
by the Company.

EXPLORATION AND PRODUCTION DATA

For the following data, "gross" refers to the total wells or acres in which
the Company owns a working interest and "net" refers to gross wells or acres
multiplied by the percentage working interest owned by the Company. Although
many of the Company's wells produce both oil and gas, a well is categorized as
an oil well or a gas well based upon the ratio of oil to gas production.

Producing Wells

The following table summarizes the Company's producing wells as of December
31, 1997, all of which are located in the United States:

<TABLE>
<CAPTION>
NON-
OPERATED WELLS OPERATED WELLS TOTAL(a)
--------------- --------------- -------------
GROSS NET GROSS NET GROSS NET
--------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Oil............................ 608 552.3 3,139 186.9 3,747 739.2
Gas............................ 1,705 1,447.5 1,566 296.3 3,271 1,743.8
------ -------- ------- ------- ----- -------
Total........................ 2,313 1,999.8 4,705 483.2 7,018 2,483.0
====== ======== ======= ======= ===== =======
</TABLE>
- --------
(a) One gross (1 net) oil well and 79 gross (52.4 net) gas wells are dual
completions.

Drilling Activity

The following table summarizes the number of development wells drilled by
the Company during the years indicated. As of December 31, 1997, the Company
was in the process of drilling 29 gross (19.7 net) wells.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1996 1997
---------- ---------- -----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Development Wells:
Completed as-
Oil wells................................... 71 17.3 92 45.5 82 53.4
Gas wells................................... 24 16.8 70 38.1 119 85.9
Non-productive............................... 2 1.1 4 2.7 5 3.2
--- ---- --- ---- --- -----
Total........................................ 97 35.2 166 86.3 206 142.5
--- ---- --- ---- --- -----
Exploratory Wells:
Completed as-
Gas wells................................... -- -- -- -- 2 0.6
Non-productive............................... -- -- -- -- 1 0.1
--- ---- --- ---- --- -----
Total........................................ -- -- -- -- 3 0.7
--- ---- --- ---- --- -----
Total(a).................................... 97 35.2 166 86.3 209 143.2
=== ==== === ==== === =====
</TABLE>
- --------
(a) Included in totals are 61 gross (3.2 net), 85 gross (10.4 net) and 57
gross (6.9 net) wells drilled on nonoperated interests in 1995, 1996 and
1997, respectively. Excluded from above totals are 31 gross (0.6 net) and
21 gross (0.4 net) carbon dioxide wells drilled on non-operated interests
in 1995 and 1996, respectively.

S-42
<PAGE>

Acreage

The following table summarizes developed and undeveloped leasehold acreage
in which the Company owns a working interest as of December 31, 1997. Excluded
from this summary is acreage in which the Company's interest is limited to
royalty, overriding royalty and other similar interests.

<TABLE>
<CAPTION>
DEVELOPED(a)(b) UNDEVELOPED
--------------- -------------
GROSS NET GROSS NET
------- ------- ------ ------
<S> <C> <C> <C> <C>
Oklahoma.......................................... 334,973 278,713 934 753
Texas............................................. 98,143 60,997 23,834 12,917
Kansas............................................ 80,500 67,821 -- --
New Mexico........................................ 221,539 95,536 5,534 3,458
Wyoming........................................... 43,811 31,144 1,360 990
Other............................................. 8,929 6,493 7,072 4,644
------- ------- ------ ------
Total........................................... 787,895 540,704 38,734 22,762
======= ======= ====== ======
</TABLE>
- --------
(a) "Developed acres" are acres spaced or assignable to productive wells.
(b) Certain leasehold acreage in Oklahoma and Texas is subject to a 75% net
profits interest conveyed to the Royalty Trust.

Oil and Gas Sales Prices and Production Costs

The following table shows the average sales prices per Bbl of oil (including
condensate), Mcf of gas and per Bbl of natural gas liquids produced and the
production costs and production and property taxes per barrel of oil
equivalent ("BOE," computed on an energy equivalent basis of 6 Mcf to 1 Bbl):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Sales prices(a):
Oil (per Bbl)..................................... $ 17.09 $ 21.38 $ 18.90
Gas (per Mcf)..................................... $ 1.42 $ 1.97 $ 2.20
Natural gas liquids (per Bbl)..................... -- -- $ 9.66
Production costs per BOE............................ $ 4.26 $ 4.05 $ 3.54
Production and property taxes per BOE............... $ 1.04 $ 1.23 $ 1.33
</TABLE>
- --------
(a) Average sales price data includes the effects of hedging activities which
have not been significant.

DELIVERY COMMITMENTS

Delivery commitments fluctuate continually depending on market prices and
conditions. At December 31, 1997, the Company maintained the following
commitments.

The Company sells to a single purchaser approximately 10,000 Mcf of gas per
day through July 1998 and 11,650 Mcf of gas per day from August 1998 through
July 2005. The Company has also entered contracts with two purchasers to sell
a total of 30,000 Mcf per day in March 1998 and 10,000 Mcf per day in April,
May and June 1998. Deliveries under these contracts are generally in Oklahoma,
where the Company's production and reserves are adequate to meet these sales
commitments.

The Company has committed to sell up to 4,500 Mcf of gas per day to a
cogeneration facility under a take-or-pay contract that expires in September
2004. The Company generally purchases gas at market prices to fill this
commitment.

COMPETITION AND MARKETS

The Company faces competition from other oil and gas companies in all
aspects of its business, including acquisition of producing properties and oil
and gas leases, marketing of oil and gas, and obtaining goods, services and
labor. Many of its competitors have substantially larger financial and other
resources. Factors that affect the

S-43
<PAGE>

Company's ability to acquire producing properties include available funds,
available information about the property and the Company's standards
established for minimum projected return on investment. Because gathering
systems are the only practical method for the intermediate transportation of
natural gas, competition for natural gas delivery is presented by other
pipelines and gas gathering systems. Competition is also presented by
alternative fuel sources, including heating oil and other fossil fuels.
Because of the long-lived nature of the Company's oil and gas reserves and
management's expertise in developing these reserves, management believes that
it is effective in competing in the market.

The Company's ability to market oil and gas depends on many factors beyond
its control, including the extent of domestic production and imports of oil
and gas, the proximity of the Company's gas production to pipelines, the
available capacity in such pipelines, the demand for oil and gas, the effects
of weather, and the effects of state and federal regulation. The Company
cannot assure that it will always be able to market all of its production or
obtain favorable prices. The Company, however, does not currently believe that
the loss of any of its oil or gas purchasers would have a material adverse
effect on its operations.

Decreases in oil and gas prices have had, and could have in the future, an
adverse effect on the Company's acquisition and development programs, proved
reserves, revenues, profitability, cash flow and dividends. See Management's
Discussion and Analysis of Financial Condition and Results of Operations,
"General--Product Prices."

FEDERAL AND STATE REGULATIONS

There have been, and continue to be, numerous federal and state laws and
regulations governing the oil and gas industry that are often changed in
response to the current political or economic environment. Compliance with
this regulatory burden is often difficult and costly and may carry substantial
penalties for noncompliance. The following are some specific regulations that
may affect the Company. The Company cannot predict the impact of these or
future legislative or regulatory initiatives.

Federal Regulation of Natural Gas. The interstate transportation and sale
for resale of natural gas is subject to federal regulation, including
transportation rates charged and various other matters, by the Federal Energy
Regulatory Commission ("FERC"). The Company's gathering system and 26-mile
pipeline have been declared exempt from FERC jurisdiction, and therefore, the
Company's gathering service is not regulated by FERC. Federal wellhead price
controls on all domestic gas were terminated on January 1, 1993. The Company
cannot predict the impact of government regulation on any natural gas
facilities.

In 1992, FERC issued Orders Nos. 636 and 636-A, requiring operators of
pipelines to unbundle transportation services from sales services and allow
customers to pay for only the services they require, regardless of whether the
customer purchases gas from such pipelines or from other suppliers. The United
States Court of Appeals upheld the unbundling provisions and other components
of FERC's orders but remanded several issues to FERC for further explanation.
On February 27, 1997, FERC issued Order No. 636-C, addressing the Court's
concern. Petitions for rehearing on Order No. 636-C are pending. FERC's order
remains subject to judicial review and may be changed as a result of that
review. Although FERC's regulations should generally facilitate the
transportation of gas produced from the Company's properties and the direct
access to end-user markets, the impact of these regulations on marketing the
Company's production or on its gas transportation business cannot be
predicted. The Company, however, does not believe that it will be affected any
differently than other natural gas producers and marketers with which it
competes.

Federal Regulation of Oil. Sales of crude oil, condensate and natural gas
liquids are not currently regulated and are made at market prices. The net
price received from the sale of these products is affected by market
transportation costs. A significant part of the Company's oil production is
transported by pipeline. The Energy Policy Act of 1992 required FERC to adopt
a simplified ratemaking methodology for interstate oil pipelines. In 1993 and
1994, FERC issued Order Nos. 561 and 561-A, adopting rules that establish new
rate

S-44
<PAGE>

methods for such pipelines. Under the new rules, effective January 1, 1995,
interstate oil pipelines can change rates based on an inflation index, though
other rate mechanisms may be used in specific circumstances. The United States
Court of Appeals upheld FERC's orders in 1996. The Company cannot predict the
effect these rules may have on the cost of moving oil to market.

State Regulation. The oil and gas operations of the Company are subject to
various types of regulation at the state and local levels. Such regulation
includes requirements for drilling permits, the method of developing new
fields, the spacing and operations of wells and waste prevention. The
production rate may be regulated and the maximum daily production allowable
from oil and gas wells may be established on a market demand or conservation
basis. These regulations may limit the Company's production from its wells and
the number of wells or locations the Company can drill.

The Company may become party to agreements relating to the construction or
operations of pipeline systems for the transportation of natural gas. To the
extent that such gas is produced, transported and consumed wholly within one
state, such operations may, in certain instances, be subject to the state's
administrative authority charged with regulating pipelines. The rates the
Company could charge for gas, the transportation of gas, and the construction
and operation of such pipelines would be subject to the regulations governing
such matters. Certain states have recently adopted regulations with respect to
gathering systems, and other states are considering regulations with respect
to gathering systems. New regulations passed have not had a material effect on
the operations of the Company's gathering systems, but the Company cannot
predict whether any further rules will be adopted or, if adopted, the effect
these rules may have on the Company's gathering systems.

Federal, State or Indian Leases. The Company's operations on federal, state
or Indian oil and gas leases are subject to numerous restrictions, including
nondiscrimination statutes. Such operations must be conducted pursuant to
certain on-site security regulations and other permits and authorizations
issued by the Bureau of Land Management, Minerals Management Service and other
agencies.

ENVIRONMENTAL REGULATIONS

Various federal, state and local laws regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, directly impact oil and gas exploration, development and
production operations, and consequently may impact the Company's operations
and costs. Management believes that the Company is in substantial compliance
with applicable environmental laws and regulations. To date, the Company has
not expended any material amounts to comply with such regulations, and
management does not currently anticipate that future compliance will have a
materially adverse effect on the consolidated financial position or results of
operations of the Company.

EMPLOYEES

The Company had 349 and 306 employees as of December 31, 1997 and 1996,
respectively. None of the Company's employees are represented by a union. The
Company considers its relations with its employees to be good.

S-45
<PAGE>

BOARD OF DIRECTORS AND MANAGEMENT

EXECUTIVE OFFICERS

The following is a list of the executive officers of the Company and their
principal positions with the Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Bob R. Simpson...................... 49 Chairman of the Board of Directors and
Chief Executive Officer
47 Vice Chairman of the Board and
Steffen E. Palko.................... President
J. Richard Seeds.................... 51 Executive Vice President
Louis G. Baldwin.................... 48 Senior Vice President and Chief
Financial Officer
38 Senior Vice President--Asset
Keith A. Hutton..................... Development
Bennie G. Kniffen................... 47 Senior Vice President and Controller
Larry B. McDonald................... 50 Senior Vice President--Operations
Timothy L. Petrus................... 43 Senior Vice President--Acquisitions
Kenneth F. Staab.................... 40 Senior Vice President--Engineering
Thomas L. Vaughn.................... 51 Senior Vice President--Operations
Vaughn O. Vennerberg II............. 43 Senior Vice President--Land
</TABLE>

The background of these officers is as follows:

Bob R. Simpson was a co-founder of the Company with Mr. Palko and has been
Chairman and Chief Executive Officer of the Company since July 1, 1996. Prior
thereto, Mr. Simpson served as Vice Chairman and Chief Executive Officer or
held similar positions with the Company since 1986. Mr. Simpson was Vice
President of Finance and Corporate Development (1979-1986) and Tax Manager
(1976-1979) of Southland Royalty Company.

Steffen E. Palko was a co-founder of the Company with Mr. Simpson and has
been Vice Chairman and President or held similar positions with the Company
since 1986. Mr. Palko was Vice President--Reservoir Engineering (1984-1986)
and Manager of Reservoir Engineering (1982-1984) of Southland Royalty Company.

J. Richard Seeds has been a director of the Company since July 1996 and has
served as Executive Vice President since May 1997. Mr. Seeds previously was
Career Guidance Counselor with the Springtown Independent School District
(1993-1997) and an independent personal investment manager (1986-1993). Mr.
Seeds was Vice President of Finance and Controller (1979-1986) and Controller
(1977-1979) of Southland Royalty Company.

Louis G. Baldwin has been Senior Vice President and Chief Financial Officer
or held similar positions with the Company since 1986. Mr. Baldwin was
Assistant Treasurer (1979-1986) and Financial Analyst (1976-1979) at Southland
Royalty Company.

Keith A. Hutton has been Senior Vice President--Asset Development or held
similar positions with the Company since 1987. From 1982 to 1987, Mr. Hutton
was a Reservoir Engineer with Sun Exploration & Production Company.

Bennie G. Kniffen has been Senior Vice President and Controller or held
similar positions with the Company since 1986. From 1976 to 1986, Mr. Kniffen
held the position of Director of Auditing or similar positions with Southland
Royalty Company.

Larry B. McDonald has been Senior Vice President--Operations or held similar
positions with the Company since 1990. Prior to that time, Mr. McDonald owned
and operated McDonald Energy, Inc. (1986-1990).

S-46
<PAGE>

Timothy L. Petrus has been Senior Vice President--Acquisitions or held
similar positions with the Company since 1988. Prior to that time, Mr. Petrus
was a Vice President with Texas American Bank (1980-1988) and was a Senior
Project Engineer with Exxon (1976-1980).

Kenneth F. Staab has been Senior Vice President of Engineering or held
similar positions with the Company since 1986. Prior to that time, Mr. Staab
was a Reservoir Engineer with Southland Royalty Company (1982-1986).

Thomas L. Vaughn has been Senior Vice President--Operations or held similar
positions with the Company since 1988. From 1986 to 1988, Mr. Vaughn owned and
operated Vista Operating Company.

Vaughn O. Vennerberg II has been Senior Vice President--Land or held similar
positions with the Company since 1987. Prior to that time, Mr. Vennerberg was
Land Manager with Hutton Gas Operating Company (1986-1987).

BOARD OF DIRECTORS

The following is a list of the members of the Company's Board of Directors
and their principal occupations.

<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<C> <S>
Bob R. Simpson.................. Chairman of the Board of Directors and Chief Executive
Officer
Steffen E. Palko................ Vice Chairman of the Board and President
J. Richard Seeds................ Executive Vice President
J. Luther King, Jr. ............ President, Principal and Principal Portfolio
Manager/Analyst of Luther King Capital Management
Corporation (an investment management firm)
Jack P. Randall................. President, Randall & Dewey, Inc. (an oil and gas
consulting firm)
Scott G. Sherman................ Sole owner of Sherman Enterprises (a personal
investment firm)
</TABLE>

SELLING STOCKHOLDER

The following table sets forth as of April 10, 1998, the number of shares
and percentage of the outstanding Common Stock beneficially owned by the
Selling Stockholder before and after the Offerings and the amount to be sold
in the Offerings.

<TABLE>
<CAPTION>
OWNED BEFORE OWNED AFTER
OFFERINGS OFFERINGS
----------------- SHARES TO -----------------
NAME NUMBER PERCENT BE SOLD NUMBER PERCENT
---- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
John T. Lupton Trust........... 1,296,550 3.3% 296,550 1,000,000 2.2%
</TABLE>

S-47
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement (the
"U.S. Purchase Agreement") among the Company, the Selling Stockholder and each
of the underwriters named below (the "U.S. Underwriters"), the Company and the
Selling Stockholder have agreed to sell to each of the U.S. Underwriters, and
each of the U.S. Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. (collectively, the "co-lead managers"),
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Lehman Brothers Inc. and Smith Barney Inc. ("U.S. Representatives"), has
severally agreed to purchase, the number of shares of Common Stock set forth
below opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. 983,335
Goldman, Sachs & Co. ............................................. 983,333
Bear, Stearns & Co. Inc. ......................................... 983,333
Donaldson, Lufkin & Jenrette Securities Corporation............... 983,333
Lehman Brothers Inc. ............................................. 983,333
Smith Barney Inc. ................................................ 983,333
Petrie Parkman & Co., Inc......................................... 100,000
---------
Total........................................................ 6,000,000
=========
</TABLE>

The Company and the Selling Stockholder have also entered into an
international purchase agreement (the "International Purchase Agreement") with
Merrill Lynch International, Goldman Sachs International (collectively, the
co-lead international managers), Bear Stearns International Limited,
Donaldson, Lufkin & Jenrette International, Lehman Brothers International
(Europe) and Smith Barney Inc. (the "International Managers" and, together
with the U.S. Underwriters, the "Underwriters"). Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of 6,000,000 shares of Common Stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Company and the Selling
Stockholder have agreed to sell to the International Managers, and the
International Managers severally have agreed to purchase from the Company and
the Selling Stockholder, an aggregate of 1,500,000 shares of Common Stock. The
public offering price per share of Common Stock and the total underwriting
discount per share are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.

In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares are purchased. Under
certain circumstances, the commitments of non-defaulting U.S. Underwriters or
International Managers (as the case may be) may be increased as set forth in
the U.S. Purchase Agreement and the International Purchase Agreement,
respectively. The closing with respect to the sale of shares of Common Stock
to be purchased by the U.S. Underwriters and the International Managers are
conditioned upon one another.

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Under the terms of the Intersyndicate
Agreement, the Underwriters are permitted to sell shares of Common Stock to
each other for the purposes of resale at the public offering price, less an
amount not greater than the selling concession. Under the terms of this
Intersyndicate Agreement, the International Managers and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to persons who are United States or Canadian persons or to
persons they believe intend to resell to persons who are United States or
Canadian

S-48
<PAGE>

persons, and the U.S. Underwriters and any dealer to whom they sell shares of
Common Stock will not offer to sell or sell shares of Common Stock to persons
who are non-United States and non-Canadian persons or to persons they believe
intend to resell to persons who are non-United States persons or non-Canadian
persons, except, in each case, for transactions pursuant to the Intersyndicate
Agreement.

The U.S. Representatives have advised the Company and the Selling
Stockholder that the U.S. Underwriters propose to offer the shares of Common
Stock to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of $.55 per share. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $.10 per
share on sales to certain other dealers. After the U.S. Offering, the public
offering price, concession and discount may be changed.

The Company has granted the U.S. Underwriters an option, exercisable by the
U.S. Representatives, to purchase up to 900,000 additional shares of Common
Stock initially at the public offering price set forth on the cover page of
this Prospectus Supplement, less the underwriting discount. Such option, which
expires 30 days after the date of this Prospectus Supplement, may be exercised
solely to cover over-allotments. To the extent that the U.S. Representatives
exercise such option, each of the U.S. Underwriters will be obligated, subject
to certain conditions, to purchase approximately the same percentage of the
option shares that the number of shares to be purchased initially by the U.S.
Underwriter bears to the total number of shares to be purchased initially by
the U.S. Underwriters. The Company has also granted an option to the
International Underwriters, which expires 30 days after the date of this
Prospectus Supplement, to purchase up to additional 225,000 shares of Common
Stock to cover over-allotments, if any, on terms similar to those granted to
the U.S. Underwriters.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments the Underwriters may be required
to make in respect thereof.

The Company, its directors and executive officers, and the Selling
Stockholder, have agreed that they will not, without the prior written consent
of Merrill Lynch & Co., offer, sell or otherwise dispose of, any shares of
Common Stock or any securities convertible into shares of Common Stock, except
for or upon the exercise of currently outstanding options (except for the
Offerings and the over-allotment option granted to the Underwriters in the
Offerings), for a period of 90 days from the date of this Prospectus
Supplement.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the U.S. Representatives are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.

The U.S. Representatives may also impose a penalty on certain Underwriters
and selling group members. This means that if the U.S. Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.

S-49
<PAGE>

Neither the Company nor any of the Underwriters makes any representation or
predictions to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.

VALIDITY OF COMMON STOCK

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kelly, Hart & Hallman, P.C., Fort Worth, Texas and for the
Underwriters by Andrews & Kurth L.L.P., Houston, Texas. Certain members of
Kelly, Hart & Hallman, P.C. currently own 23,205 shares of the Common Stock.

EXPERTS

The information incorporated by reference in this Prospectus from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
regarding the quantities of proved reserves of the oil and gas properties
owned by the Company and the future net cash flows and the present values
thereof from such reserves is derived from reserve reports prepared or
reviewed by Miller and Lents, and, to such extent, are included or
incorporated by reference herein in reliance upon the authority of said firm
as experts with respect to the matters contained in such reports.

The consolidated financial statements of the Company as of December 31, 1996
and 1997, and for the three years in the period ended December 31, 1997,
appearing or incorporated by reference in this Prospectus Supplement have been
audited by Arthur Andersen LLP independent auditors, as stated in their report
relating thereto, and are included or incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and
auditing.

S-50
<PAGE>

GLOSSARY OF CERTAIN OIL AND GAS TERMS

Wherever used herein, the following terms shall have the meanings specified.

Bbl--One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.

Bcf--One billion cubic feet.

Bcfe--One billion cubic feet of natural gas equivalent.

BOE--Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl
of oil).

Developed Acreage--Acres which are allocated or assignable to producing
wells or wells capable of production.

Development Well--A well drilled within the proved area of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

Dry Well--A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or natural gas
well.

EBITDA--Earnings (excluding discontinued operations, extraordinary items,
charges resulting from changes in accounting and significant nonrecurring
revenues and expenses) before interest expense, income taxes, depletion,
depreciation and amortization, and the provision for impairment of oil and
natural gas properties. EBITDA is not a measure of cash flow as determined by
generally accepted accounting principles. EBITDA information has been included
in this Prospectus Supplement because EBITDA is a measure used by certain
investors in determining historical ability to service indebtedness. EBITDA
should not be considered as an alternative to, or more meaningful than, net
income or cash flows as determined in accordance with generally accepted
accounting principles as an indicator of operating performance or liquidity.

Exploratory Well--A well drilled to find and produce oil or natural gas on
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.

Gross Acres or Gross Wells--The total acres or wells, as the case may be, in
which a working interest is owned.

Infill Well--A well drilled between known producing wells to better develop
the reservoir.

Mbbl--One thousand Bbl.

Mmbbl--One million Bbl.

Mboe--One thousand barrels of oil equivalent.

Mcf--One thousand cubic feet.

Mcfe--One thousand cubic feet of natural gas equivalent, using the ratio of
one Bbl of crude oil to six Mcf of natural gas.

Mmcf--One million cubic feet.

Mmcfe--One million cubic feet of natural gas equivalent.

Net Acres or Net Wells--The sum of the fractional working interests owned in
gross acres or gross wells.

NGLs--Natural gas liquids.

S-51
<PAGE>

NYMEX--New York Mercantile Exchange.

Oil and Natural Gas Lease--An instrument by which a mineral fee owner grants
to lessee the right for a specific period of time to explore for oil and
natural gas underlying the lands covered by the lease and the right to produce
any oil and natural gas so discovered generally for so long as there is
production in economic quantities from such lands.

Overriding Royalty Interest--A fractional undivided interest in an oil and
natural gas property entitling the owner to a share of oil and natural gas
production, in addition to the usual royalty paid to the owner, free of costs
of production.

PDNP--Proved developed, nonproducing or behind the pipe reserves.

Productive Well--A well that is producing oil or natural gas or that is
capable of production.

Proved Developed Reserves--Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

Proved Reserves--The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

Proved Undeveloped Reserves or PUD--Reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for completion.

PV10%--The discounted future net cash flows for proved oil and natural gas
reserves computed on the same basis as the Standardized Measure, but without
deducting income taxes, which is not in accordance with generally accepted
accounting principles. PV10% is an important financial measure for evaluating
the relative significance of oil and natural gas properties and acquisitions,
but should not be construed as an alternative to the Standardized Measure (as
determined in accordance with generally accepted accounting principles).

Recompletion--The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

Royalty Interest--An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.

SEC--Securities and Exchange Commission.

Secondary Recovery--A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.

Standardized Measure--The estimated future net cash flows from proved oil
and natural gas reserves computed using prices and costs, at the dates
indicated, after income taxes and discounted at 10%.

Undeveloped Acreage--Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.

Waterflood--The injection of water into a reservoir to fill pores vacated by
produced fluids, thus maintaining reservoir pressure and assisting production.

Working Interest--The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration, development and operations and all risks in
connection therewith.

Workover--Operations on a producing well to restore or increase production.

S-52
<PAGE>

PROSPECTUS

$400,000,000

[LOGO OF CROSS TIMBERS
OIL COMPANY APPEARS HERE]
CROSS TIMBERS OIL COMPANY

DEBT SECURITIES

PREFERRED STOCK

COMMON STOCK

WARRANTS

---------------

Cross Timbers Oil Company (the "Company") may offer from time to time
securities ("Securities"), which may consist of (i) Debt Securities ("Debt
Securities"), which may be either senior debt securities ("Senior
Securities"), senior subordinated debt securities ("Senior Subordinated
Securities") or subordinated debt securities ("Subordinated Securities"),
consisting of debentures, notes, bonds and/or other unsecured evidences of
indebtedness in one or more series, (ii) shares of Preferred Stock, $0.01 par
value per share ("Preferred Stock"), in one or more classes or series, (iii)
shares of Common Stock, $0.01 par value per share ("Common Stock"), in one or
more classes or series, or (iv) Warrants ("Warrants") to purchase Debt
Securities, Preferred Stock or Common Stock. The Securities will be offered by
the Company at an aggregate initial offering price not to exceed $390,000,000,
at prices and on terms to be determined at the time of sale.

The specific terms of any Securities offered by the Company pursuant to this
Prospectus will be set forth in an accompanying supplement to this Prospectus
(a "Prospectus Supplement"), together with the terms of the offering of such
Securities and the initial offering price and the net proceeds to the Company
from the sale thereof. The Prospectus Supplement will include with regard to
the particular Securities, where applicable, the following information: (i) in
the case of Debt Securities, the title, total principal amount, denominations,
maturity, rate, if any (which may be fixed or variable), or method of
calculation thereof, and time of payment of any interest, any terms for
redemption at the option of the Company or the holder, any terms for sinking
fund payments or analogous provisions, any conversion or exchange rights,
terms related to temporary or permanent global securities, any listing on a
securities exchange and the initial public offering price and any other terms
in connection with the offering and sale of such Debt Securities, (ii) in the
case of Preferred Stock, the designation, number of shares, and stated value
and liquidation preference per share, initial public offering price, dividend
rate (or method of calculation), dates on which dividends shall be payable and
dates from which dividends shall accrue, any redemption or sinking fund
provisions, any conversion or exchange rights, any listing on a securities
exchange, and any other terms in connection with the offering and sale of such
Preferred Stock; (iii) in the case of Common Stock, the number of shares,
designation and specific terms, if any, and the terms of the offering thereof;
and (iv) in the case of Warrants, the number and terms thereof, the
designation and the number of Securities and/or amount of cash consideration
issuable upon their exercise, the exercise price, any listing of the Warrants
or the underlying Securities on a securities exchange and any other terms in
connection with the offering, sale and exercise of the Warrants. The
Prospectus Supplement will also contain information, as applicable, about
certain United States federal income tax considerations relating to the
Securities in respect of which this Prospectus is being delivered.

The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Senior Subordinated Securities will
be subordinated to all existing and future Senior Indebtedness (as defined) of
the Company, and senior to all existing and future Subordinated Indebtedness
(as defined) of the Company. The Subordinated Securities will be subordinated
to all existing and future Senior Indebtedness and Senior Subordinated
Indebtedness of the Company.

The Company's Common Stock and Series A Convertible Preferred Stock are
listed on the New York Stock Exchange and trade under the symbols "XTO" and
"XTOpA," respectively.

In addition to the Securities that may be offered by the Company, up to
$10,000,000 of Common Stock may be offered from time to time by certain
Selling Stockholders of the Company, as set forth in an applicable Prospectus
Supplement. The Company will not receive any proceeds from the sale of Common
Stock offered by Selling Stockholders.

The Company may sell Securities to or through one or more underwriters, and
also may sell Securities directly to other purchasers or through agents. The
applicable Prospectus Supplement will set forth the names of any underwriters
or agents involved in the sale of the Securities in respect of which this
Prospectus is being delivered, the number of shares or principal amounts, if
any, to be purchased by underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution" herein.

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN ANY SECURITIES, SEE "RISK FACTORS" BEGINNING ON PAGE 3
AND "ADDITIONAL RISK FACTORS" IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

---------------

This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.

The date of this Prospectus is April 10, 1998.
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (together with all
amendments, exhibits and supplements thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. This Prospectus, which forms a part
of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such
documents filed as an exhibit to the Registration Statement or otherwise filed
with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company incorporates herein by reference the following documents:

(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;

(b) Current Reports on Form 8-K dated February 16, 1998 (Amendment No. 1
to Report dated December 1, 1997), February 18, 1998 and February 25, 1998;

(c) The description of the Company's Common Stock contained in Form 8-A
of the Company dated April 8, 1993, as amended by Amendment No. 1 dated
June 15, 1995;

(d) The description of the Company's Series A Convertible Preferred Stock
contained in Form 8-A of the Company dated August 12, 1996, as amended by
Amendment No. 1 dated September 3, 1996, and Amendment No. 2 dated
September 18, 1996; and

(e) All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") subsequent to the date hereof and prior to termination of
the offering made hereby.

Any statement contained herein or in a document all or a portion of which is
incorporated by or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each
instance reference is made to such contract or other document, copies of which
are available from the Company as described below, each such statement being
qualified in all respects by such reference.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any documents
incorporated by reference herein, other than exhibits thereto unless
specifically incorporated by reference into such documents. Such request
should be directed to Cross Timbers Oil Company, 810 Houston Street, Suite
2000, Fort Worth, Texas 76102, Attention: Investor Relations (817) 870-2800.
-------

CERTAIN PERSONS PARTICIPATING IN AN OFFERING OF SECURITIES OFFERED HEREBY
MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE
PRICE OF THE SECURITIES, INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING
TRANSACTIONS BY UNDERWRITERS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE THE
PROSPECTUS SUPPLEMENT RELATING TO THE SECURITIES.

2
<PAGE>

RISK FACTORS

Prospective purchasers of the Securities should carefully review the
information contained elsewhere in this Prospectus and any accompanying
Prospectus Supplement and should particularly consider the following matters:

REPLACEMENT OF RESERVES

The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are
depleted, except to the extent that the Company conducts successful
exploration or development activities or acquires properties containing proved
reserves, or both. In order to increase reserves and production, the Company
must continue its development drilling and recompletion programs, pursue its
exploration drilling program or undertake other replacement activities. The
Company's current strategy includes increasing its reserve base through
acquisitions of producing properties, by continuing to exploit its existing
properties and, to a lesser extent, by pursuing exploration opportunities.
There can be no assurance, however, that the Company's planned development and
exploration projects and acquisition activities will result in significant
additional reserves or that the Company will have continuing success drilling
productive wells at low finding costs.

PRICE FLUCTUATIONS AND MARKETS

The Company's results of operations are highly dependent upon the prices
received for the Company's oil and natural gas. Substantially all of the
Company's sales of oil and natural gas are made in the spot market, or
pursuant to contracts based on spot market prices, and not pursuant to long-
term, fixed-price contracts. Accordingly, the prices received by the Company
for its oil and natural gas production are dependent upon numerous factors
beyond the control of the Company. These factors include, but are not limited
to, the level of consumer product demand, weather conditions, governmental
regulations and taxes, the price and availability of alternative fuels, the
level of foreign imports of oil and natural gas, and the overall economic
environment. Any significant decline in prices for oil and natural gas could
have a material adverse effect on the Company's financial condition, results
of operations and quantities of reserves recoverable on an economic basis.
Should the industry experience significant price declines from current levels
or other adverse market conditions, the Company may not be able to generate
sufficient cash flow from operations to meet its obligations and make planned
capital expenditures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Business and Properties--Competition and Markets" and "--Federal and State
Regulations," incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "Annual Report
on Form 10-K").

The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the
capacity of, oil and gas gathering systems, pipelines or trucking and terminal
facilities. Wells may be shut-in for lack of a market or due to inadequacy or
unavailability of pipeline or gathering system capacity.

SUBSTANTIAL INDEBTEDNESS

The Company has incurred a substantial amount of indebtedness and may incur
additional indebtedness under existing and future credit agreements or
pursuant to public or private offerings of debt securities. This level of
indebtedness may pose substantial risks to holders of Securities offered
pursuant to this Prospectus, including the possibility that the Company might
not generate sufficient cash flow to pay the principal of and interest on Debt
Securities offered hereby. If the Company is unsuccessful in increasing its
proved reserves or realizing production from its proved undeveloped reserves,
the future net revenue from existing proved reserves may not be sufficient to
pay the principal of and interest on debt securities issued by the Company and
would adversely affect the value of any preferred stock or common stock
outstanding. Such indebtedness may also adversely affect the Company's ability
to finance its future operations and capital needs, and may limit its ability
to pursue other business opportunities.

3
<PAGE>

SUBSTANTIAL CAPITAL REQUIREMENTS

If revenues decrease as a result of lower oil or gas prices or otherwise,
the Company may have limited ability to expend the capital necessary to
replace its reserves or to maintain production at current levels, resulting in
a decrease in production over time. If the Company's cash flow from operations
is not sufficient to satisfy its capital expenditure requirements, there can
be no assurance that additional debt or equity financing will be available to
meet these requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," incorporated herein by reference from the Company's Annual Report
on Form 10-K.

COMPETITION

The oil and natural gas industry is highly competitive. The Company will
compete in the acquisition, development, production and marketing of oil and
natural gas with major oil companies, other independent oil and natural gas
concerns and individual producers and operators. Many of these competitors
have substantially greater financial and other resources than the Company.
Furthermore, the oil and natural gas industry competes with other industries
in supplying the energy and fuel needs of industrial, commercial and other
consumers. See "Business and Properties--Competition and Markets,"
incorporated herein by reference from the Company's Annual Report on Form 10-
K.

ACQUISITION RISKS

The Company constantly evaluates acquisition opportunities and frequently
engages in bidding and negotiation for acquisitions, many of which are
substantial. If successful in this process, the Company may be required to
alter or increase its capitalization substantially to finance these
acquisitions through the issuance of additional debt or equity securities, the
sale of production payments or otherwise; however, the Company's current bank
revolving credit agreement and the indentures governing outstanding
indebtedness contain covenants that limit the Company's ability to incur
additional indebtedness. See "--Substantial Indebtedness." These changes in
capitalization may significantly affect the risk profile of the Company.
Additionally, significant acquisitions can change the nature of the operations
and business of the Company depending upon the character of the acquired
properties, which may be substantially different in operating or geologic
characteristics or geographic location than existing properties. Moreover,
there can be no assurance that the Company will be successful in the
acquisition of any material property interests. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," incorporated herein by reference from the Company's Annual
Report on Form 10-K.

DRILLING RISKS

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil
and natural gas may involve unprofitable efforts, not only from dry wells, but
from wells that are productive but do not produce sufficient net revenues to
return a profit after drilling, operating and other costs. The cost of
drilling, completing and operating wells is often uncertain. The Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, many of which are beyond the Company's control, including
title problems, weather

4
<PAGE>

conditions, compliance with governmental requirements and shortages or delays
in the delivery of equipment and services.

OPERATING HAZARDS AND UNINSURED RISKS

The Company's operations are subject to hazards and risks inherent in
drilling for, producing and transporting oil and natural gas, such as fires,
natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, collapse of wellbore, casing or other tubulars, pipeline
ruptures and spills, any of which can result in loss of hydrocarbons,
environmental pollution, personal injury claims and damage to properties of
the Company and others. As protection against operating hazards, the Company
maintains insurance coverage against some, but not all, potential losses. The
Company's coverages include, but are not limited to, operator's extra expense,
physical damage on certain assets, employer's liability, comprehensive general
liability, automobile and workers' compensation insurance. The Company
believes that its insurance is adequate and customary for companies of a
similar size engaged in operations similar to those of the Company, but losses
could occur for uninsurable or uninsured risks or in amounts in excess of
existing insurance coverage. The occurrence of an event that is not fully
covered by insurance could have an adverse impact on the Company's financial
condition and results of operations.

UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES

There are numerous uncertainties inherent in estimating quantities of proved
reserves, including many factors beyond the control of the Company. The
information relating to Company oil and natural gas reserves incorporated
herein by reference represents estimates based on reports prepared by the
Company's independent petroleum engineers, as well as internally generated
reports. Petroleum engineering is not an exact science. Information relating
to the Company's proved oil and natural gas reserves is based upon engineering
estimates. Estimates of economically recoverable oil and natural gas reserves
and of future net cash flows necessarily depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulation
by governmental agencies and assumptions concerning future oil and natural gas
prices, future operating costs, severance and excise taxes, capital
expenditures and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of
classifications of such reserves based on risk of recovery and estimates of
expected future cash flows prepared by different engineers or by the same
engineers at different times may vary substantially. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material.

DEPENDENCE UPON KEY PERSONNEL

The success of the Company has been and will continue to be highly dependent
on the Company's Chairman of the Board of Directors and Chief Executive
Officer, Bob R. Simpson, its Vice Chairman of the Board and President, Steffen
E. Palko, and a limited number of other senior management personnel. Loss of
the services of Mr. Simpson or Mr. Palko or any of those other individuals
could have a material adverse impact on the Company's operations. The Company
can make no assurance regarding the future affiliation of any of such persons
with the Company.

GOVERNMENTAL REGULATION

The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for, and the development, production, gathering and marketing of,
oil and natural gas and the release of material into the environment or
otherwise relating to protection of the environment. In particular, the
Company's oil and natural gas exploration, development and production, and its
activities in connection with the storage and transportation of liquid
hydrocarbons, are subject to stringent environmental regulations by
governmental authorities. Such regulations have increased the costs of
planning, designing, drilling, installing, operating and abandoning oil and
natural gas wells and other related facilities, and such regulations may
become more onerous in the future.

5
<PAGE>

The Company may be required to expend significant resources, both financial
and managerial, to comply with environmental regulations and permitting
requirements. Although the Company believes that its operations are in general
compliance with all such laws and regulations, including applicable
environmental laws and regulations, risks of substantial costs and liabilities
are inherent in oil and natural gas operations, and there can be no assurance
that significant costs and liabilities will not be incurred in the future.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws, regulations and enforcement policies thereunder, and
claims for damages to property, employees, other persons and the environment
resulting from the Company's operations, could result in substantial costs and
liabilities in the future.

The Company expects to maintain customary insurance coverage for its
operations, including coverage for sudden environmental damages, but does not
believe that insurance coverage for environmental damages that occur over time
will be available at a reasonable cost. Moreover, the Company does not believe
that insurance coverage against the full potential liability that could be
caused by sudden environmental damages is available at a reasonable cost.
Accordingly, the Company might be subject to uninsured liability because of
the prohibitive premium costs of insuring against certain hazards. See
"Business and Properties--Federal and State Regulations" and "--Environmental
Regulations," incorporated herein by reference from the Company's Annual
Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

Certain statements incorporated by reference in this Prospectus from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties," in addition to certain statements
contained herein and elsewhere in such incorporated documents are "forward-
looking statements" and are thus prospective. Such statements include, among
others, (a) statements regarding the Company's future acquisition and
development plans and objectives and related expenditures, revenues and cash
flows, including without limitation statements regarding (1) production and
cash flows, (2) number and location of planned wells, (3) anticipated
completion of the Company's plan regarding expenditures for property
acquisitions and repurchases of the Company's Common Stock, and the
anticipated source of the funds necessary to complete the plan and (4) the
Company's capital expenditure budgets for acquisition and development,
respectively, and (b) statements regarding the Company's anticipated aggregate
annual dividends to be paid on its Common Stock. Statements of assumptions
related to or underlying such forward-looking statements include, without
limitation, statements regarding (i) the quality of the Company's properties
with regard to, among other things, anticipated reserve and production
enhancement opportunities and quantity of proved reserves, (ii) the Company's
ability to prudently add growth potential through exploration, (iii)
anticipated future domestic hydrocarbon demand, (iv) the adequacy of the
Company's sources of liquidity during the current and future years, (v) the
expected insignificant impact on the Company's future expenditures for
regulatory compliance, (vi) the expected insignificant impact of production
imbalances on the Company's liquidity during the current and future years,
(vii) the expected immaterial adverse impact of a loss of any current oil or
gas purchaser from the Company, (viii) regulatory approval and the enactment
of new legislation in Oklahoma to realize infill drilling potential and (ix)
similarity of the impact on the Company to the impact on other oil and natural
gas producers of rules promulgated by the Federal Energy Regulatory
Commission. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. The most significant of such risks, uncertainties and other
factors are discussed under "Risk Factors" in this Prospectus and any
accompanying Prospectus Supplement, and under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," incorporated by
reference herein from the Company's Annual Report on Form 10-K, and
prospective investors are urged to carefully consider such factors.

6
<PAGE>

THE COMPANY

Cross Timbers Oil Company is a leading United States independent energy
company engaged in the acquisition, development, exploitation and exploration
of oil and natural gas properties, and in the production, processing,
marketing and transportation of oil and natural gas. The Company has
consistently increased proved reserves, production and cash flow since its
inception in 1986. The Company has grown primarily through acquisitions of
reserves, followed by aggressive development and exploitation activities and
strategic acquisitions of additional interests in or near such reserves. The
Company's oil and gas reserves are principally located in relatively long-
lived fields with well-established production histories concentrated in
western Oklahoma, the Permian Basin of West Texas and New Mexico, the Hugoton
Field of Oklahoma and Kansas, the Green River Basin of Wyoming, and the San
Juan Basin of northwestern New Mexico.

The Company is a Delaware corporation. Its principal executive offices are
located at 810 Houston Street, Suite 2000, Fort Worth, Texas 76102 and its
telephone number is (817) 870-2800.

USE OF PROCEEDS

Except as otherwise described in the applicable Prospectus Supplement, the
net proceeds from the sale of Securities will be used for general corporate
purposes, which may include refinancings or repayments of indebtedness,
property acquisitions, capital expenditures, working capital, acquisitions and
repurchases and redemptions of securities.

RATIO OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for the years and periods
indicated are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995 1996 1997
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed
charges(a)...................................... -- (b) 1.5x -- (c) 2.6x 2.2x
</TABLE>
- --------
(a) For purposes of calculating this ratio, earnings include income (loss)
from continuing operations before income tax and fixed charges. Fixed
charges include interest expense, preferred stock dividends and an imputed
interest expense on operating lease rentals (assumed as one-third of
rentals).
(b) Earnings were insufficient to cover fixed charges by $0.4 million due to
the effect of a one-time, non-cash accounting charge of $4 million for net
deferred income tax liabilities upon the merger of the Company with the
predecessor partnership. Excluding the effect of this charge, the ratio of
earnings to fixed charges would have been 1.6x.
(c) Earnings were insufficient to cover fixed charges by $16.4 million due to
the 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. Excluding the effect of this charge, the ratio
of earnings to fixed charges would have been 1.3x.

7
<PAGE>

DESCRIPTION OF DEBT SECURITIES

The following is a description of certain general terms and provisions of
the Debt Securities. The particular terms of any series of Debt Securities
will be described in the applicable Prospectus Supplement. If so indicated in
a Prospectus Supplement, the terms of any such series may differ from the
terms set forth below.

Debt Securities may be issued from time to time in one or more series by the
Company. The Debt Securities will constitute either indebtedness designated as
Senior Indebtedness ("Senior Securities"), indebtedness designated as Senior
Subordinated Indebtedness ("Senior Subordinated Securities") or indebtedness
designated as Subordinated Indebtedness ("Subordinated Securities"). The
Company may issue Debt Securities with different terms from those of Debt
Securities previously issued without the consent of holders of previously
issued series of Debt Securities. The particular terms of each series of
Securities offered by a particular Prospectus Supplement will be described
therein. Senior Securities, Senior Subordinated Securities and Subordinated
Securities will each be issued under a separate indenture (individually, an
"Indenture" and, collectively, the "Indentures") to be entered into prior to
the issuance of such Debt Securities. The Indentures will be substantially
identical, except for provisions relating to subordination. See "--
Subordination of Senior Subordinated Securities and Subordinated Securities."
A copy of the form of the Indenture is filed as an Exhibit to the Registration
Statement of which this Prospectus is a part. There will be a separate Trustee
(individually, a "Trustee" and, collectively, the "Trustees") under each
Indenture. Information regarding the Trustee under an Indenture will be
included in any Prospectus Supplement relating to the Debt Securities issued
thereunder.

The following discussion includes a summary description of material terms of
the Indentures, other than terms that are specific to a particular series of
Debt Securities and that will be described in the Prospectus Supplement
relating to such series. The following summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the Indentures, including the definitions therein of
certain terms capitalized in this Prospectus. Wherever particular Sections or
Articles or defined terms of the Indentures are referred to herein or in a
Prospectus Supplement, such Sections or defined terms are incorporated herein
or therein by reference.

To the extent applicable to the Debt Securities of a particular series, as
indicated in the applicable Prospectus Supplement, there are no provisions of
the Indentures that afford holders of the Debt Securities protection in the
event of a highly leveraged transaction involving the Company.

GENERAL

Debt Securities will be general unsecured obligations of the Company. The
Indentures do not limit the aggregate amount of Debt Securities that may be
issued under each Indenture, and Debt Securities may be issued under the
Indentures from time to time in separate series up to the aggregate amount
authorized from time to time by the Company for each series. Debt Securities
of a series will be issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof, or in the form of one
or more Global Securities in registered form (each a "Global Security"). The
Senior Securities will be unsecured and unsubordinated obligations of the
Company and will rank equally and ratably with other unsecured and
unsubordinated indebtedness of the Company. The Senior Subordinated Securities
and the Subordinated Securities will be subordinated in right of payment to
the prior payment in full of the Senior Indebtedness, including the Senior
Securities, of the Company, and the Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Subordinated Indebtedness, including the Senior Subordinated Securities, as
described below under "Subordination of Senior Subordinated Securities and
Subordinated Securities" and in a Prospectus Supplement applicable to an
offering of Senior Subordinated Securities or Subordinated Securities.

The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the series of Debt Securities in respect of which this
Prospectus is being delivered: (1) the title of such Debt Securities; (2) any
limit on the aggregate principal amount of such Debt Securities; (3) whether
any of such Debt

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Securities are to be issuable as a Global Security, whether such Global
Securities are to be issued in temporary global form or permanent global form,
and, if so, the terms and conditions, if any, upon which interests in such
Securities in global form may be exchanged, in whole or in part, for the
individual Debt Securities represented thereby; (4) the date or dates on which
such Debt Securities will mature; (5) the rate or rates of interest, if any,
or the method of calculation thereof, that such Debt Securities will bear; (6)
the date or dates from which any such interest will accrue, the interest
payment dates on which any such interest on such Debt Securities will be
payable and the record date for any interest payable on any interest payment
date; (7) the place or places where the principal of, premium (if any) and
interest on such Debt Securities will be payable; (8) the period or periods
within which, the events upon the occurrence of which, and the price or prices
at which, such Debt Securities may, pursuant to any optional or mandatory
provisions, be redeemed or purchased, in whole or in part, by the Company and
any terms and conditions relevant thereto; (9) the obligation of the Company,
if any, to redeem or repurchase such Debt Securities at the option of the
holders; (10) any index or formula used to determine the amount of payments of
principal of and any premium and interest on such Debt Securities; (11) if
other than the principal amount thereof, the portion of the principal amount
of such Debt Securities of the series that will be payable upon declaration of
the acceleration of the maturity thereof; (12) any additional covenants of the
Company; (13) the terms and conditions, if any, pursuant to which such Debt
Securities are convertible or exchangeable into Common Stock; and (14) any
other terms of such Debt Securities not inconsistent with the provisions of
the applicable Indentures.

Debt Securities may be issued at a discount from their principal amount.
United States federal income tax considerations and other special
considerations applicable to any such original issue discount securities will
be described in the applicable Prospectus Supplement.

If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or
units, the restrictions, elections, general tax considerations, specific terms
and other information with respect to such issue of Debt Securities and such
foreign currency or currencies or foreign currency unit or units will be set
forth in the applicable Prospectus Supplement.

SENIOR SECURITIES

The Senior Securities will rank pari passu with all other unsecured and
unsubordinated debt of the Company, including Senior Indebtedness, and senior
to the Senior Subordinated Indebtedness and Subordinated Indebtedness.

SUBORDINATION OF SENIOR SUBORDINATED SECURITIES AND SUBORDINATED SECURITIES

The payment of the principal of, premium, if any, and interest on the Senior
Subordinated Securities and the Subordinated Securities will, to the extent
set forth in the respective Indentures governing such Senior Subordinated
Securities and Subordinated Securities, be subordinated in right of payment to
the prior payment in full of all Senior Indebtedness (including the Senior
Securities), and payments in respect of the Subordinated Securities will be
subordinated to the prior payment in full of all Senior Subordinated
Indebtedness. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, (1) the holders of all Senior Indebtedness
will be entitled to receive payment in full of all amounts due or to become
due thereon before the holders of the Senior Subordinated Securities or the
Subordinated Securities will be entitled to receive any payment of the
principal of, premium, if any, or interest on such Senior Subordinated
Securities or Subordinated Securities, as the case may be, and (2) the holders
of Senior Subordinated Securities will be entitled to receive payment in full
in respect thereof before holders of Subordinated Securities are entitled to
receive any payments in respect of such Subordinated Securities. In the event
of the acceleration of the maturity of any Senior Subordinated Securities or
Subordinated Securities, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become

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<PAGE>

due thereon before the holders of the Senior Subordinated Securities or
Subordinated Securities, as the case may be, will be entitled to receive any
payment upon the principal of, premium, if any, or interest on such Senior
Subordinated Securities or Subordinated Securities, as the case may be. Upon
acceleration of the maturity of any Subordinated Securities, the holders of
any Senior Subordinated Indebtedness will be entitled to receive payment in
full of the Senior Subordinated Indebtedness before the holders of
Subordinated Securities are entitled to receive any payments in respect
thereof.

No payments of principal of, premium, if any, or interest on the Senior
Subordinated Securities or Subordinated Securities may be made if there shall
have occurred and be continuing a default in the payment of principal of,
premium, if any, or interest on any Senior Indebtedness (and, in the case of
the Subordinated Securities, on any Senior Subordinated Indebtedness) beyond
any applicable grace period. During the continuance of any default, other than
a default in the payment of principal of, premium, if any, or interest, on
Senior Indebtedness (and in the case of Subordinated Securities, on Senior
Subordinated Indebtedness) pursuant to which the maturity thereof may be
accelerated, upon receipt by the Trustee for Senior Subordinated Securities or
Subordinated Securities of notice from holders of Senior Indebtedness (and/or
Senior Subordinated Indebtedness) the Company will be restricted, as set forth
in the applicable Indenture from making any payments to holders of Senior
Subordinated Securities and/or Subordinated Securities.

The failure of the Company to make any payment on the Senior Subordinated
Securities or the Subordinated Securities when due or within any applicable
grace period, including as a result of a nonpayment default on any Senior
Indebtedness (or in the case of Subordinated Securities, on any Senior
Subordinated Indebtedness), will constitute an Event of Default under the
applicable Indenture and will entitle holders of the Senior Subordinated
Securities and/or Subordinated Securities, as applicable, to accelerate the
maturity thereof.

The Indenture pertaining to the Senior Subordinated Securities will provide
that the Company will not incur any Indebtedness which is expressly
subordinated in right of payment to Senior Indebtedness unless such
Indebtedness ranks pari passu with or subordinate to the Senior Subordinated
Securities.

The Company conducts some of its operations through subsidiaries. The Debt
Securities are obligations only of the Company and not of the subsidiaries. As
an equity holder of its subsidiaries, the right of the Company to receive
assets from a subsidiary upon the bankruptcy, liquidation or reorganization of
such subsidiary (and therefore the right of the holders of Debt Securities to
realize value from such assets) will be effectively subordinated to the claims
of all creditors of that subsidiary, except to the extent that the Company is
recognized as a creditor of the subsidiary.

By reason of such provisions, in the event of insolvency of the Company,
holders of Senior Subordinated Securities and Subordinated Securities may
recover less, ratably, than holders of Senior Indebtedness with respect
thereto, and holders of Subordinated Securities may recover less, ratably,
than holders of Senior Subordinated Securities with respect thereto.

If this Prospectus is being delivered in connection with a series of Senior
Subordinated Securities or Subordinated Securities, the accompanying
Prospectus Supplement or the information incorporated herein by reference will
set forth the approximate amount of Senior Indebtedness outstanding as of the
end of the Company's most recently completed fiscal quarter.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, the Company will be obligated to
make an offer to purchase all of the then outstanding Debt Securities (a
"Change of Control Offer"), and purchase, on a business day (the "Change of
Control Purchase Date") not more than 70 nor fewer than 30 days following the
Change of Control, all of the then outstanding Debt Securities validly
tendered pursuant to such Change of Control Offer at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer is

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<PAGE>

required to remain open for at least 20 Business Days and until the close of
business on the fifth business day prior to the Change of Control Purchase
Date.

In order to effect such Change of Control Offer, the Company, not later than
the 30th day after the Change of Control, will mail to each holder of Debt
Securities a notice of the Change of Control Offer, which notice will govern
the terms of the Change of Control Offer and state, among other things, the
procedures that holders of Debt Securities must follow to accept the Change of
Control Offer.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Debt Securities delivered by holders thereof
seeking to accept the Change of Control Offer. If on a Change of Control
Purchase Date the Company does not have available funds sufficient to pay the
Change of Control Purchase Price or is prohibited from purchasing the Debt
Securities, an Event of Default will occur under the applicable Indenture. The
definition of "Change of Control" includes an event by which the Company
sells, conveys, transfers or leases all or substantially all of its properties
to any Person; the phrase "all or substantially all" is subject to applicable
legal precedent and as a result in the future there may be uncertainty as to
whether a Change of Control has occurred.

The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the
same purchase price, at the same times and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer made by the
Company and purchases all Debt Securities validly tendered and not withdrawn
under such Change of Control Offer.

The Company intends to comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, in the event
that a Change of Control occurs and the Company is required to purchase Debt
Securities as described above. The existence of a holder's right to require,
subject to certain conditions, the Company to repurchase its Debt Securities
upon a Change of Control may deter a third party from acquiring the Company in
a transaction that constitutes, or results in, a Change of Control.

REPORTS

The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has
a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15(d) of the Exchange Act. The
Company will also be required to file copies of such reports and documents
with the Trustee under each Indenture with outstanding Debt Securities within
15 days after the date on which the Company files, or would be required to
file, such reports and documents with the Commission.

MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.

The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
and the Company will not permit any of its subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all
of the properties and assets of the Company and its subsidiaries on a
consolidated basis to any other Person or group of affiliated Persons, unless
at the time and after giving effect thereto (1) either (A) if the transaction
or transactions is a merger or consolidation, the Company will be the
surviving Person of such merger or consolidation, or (B) the Person (if other
than the Company) formed by such consolidation or into which the Company or
such subsidiary is merged or to which the properties and assets of the Company
or such subsidiary, as the case may be, are sold, assigned, conveyed,
transferred, leased or otherwise disposed of is a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and, in either case, expressly assumes by a
supplemental indenture to the Indentures, all the obligations

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of the Company under the Debt Securities and the Indentures, and, in each
case, the Indentures remain in full force and effect; (2) immediately before
and immediately after giving effect to such transaction or series of
transactions on a pro forma basis, no Event of Default shall have occurred and
be continuing; and (3) if any of the properties or assets of the Company or
any of its subsidiaries would upon such transaction or series of related
transactions become subject to any lien, the creation and imposition of such
lien will be in compliance with the terms of the Indentures.

EVENTS OF DEFAULT

The following will constitute Events of Default under the Indentures with
respect to Debt Securities of any series: (1) failure to pay principal (or
premium, if any) on any Debt Security of that series when due (whether at
maturity, upon redemption, upon repurchase pursuant to a Change of Control
Offer, by acceleration or otherwise); (2) failure to pay any interest on any
Debt Security of that series when due, which failure continues for 30 days;
(3) default in the performance of the provisions contained in the "Merger,
Consolidation and Sale of Assets" section of the applicable Indenture; (4)
failure to perform any other covenant of the Company in the applicable
Indenture or any other covenant to which the Company may be subject with
respect to Debt Securities of that series (other than a covenant solely for
the benefit of a series of Debt Securities other than that series), which
failure continues for 30 days after written notice as provided in the
applicable Indenture; (5) certain events of bankruptcy, insolvency or
reorganization; and (6) such other events as are set forth in the applicable
Indenture supplement relating to such Debt Securities.

If an Event of Default with respect to outstanding Debt Securities of any
series occurs and is continuing, either the Trustee or the holders of at least
25% in principal amount of the outstanding Debt Securities of that series, by
notice as provided in the applicable Indenture, may declare the principal
amount (or, if the Debt Securities of that series are original issue discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all Debt Securities of that series to be due and
payable immediately, except that upon the occurrence of an Event of Default
specified in (5) in the preceding paragraph, the principal amount (or in the
case of original issue discount Securities, such portion) of all Debt
Securities will be immediately due and payable without any action by the
Trustee or any holder. At any time after a declaration of acceleration with
respect to Debt Securities of any series has been made, but before judgment or
decree based on such acceleration has been obtained, the holders of a majority
in principal amount of the outstanding Debt Securities of that series may,
under certain circumstances, rescind and annul such acceleration. For
information as to waiver of defaults, see "Amendments and Waivers" below.

Subject to the duty of the respective Trustees during an Event of Default to
act with the required standard of care, each such Trustee will be under no
obligation to exercise any of its rights or powers under the respective
Indentures at the request or direction of any of the holders, unless such
holders shall have offered to such Trustee reasonable security or indemnity.
Subject to certain provisions, including those requiring security or
indemnification of the applicable Trustee, the holders of a majority in
principal amount of the outstanding Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on such Trustee, with respect to the Debt Securities of that series.

No holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture or for any remedy
thereunder, unless such holder shall have previously given to the applicable
Trustee written notice of a continuing Event of Default and unless the holders
of at least 25% in aggregate principal amount of the outstanding Debt
Securities of the same series shall have provided written requests, and
offered reasonable indemnity, to such Trustee to institute such a proceeding,
and the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of the same
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of a Debt Security for enforcement of
payment of the principal of and interest on such Debt Security on or after the
respective due dates expressed in such Debt Security.

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The Company is required to furnish to the Trustees annually a statement as
to the performance by the Company of its obligations under the respective
Indentures and as to any default in such performance.

SATISFACTION AND DISCHARGE

An Indenture will be discharged and will cease to be of further effect,
except as to surviving rights or registration of transfer or exchange of the
Debt Securities to which such Indenture pertains, as expressly provided for in
such Indenture, as to all such Debt Securities outstanding when (1) either (A)
all such outstanding Debt Securities have been delivered to the Trustee for
cancellation or (B) all such outstanding Debt Securities not theretofore
delivered to the Trustee for cancellation have become due and payable or will
become due and payable at their stated maturity within one year, or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the serving of notice of redemption by the Trustee, and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire indebtedness on
such Debt Securities not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on such Debt
Securities to the date of deposit or to the stated maturity or redemption
date, as the case may be, together with instructions from the Company
irrevocably directing the Trustee to apply such funds to the payment thereof
at maturity or redemption, as the case may be, (2) the Company has paid all
other sums payable under such Indenture by the Company; and (3) the Company
has delivered to the Trustee an officers' certificate and an opinion of
counsel satisfactory to the Trustee, which, taken together, state that all
conditions precedent under such Indenture relating to the satisfaction and
discharge thereof have been complied with.

AMENDMENTS AND WAIVERS

From time to time, the Company and the Trustee may, without the consent of
the holders of Debt Securities, amend, waive or supplement the Indenture to
which such Debt Securities pertain or such Debt Securities for certain
specified purposes, including, among other things, curing ambiguities, defects
or inconsistencies, qualifying, or maintaining the qualification of, such
Indenture under the Trust Indenture Act of 1939, or making any change that
does not adversely affect the rights of any holder of such Debt Securities.
Other amendments and modifications of an Indenture or a series of Debt
Securities may be made by the Company and the Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
Debt Securities of such series then outstanding; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Debt Security affected thereby, (1) change the stated maturity of
the principal of, or any installment of interest on, any Debt Security, (2)
reduce the principal amount of, premium, if any, or interest on any Debt
Security, (3) change the currency of payment of any Debt Security, (4) impair
the right to institute suit for the enforcement of any payment on any Debt
Security, (5) reduce the percentage of aggregate principal amount of
outstanding Debt Securities of a series necessary to amend the Indenture or to
waive compliance with certain provisions of the Indenture or to waive certain
defaults, or (6) modify the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control.

The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of any series may waive compliance by the Company with certain
restrictive provisions of, and any past default under, the applicable
Indenture with respect to that series, except a default in the payment of
principal of, premium, if any, or interest on any Debt Security of that series
or a provision of an applicable Indenture which cannot be modified without the
consent of each holder of the Debt Security affected.

DEFEASANCE

If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Company at its option (i) will be discharged
from any and all obligations in respect of the Debt Securities of such series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, to replace destroyed, stolen, lost or mutilated
Debt Securities of such series, and to maintain an office or agency

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in respect of the Debt Securities and hold moneys for payment in trust) or
(ii) will (A) be released from its obligations to comply with certain
covenants relating to the Debt Securities of such series and (B) no longer be
subject to certain Events of Default with respect to the Debt Securities of
such series, in each case, as specified in the applicable Prospectus
Supplement. The Company may elect such discharge or release only if the
Company irrevocably deposits with the applicable Trustee, in trust, money,
government obligations of the government issuing the currency in which the
Debt Securities of the relevant series are denominated or a combination of
money or government obligations that through the payment of interest on and
principal of such government obligations in accordance with their terms will
provide money in an amount sufficient to pay all the principal of, premium, if
any, and interest on the Debt Securities of such series on the dates such
payments are due (up to the stated maturity date, or the redemption date, as
the case may be) in accordance with the terms of such Debt Securities. Such a
trust may only be established if, among other things, (a) no Event of Default
described under "Events of Default" shall have occurred and be continuing and
(b) the Company shall have delivered an opinion of counsel to the effect that
(i) the holders of the Debt Securities will not recognize gain or loss for
United States federal income tax purposes as a result of such deposit or
defeasance and will be subject to United States federal income tax in the same
manner as if such defeasance had not occurred, and (ii) the trust resulting
from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940. Such opinion, in
the case of defeasance under clause (i) above, must refer to and be based upon
a ruling of the Internal Revenue Service or a change in applicable federal
income tax law occurring after the date of the applicable Indenture. In the
event the Company fails to comply with its remaining obligations under the
applicable Indenture after a defeasance of such Indenture with respect to the
Debt Securities of any series as described under clause (ii) above and the
Debt Securities of such series are declared due and payable because of the
occurrence of any undefeased Event of Default, the amount of money and
government obligations on deposit with the applicable Trustee may be
insufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company will remain liable in respect of such payments.

Notwithstanding the description set forth under "Subordination of Senior
Subordinated Securities and Subordinated Securities" above, in the event that
the Company deposits money or government obligations in compliance with the
Indenture that governs any Senior Subordinated Securities or Subordinated
Securities, as the case may be, in order to defease all or certain of its
obligations with respect to the applicable series of Debt Securities, the
money or government obligations so deposited will not be subject to the
subordination provisions of the applicable Indenture, and the indebtedness
evidenced by such series of Debt Securities will not be subordinated in right
of payment to the holders of applicable Senior Indebtedness to the extent of
the money or government obligations so deposited.

THE TRUSTEES

Each Indenture will provide that, except during the continuance of an Event
of Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default occurs and is
continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise
as a prudent Person would exercise under the circumstances in the conduct of
such Person's own affairs.

Each Indenture will, and provisions of the Trust Indenture Act of 1939, as
amended, contain limitations on the rights of the Trustee thereunder, should
it become a creditor of the Company, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.

FORM, EXCHANGE, REGISTRATION AND TRANSFER

Debt Securities are issuable in definitive form or in temporary or permanent
global form.

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Debt Securities of any series will be exchangeable for other Debt Securities
of the same series and of a like aggregate principal amount and tenor of
different authorized denominations.

Debt Securities may be presented for exchange, as provided above, and for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office or agency of the Company maintained for such purposes
and at any other office or agency maintained for such purpose with respect to
any series of Debt Securities and referred to in the applicable Prospectus
Supplement, without a service charge and upon payment of any taxes and other
governmental charges as described in the applicable Indenture. Such transfer
or exchange will be effected upon the satisfaction of the Company or its
agent, as the case may be, with the documents of title and identity of the
person making the request.

In the event of any redemption in part, the Company will not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days prior to the
selection of Debt Securities of that series for redemption and ending on the
close of business on the day of mailing of the relevant notice of redemption;
or (ii) register the transfer of or exchange any Debt Security, or portion
thereof, called for redemption, except the unredeemed portion of any Debt
Security being redeemed in part.

PAYMENT AND PAYING AGENTS

Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest on Debt Securities will be made
in the designated currency or currency unit at the office of such Paying Agent
or Paying Agents as the Company may designate from time to time, except that
at the option of the Company payment of any interest may be made by check
mailed to the address of the person entitled thereto at the address in the
Security Register. Unless otherwise indicated in an applicable Prospectus
Supplement, payment of any installment of interest on Debt Securities will be
made to the person in whose name such Debt Security is registered at the close
of business on the record date for such interest payment.

Unless otherwise indicated in the applicable Prospectus Supplement, the
Corporate Trust Office of the Trustee will be designated as a Paying Agent for
the Trustee for payments with respect to Debt Securities. Any other Paying
Agents will be named in an applicable Prospectus Supplement. The Company may
at any time designate additional Paying Agents or rescind the designation of
any Paying Agent or approve a change in the office through which any Paying
Agent acts, except that the Company will be required to maintain a Paying
Agent in each place of payment for each series of Debt Securities.

All monies paid by the Company to a Paying Agent for the payment of
principal of and any premium or interest on any Debt Security that remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will (subject to applicable escheat laws) be
repaid to the Company, and the holder of such Debt Security or any coupon will
thereafter look only to the Company for payment thereof.

TEMPORARY GLOBAL SECURITIES

If so specified in the applicable Prospectus Supplement, all or any portion
of the Debt Securities of a series which are sold in offshore transactions
initially may be represented by one or more temporary global Debt Securities,
without interest coupons, to be deposited with or on behalf of, and registered
in the name of, a depositary or its nominee (a "Depositary") identified in the
applicable Prospectus Supplement for credit to the purchasers' respective
accounts at Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear") and Cedel, societe anonyme
("Cedel"). On and after the date determined as provided in any such temporary
global Debt Security and described in the applicable Prospectus Supplement,
each such temporary global Debt Security will be exchangeable for definitive
Debt Securities or all or a portion of a permanent global security, or any
combination thereof, as specified in the applicable Prospectus Supplement.

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PERMANENT GLOBAL SECURITIES

If any Debt Securities of a series are issuable in permanent global form as
a Global Security, the applicable Prospectus Supplement will describe the
circumstances, if any, under which beneficial owners of interests in any such
Global Security may exchange such interests for Debt Securities of such series
in definitive form of like tenor and principal amount in any authorized
denomination.

BOOK-ENTRY DEBT SECURITIES

The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on
behalf of, a Depositary or its nominee identified in the applicable Prospectus
Supplement. In such a case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer or exchange except as a whole by
the Depositary for such Global Security to a nominee of such Depositary or by
a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any nominee to a successor Depositary or a
nominee of such successor Depositary and except in the circumstances described
in the applicable Prospectus Supplement.

The specific terms of the depository arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that
the following provisions will apply to depository arrangements.

Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such Depositary. Upon the issuance and deposit with
or on behalf of the Depositary of such Global Security, the Depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Global Security
to the accounts of institutions that have accounts with such Depositary or its
nominee ("participants"). The accounts to be credited will be designated by
the underwriters or agents of such Debt Securities or by the Company, if such
Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interest in such Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants
will be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. The
foregoing limitations and such laws may impair the ability to transfer
beneficial interests in such Global Securities.

So long as the Depositary for a Global Security is the registered owner of
such Global Security, such Depositary will be considered the sole owner or
holder of the Debt Securities represented by such Global Security for all
purposes under the applicable Indenture. Unless otherwise specified in the
applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Debt Securities of such
series in definitive form and will not be considered the holders thereof for
any purposes under the applicable Indenture. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Depositary and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any
rights of a holder under the applicable Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders, or an owner of a beneficial interest in such Global Security desires
to give any notice or take any action a holder is entitled to give or take
under an Indenture, the Depositary would authorize

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the participants to give such notice or take such action, and participants
would authorize beneficial owners owning through such participants to give
such notice or take such action or would otherwise act upon the instructions
of beneficial owners owning through them.

Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.

CERTAIN DEFINITIONS

"Change of Control" means the occurrence of any of the following events: (1)
any "person" or "group" (as such terms are used in Sections 13(d)(3) or
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than
40% of the total voting power of the outstanding voting stock of the Company;
(2) the Company is merged with or into or consolidated with another Person
and, immediately after giving effect to the merger or consolidation, (A) less
than 50% of the total voting power of the outstanding voting stock of the
surviving or resulting Person is then "beneficially owned" (within the meaning
of Rule 13d-3 under the Exchange Act) in the aggregate by (x) the stockholders
of the Company immediately prior to such merger or consolidation, or (y) if a
record date has been set to determine the stockholders of the Company entitled
to vote with respect to such merger or consolidation, the stockholders of the
Company as of such record date and (B) any "person" or "group" has become the
direct or indirect "beneficial owner" of more than 40% of the total voting
power of the voting stock of the surviving or resulting Person; (3) the
Company, either individually or in conjunction with one or more subsidiaries,
sells, conveys, transfers or leases all or substantially all of the assets of
the Company and the subsidiaries, taken as a whole (either in one transaction
or a series of related transactions), including capital stock of the
subsidiaries, to any Person (other than the Company or a wholly owned
subsidiary); (4) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (5) the
liquidation or dissolution of the Company.

"Indebtedness" means, with respect to any Person, (1) all liabilities of
such Person for borrowed money or for the deferred purchase price of property
or services, including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, bankers'
acceptance or other similar credit transaction, (2) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (3)
all Indebtedness of such Person created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person, (4) all capitalized lease obligations of such Person, (5) all
Indebtedness referred to in the preceding clauses of other Persons, the
payment of which is secured by any lien upon property owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Indebtedness, (6) all guarantees by such Person of Indebtedness referred
to in this definition, (7) all redeemable capital stock of such Person, which
is redeemable at the option of the holder, or mandatorily redeemable by the
Company, prior to 91 days after the stated maturity of the applicable Debt
Security, (8) all obligations of such Person under currency exchange contracts
and interest rate protection obligations and (9) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
such Person of the types referred to in clauses (1) through (8) above.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.

"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company (including, in the case of any bank credit
agreement and Senior Securities, interest accruing after the filing of a
petition by or against the Company under any bankruptcy law, in accordance
with and at the rate,

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<PAGE>

including any default rate, specified with respect to such indebtedness,
whether or not a claim for such interest is allowed as a claim after such
filing in any proceeding under such bankruptcy law), whether outstanding on
the date of the Indentures or thereafter created, incurred or assumed, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Senior Subordinated Securities and Subordinated Securities. Notwithstanding
the foregoing, "Senior Indebtedness" does not include (1) Indebtedness
evidenced by the Senior Subordinated Securities and Subordinated Securities,
(2) Indebtedness that is expressly subordinate or junior in right of payment
to any Senior Indebtedness of the Company, (3) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11
United States Code, is by its terms without recourse to the Company, (4) any
repurchase, redemption or other obligation in respect of redeemable capital
stock of the Company, which is redeemable at the option of the holder, or
mandatorily redeemable by the Company, prior to 91 days after the stated
maturity of the applicable Debt Security, (5) to the extent it might
constitute Indebtedness, any liability for federal, state, local or other
taxes owed or owing by the Company, (6) Indebtedness of the Company to a
subsidiary of the Company or any other affiliate of the Company or any of such
affiliate's subsidiaries, and (7) that portion of any Indebtedness of the
Company which at the time of issuance is issued in violation of the
Indentures.

"Senior Subordinated Indebtedness" means any Indebtedness of the Company
which is expressly subordinated in right of payment to Senior Indebtedness,
but prior in right of payment to Subordinated Indebtedness.

"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to Senior Indebtedness and Senior
Subordinated Indebtedness.

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DESCRIPTION OF PREFERRED STOCK

The Company's Restated Certificate of Incorporation authorizes 25,000,000
shares of preferred stock, par value $0.01 per share. Preferred Stock may be
issued from time to time in one or more classes or series, without stockholder
approval. Subject to limitations prescribed by law, the Board of Directors of
the Company is authorized to determine the different classes and/or series of
Preferred Stock and the powers, preferences and rights thereof.

The Company currently has one series of Preferred Stock outstanding,
designated as Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). As of March 23, 1998, there were 1,138,729 shares of Series A
Preferred Stock outstanding that are listed on the New York Stock Exchange and
trade under the symbol "XTOpA." The Series A Preferred Stock ranks prior to
all shares of Common Stock as to payment of dividends and liquidation
distributions and provides for a liquidation preference of $25.00 per share
and cumulative dividends of $1.5625 per share per year. The Series A Preferred
Stock is subject to redemption by the Company under certain conditions and is
convertible into Common Stock at the rate of 2.16 shares of Common Stock (as
adjusted for the three-for-two stock split distributed on February 25, 1998)
for each share of Series A Preferred Stock. Holders of Series A Preferred
Stock are entitled to vote (1) with the holders of Common Stock the number of
votes equal to the number of shares of Common Stock into which such Series A
Preferred Stock is convertible and (2) separately as a class to elect two
additional directors if Series A Preferred Stock dividends are in arrears for
at least six quarters.

The following is a description of certain general terms and provisions of
Preferred Stock that may be offered hereby. The particular terms of any series
of Preferred Stock will be described in the applicable Prospectus Supplement.
If so indicated in a Prospectus Supplement, the terms of any such series may
differ from the terms set forth below. Certain provisions applicable to the
Company's Common Stock are set forth below in "Description of Common Stock."

The summary of terms of the Company's preferred stock (including the
Preferred Stock) contained in this Prospectus does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Company's Restated Certificate of Incorporation and the certificate of
designations relating to each class or series of Preferred Stock, which will
be filed as an exhibit to or incorporated by reference in the Registration
Statement of which this Prospectus is a part at or prior to the time of
issuance of such series of the Preferred Stock.

The Preferred Stock will have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of Preferred Stock.

The applicable Prospectus Supplement will describe the following terms of
the series of Preferred Stock in respect of which this Prospectus is being
delivered: (1) the designation and stated value, if any, per share of such
Preferred Stock and the number of shares offered; (2) the amount of
liquidation preference per share and any priority relative to any other class
or series of Preferred Stock or Common Stock; (3) the initial public offering
price at which such Preferred Stock will be issued; (4) the dividend rate or,
if applicable, any index or formula used to determine the amount of dividends
payable, the dates on which dividends shall be payable and the dates from
which dividends will commence to cumulate, if any; (5) any redemption or
sinking fund provisions; (6) any conversion or exchange rights; (7) any voting
rights; and (8) other rights, preferences, privileges, limitations and
restrictions.

GENERAL

The Preferred Stock offered hereby will be issued in one or more classes or
series. The holders of Preferred Stock will have no preemptive rights.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. Neither the par value nor the
liquidation preference is indicative of the price at which the Preferred Stock
will actually trade on or after the date of issuance.

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RANK

Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Company, rank prior to the
Company's Common Stock and to all other classes and series of equity
securities of the Company now or hereafter authorized, issued or outstanding
(the Common Stock and such other classes and series of equity securities
collectively may be referred to herein as the "Junior Stock"), other than any
classes or series of equity securities of the Company ranking on a parity with
(the "Parity Stock") or senior to (the "Senior Stock") the Preferred Stock as
to dividend rights and rights upon liquidation, winding up or dissolution of
the Company. The Preferred Stock will be junior to all outstanding debt of the
Company. The Preferred Stock will be subject to creation of Senior Stock,
Parity Stock and Junior Stock to the extent not expressly prohibited by the
Company's Restated Certificate of Incorporation.

DIVIDENDS

Holders of shares of Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors out of funds of the Company legally
available for payment, cash dividends, payable at such dates and at such rates
per share per annum as set forth in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each declared dividend will be payable
to holders of record as they appear at the close of business on the stock
books of the Company on such record dates, not more than 60 calendar days
preceding the payment dates therefor, as are determined by the Board of
Directors.

Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement. If dividends on a class or series of Preferred Stock
are noncumulative and if the Board of Directors fails to declare a dividend in
respect of a dividend period with respect to such class or series, then
holders of such Preferred Stock will have no right to receive a dividend in
respect of such dividend period, and the Company will have no obligation to
pay the dividend for such period, whether or not dividends are declared
payable on any future dates. Dividends on the shares of each class or series
of Preferred Stock for which dividends are cumulative will accrue from the
date on which the Company initially issues shares of such class or series.

No full dividends will be declared or paid or set apart for payment on
Parity Stock or Junior Stock for any period unless full dividends for the
immediately preceding dividend period on the Preferred Stock offered hereby
and by the applicable Prospectus Supplement (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
Preferred Stock are cumulative) have been paid or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment. When dividends are not so paid in full (or a sum
sufficient for such full payment is not so set apart) upon such Preferred
Stock and any Parity Stock, dividends upon shares of such Preferred Stock and
dividends on such Parity Stock shall be declared pro rata so that the amount
of dividends declared per share on such Preferred Stock and such Parity Stock
shall in all cases bear to each other the same ratio that accrued dividends
for the then-current dividend period per share on the shares of such Preferred
Stock (including any accumulation in respect of unpaid dividends for prior
dividend periods, if dividends on such Preferred Stock are cumulative) and
accrued dividends, including required or permitted accumulations, if any, on
shares of such Parity Stock, bear to each other. Unless full dividends on such
Preferred Stock have been declared and paid or set apart for payment for the
immediately preceding dividend period (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Stock are cumulative) (a) no cash dividend or distribution (other than in
shares of Junior Stock) may be declared, set aside or paid on the Junior
Stock, (b) the Company may not repurchase, redeem or otherwise acquire any
shares of its Junior Stock (except by conversion into or exchange for other
Junior Stock) and (c) the Company may not, directly or indirectly, repurchase,
redeem or otherwise acquire any shares of Preferred Stock or Parity Stock
otherwise than pursuant to certain pro rata offers to purchase or a concurrent
redemption of all, or a pro rata portion, of the outstanding shares of such
Preferred Stock and Parity Stock (except by conversion into or exchange for
Junior Stock).

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CONVERTIBILITY

The terms, if any, on which shares of Preferred Stock of any class or series
may be exchanged for or converted (mandatorily or otherwise) into shares of
Common Stock of the Company or another class or series of Preferred Stock or
other securities of the Company will be set forth in the Prospectus Supplement
relating thereto. See "Description of Common Stock."

REDEMPTION

The terms, if any, on which shares of Preferred Stock of any class or series
may be redeemed will be set forth in the related Prospectus Supplement.

LIQUIDATION

Unless otherwise specified in the applicable Prospectus Supplement, in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of a class or series of Preferred
Stock will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Junior Stock, to receive an amount
per share as set forth in the related Prospectus Supplement plus accrued and
unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such class or series of Preferred Stock are cumulative). If the
amounts available for distribution with respect to the Preferred Stock and
Parity Stock upon liquidation are not sufficient to satisfy the full
liquidation rights of all the outstanding Preferred Stock and Parity Stock,
then the holders of such stock will share ratably in any such distribution of
assets in proportion to the full respective preferential amount to which they
are entitled. After payment of the full amount of the liquidation preference,
unless otherwise specified in the applicable Prospectus Supplement, the
holders of shares of Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company.

VOTING

The Preferred Stock of a class or series will be entitled to vote only as
specified in the applicable Prospectus Supplement and as required by
applicable law. Unless otherwise specified in the related Prospectus
Supplement, the Preferred Stock will have the following rights. At any time
dividends in an amount equal to six quarterly dividend payments on the
Preferred Stock shall have accrued and be unpaid, holders of the Preferred
Stock shall have the right to a separate class vote (together with the holders
of shares of any Parity Stock upon which like voting rights have been
conferred and are exercisable, "Voting Parity Stock") to elect two additional
members of the Board of Directors of the Company at any meeting of
stockholders at which directors are elected that is held during the period
such dividends remain in arrears. The right of holders of Voting Parity Stock
to elect such two additional directors and the term of office of such
additional directors will terminate at the time that all accrued and unpaid
dividends on such Voting Parity Stock shall be declared and paid or set apart
for payment. If the right to elect such two additional directors shall accrue
more than 90 days before the date established for the next annual meeting of
stockholders, the Chairman of the Board of the Company shall call a special
meeting of holders of Voting Parity Stock within 20 days after a written
request therefor signed by holders of at least 10% of such Voting Parity Stock
outstanding is received by the Company. Additionally, without the affirmative
vote of the holders of two-thirds of the shares of Preferred Stock then
outstanding (voting separately as a class together with any Voting Parity
Stock), the Company may not, either directly or indirectly or through merger
or consolidation with any other corporation, (i) approve the authorization,
creation or issuance, or an increase in the authorized or issued amount, of
any class or series of stock ranking prior to the shares of Preferred Stock in
rights and preferences or (ii) amend, alter or repeal its Restated Certificate
of Incorporation or the Certificate of Designations so as to materially and
adversely change the specific terms of the Preferred Stock. An amendment that
increases the number of authorized shares of or authorizes the creation or
issuance of other Parity Stock or Junior Stock, or substitutes the surviving
entity in a merger, consolidation, reorganization or other business
combination for the Company, will not be considered to be such an adverse
change.

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NO OTHER RIGHTS

The shares of a class or series of Preferred Stock will not have any
preferences, voting powers or relative, participating, optional or other
special rights except as set forth above or in the related Prospectus
Supplement, the Restated Certificate of Incorporation and in the certificate of
designations or as otherwise required by law.

TRANSFER AGENT AND REGISTRAR

The transfer agent for each class or series of Preferred Stock will be
designated in the related Prospectus Supplement.

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DESCRIPTION OF COMMON STOCK

The Company has 100,000,000 authorized shares of Common Stock, par value
$0.01 per share. Common Stock may be issued from time to time in one or more
series, or divided into additional classes and such classes into one or more
series, with such terms, including all rights, preferences, restrictions and
qualifications, as are specified in the resolution or resolutions adopted by
the Board of Directors designating such class or series. The particular terms
of any series or class of Common Stock will be described in the applicable
Prospectus Supplement. Such terms may include, among others, any or all of the
following: (1) the number of shares to constitute such class or series and the
distinctive designation thereof; (2) the voting power, which may be full,
limited or none; (3) the dividend or manner for determining the dividend
payable with respect to the shares of such class or series and the date or
dates from which dividends will accrue, whether such dividends will be
cumulative, and, if cumulative, the date or dates from which dividends will
accumulate and whether the shares in such class or series will be entitled to
preference or priority over any other class or series of stock of the Company
with respect to payment of dividends; (4) the terms and conditions, including
price or a manner for determining the price, of redemption, if any, of the
shares of such class or series; (5) the terms and conditions of a retirement
or sinking fund, if any, for the purchase or redemption of the shares of such
class or series; (6) the amount which holders of shares of such class or
series will be entitled to receive, if any, in the event of any liquidation,
dissolution or winding up of the Company and whether such shares will be
entitled to a preference or priority over shares of another class or series
with respect to amounts received in connection with any liquidation,
dissolution or winding up of the Company; (7) whether the shares of such class
or series will be convertible into, or exchangeable for, shares of stock of
any other class or classes, or any other series of the same or any other class
or classes of stock, of the Company and the terms and conditions of any such
conversion or exchange; (8) the voting rights, if any, of shares of stock of
such class or series; (9) the status as to reissuance or sale of shares of
such class or series redeemed, purchased or otherwise reacquired or
surrendered to the Company on conversion; (10) the conditions and
restrictions, if any, on the payment of dividends or on the making of other
distributions on, or the purchase, redemption or other acquisition by the
Company or any subsidiary of, any other class or series of stock of the
Company ranking junior to such shares as to dividends or upon liquidation; and
(11) the conditions, if any, on the creation of indebtedness of the Company,
or any subsidiary.

Unless specified by the Board of Directors in resolutions designating a
class or series, all shares of the Common Stock will rank equally, and be
identical within their classes in all respects regardless of series. All
shares of any one series of a class of Common Stock will be of equal rank and
identical in all respects, except that shares of any one series issued at
different times may differ as to the dates which dividends thereon will accrue
and be cumulative.

Holders of Common Stock are not entitled to any cumulative voting rights or
rights to subscribe for or to purchase additional shares of Common Stock, any
shares of any class or series of Preferred Stock, or any other securities of
the Company. Holders of outstanding shares of Common Stock are, and unless
otherwise specified in the applicable Prospectus Supplement holders of shares
of Common Stock offered hereby will be, entitled (i) to voting rights on the
basis of one vote per share, (ii) to receive dividends if, when and as
declared by the Board of Directors out of funds legally available therefor and
(iii) to share ratably in any assets available for distribution to holders of
the Company's Common Stock upon liquidation of the Company.

The outstanding shares of Common Stock are, and shares offered hereby when
issued and sold against full payment therefor will be, validly issued fully
paid and nonassessable.

The outstanding shares of Common Stock are listed on the New York Stock
Exchange and trade under the symbol "XTO." As of March 23, 1998, the Company
had 38,972,109 outstanding shares of Common Stock. ChaseMellon Shareholder
Services, L.L.C. is the transfer agent, registrar and dividend disbursing
agent for the Common Stock.

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DESCRIPTION OF WARRANTS

The following is a description of certain general terms and provisions of
the Warrants. The particular terms of any series of Warrants will be described
in the applicable Prospectus Supplement. If so indicated in a Prospectus
Supplement, the terms of any such series may differ from the terms set forth
below.

GENERAL

The Company may issue Warrants, including Warrants to purchase Debt
Securities ("Debt Warrants"), as well as Warrants to purchase other types of
securities, including equity securities. Warrants may be issued independently
or together with any Debt Securities and may be attached to or separate from
such Debt Securities. Each series of Warrants will be issued under a separate
warrant agreement (each a "Warrant Agreement") to be entered into between the
Company and a warrant agent ("Warrant Agent"). The Warrant Agent will act
solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust
for or with any holders or beneficial owners of Warrants. The following sets
forth certain general terms and provisions of the Warrants offered hereby.

The Company currently has outstanding warrants to acquire 937,500 shares of
Common Stock at a price of $15.31 per share (as adjusted for the three-for-two
stock split distributed on February 25, 1998). These warrants were issued to
Amoco Corporation as part of the consideration for producing properties
acquired by the Company on December 1, 1997.

DEBT WARRANTS

The applicable Prospectus Supplement will describe the following terms of
the Debt Warrants in respect of which this Prospectus is being delivered: (1)
the title of such Debt Warrants; (2) the aggregate number of such Debt
Warrants; (3) the price or prices at which such Debt Warrants will be issued;
(4) the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants; (5) if applicable,
the designation and terms of the Debt Securities with which such Debt Warrants
are issued and the number of such Debt Warrants issued with each such Debt
Security; (6) if applicable, the date on and after which such Debt Warrants
and the related Debt Securities will be separately transferable; (7) the price
at which the Debt Securities purchasable upon exercise of such Debt Warrants
may be purchased; (8) the date on which the right to exercise such Debt
Warrants will commence and the date on which such right will expire; (9) if
applicable, the minimum or maximum amount of such Debt Warrants which may be
exercised at any one time; (10) if applicable, any index or formula used to
determine the amount of payments of principal of and any premium and interest
on Debt Securities purchasable upon exercise of such Debt Warrants; (11)
information with respect to book-entry procedures, if any; (12) if applicable,
a discussion of certain United States federal income tax considerations; and
(13) any other terms of such Debt Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Debt Warrants.

OTHER WARRANTS

The Company may issue other Warrants. The applicable Prospectus Supplement
will describe the following terms of any such other Warrants in respect of
which this Prospectus is being delivered: (1) the title of such Warrants; (2)
the securities (which may include Preferred Stock or Common Stock) and/or
amount of cash consideration for which such Warrants are exercisable; (3) the
price or prices at which such Warrants will be issued; (4) if applicable, the
designation and terms of the Preferred Stock or Common Stock with which such
Warrants are issued and the number of such Warrants issued with each share of
Preferred Stock or Common Stock; (5) if applicable, the date on and after
which such Warrants and the related Preferred Stock or Common Stock will be
separately transferable; (6) if applicable, any index or formula used to
determine the price or prices at which such other securities and/or cash
consideration will be issued; (7) if applicable, a discussion of certain
United States federal income tax considerations; and (8) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.

24
<PAGE>

PLAN OF DISTRIBUTION

The Company may offer Securities to or through underwriters, through agents
or dealers or directly to other purchasers. The applicable Prospectus
Supplement will set forth the names of any underwriters or agents and the
amount of Securities, if any, to be purchased by such underwriters or sold
through such agents.

The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices.

In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers in the form of
discounts, concessions or commissions. Underwriters, agents and dealers
participating in the distribution of the Securities may be deemed to be
underwriters within the meaning of the Securities Act.

Pursuant to agreements which may be entered into between the Company and any
underwriters or agents named in the applicable Prospectus Supplement, such
underwriters or agents may be entitled to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act.

If so indicated in the applicable Prospectus Supplement, the Company may
issue Securities to or through underwriters, agents or dealers in connection
with the conversion or redemption of its outstanding securities.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as agents for the Company to
solicit offers by certain institutional investors to purchase Securities from
the Company pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but shall in
all cases be subject to the approval of the Company. The obligations of the
purchaser under any such contract will not be subject to any conditions except
(i) the investment in the Securities by the institution shall not at the time
of delivery be prohibited by the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if a portion of the Securities
is being sold to underwriters, the Company shall have sold to such
underwriters the Securities not sold for delayed delivery. Underwriters and
such other persons will not have any responsibility in respect of the validity
or performance of such contracts.

Although the Company has previously issued debt securities, preferred stock,
common stock and warrants to purchase Common Stock, any Debt Securities,
Preferred Stock, Common Stock and Warrants offered may be a new issue of
securities with no established trading market. Any underwriters to whom such
Debt Securities, Preferred Stock and Warrants are sold by the Company for
public offering and sale may make a market in such Debt Securities, Preferred
Stock and Warrants, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of or the trading markets for any Debt
Securities, Preferred Stock or Warrants.

Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.

The specific terms and manner of sale of the Securities in respect of which
this Prospectus is being delivered will be set forth or summarized in the
applicable Prospectus Supplement.

VALIDITY OF SECURITIES

The validity of the Securities offered will be passed upon for the Company
by Kelly, Hart & Hallman, P.C., Fort Worth, Texas.

25
<PAGE>

EXPERTS

The consolidated financial statements of Cross Timbers Oil Company as of
December 31, 1997 and 1996, and for the three years in the period ended
December 31, 1997, incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.

With respect to the unaudited interim financial information for the Company
incorporated by reference herein, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their separate reports thereon such
financial information incorporated by reference herein, they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
In addition, Arthur Andersen LLP is not subject to the liability provisions of
Section 11 of the Securities Act for their report on the unaudited interim
financial information because these reports are not a "report" or a "part" of
the Registration Statement prepared or certified by Arthur Andersen LLP within
the meaning of Sections 7 and 11 of the Securities Act.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. Reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and such
information may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other
information may be found on the Commission's Web site address,
http://www.sec.gov.

The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-3 (including all amendments thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto,
which may be examined without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.

26
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE AN REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CON-
NECTION WITH THE OFFERINGS MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OF-
FER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT SUBSEQUENT TO THE DATE HEREOF
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------

TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S-3
Additional Risk Factors.................................................. S-11
Forward-Looking Statements............................................... S-12
Use of Proceeds.......................................................... S-13
Capitalization........................................................... S-13
Price Range of Common Stock and Dividend Policy.......................... S-14
Pro Forma Consolidated Financial Statements.............................. S-15
Selected Historical Financial Data....................................... S-21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-24
Recent Developments...................................................... S-33
Business and Properties.................................................. S-35
Board of Directors and Management........................................ S-46
Selling Stockholder...................................................... S-47
Underwriting............................................................. S-48
Validity of Common Stock................................................. S-50
Experts.................................................................. S-50
Glossary of Certain Oil and Gas Terms.................................... S-51
PROSPECTUS
Additional Information .................................................. 2
Incorporation of Certain Documents by Reference ......................... 2
Risk Factors ............................................................ 3
Forward-Looking Statements............................................... 6
The Company ............................................................. 7
Use of Proceeds ......................................................... 7
Ratio of Earnings to Fixed Charges ...................................... 7
Description of Debt Securities .......................................... 8
Description of Preferred Stock .......................................... 19
Description of Common Stock ............................................. 23
Description of Warrants ................................................. 24
Plan of Distribution .................................................... 25
Validity of Securities .................................................. 25
Experts.................................................................. 26
Available Information ................................................... 26
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

7,500,000 SHARES

[CROSS TIMBERS OIL COMPANY LOGO APPEARS HERE]

CROSS TIMBERS OIL COMPANY

COMMON STOCK

---------------

PROSPECTUS SUPPLEMENT

---------------

MERRILL LYNCH & CO.

GOLDMAN, SACHS & CO.

BEAR, STEARNS & CO. INC.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

LEHMAN BROTHERS

SALOMON SMITH BARNEY

APRIL 21, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

EXPLANATORY NOTE

The following prospectus represents the version of the offering prospectus
to be used for offers of Common Stock made outside of the United States and
Canada.
<PAGE>

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 10, 1998)

7,500,000 SHARES

LOGO
[LOGO OF CROSS TIMBERS OIL COMPANY APPEARS HERE]
CROSS TIMBERS OIL COMPANY

COMMON STOCK

Of the shares of Common Stock being offered hereby, 1,500,000 shares (the
"International Shares") are being offered outside the United States and Canada
(the "International Offering") by the International Managers and 6,000,000
shares (the "U.S. Shares") are being offered in the United States and Canada
(the "U.S. Offering" and, together with the International Offering, the
"Offerings") by the U.S. Underwriters. The Price to Public and Underwriting
Discount per share are identical for both Offerings and the closings for both
Offerings are conditioned upon each other. See "Underwriting."

SEE "ADDITIONAL RISK FACTORS" ON PAGE S-11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $19.50 $.925 $18.575 $18.575
- -------------------------------------------------------------------------------
Total(3)........... $146,250,000 $6,937,500 $133,804,084 $5,508,416
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the International Managers and U.S. Underwriters
an option for 30 days to purchase up to 225,000 and 900,000 additional
shares of Common Stock, respectively, at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholder will be
$168,187,500, $7,978,125, $154,700,959 and $5,508,416, respectively. See
"Underwriting."

---------------

The International Shares are offered by the several International Managers,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of counsel for the International Managers and certain other
conditions. The International Managers reserve the right to withdraw, cancel
or modify such offer and reject orders in whole or in part. It is expected
that delivery of the International Shares will be made in New York, New York
on or about April 27, 1998.

---------------
MERRILL LYNCH INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
LEHMAN BROTHERS
SALOMON SMITH BARNEY INTERNATIONAL

---------------

The date of this Prospectus Supplement is April 21, 1998.
<PAGE>

[MAP OF PRINCIPAL PRODUCING AREAS APPEARS HERE]

[CROSS TIMBERS OIL COMPANY
LOGO APPEARS HERE]
CROSS TIMBERS OIL COMPANY
PRINCIPAL PRODUCING AREAS

----------------

S-2
<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

THE COMPANY

S-3
<PAGE>

RECENT DEVELOPMENTS

S-4
<PAGE>

COMPANY STRENGTHS

The Company believes that its historical success and future prospects are
directly related to its unique combination of strengths, including the
following:

S-5
<PAGE>

that an additional 100 locations will be included in the East Texas Properties
(48 of which will be attributed proved undeveloped reserves).

BUSINESS STRATEGY

S-6
<PAGE>

THE OFFERINGS

RISK FACTORS

S-7
<PAGE>

SUMMARY HISTORICAL FINANCIAL DATA

S-8
<PAGE>

S-9
<PAGE>

SUMMARY RESERVE AND OPERATING DATA

S-10
<PAGE>

ADDITIONAL RISK FACTORS

SUBSTANTIAL INDEBTEDNESS

SUBSTANTIAL CAPITAL REQUIREMENTS

CLOSING OF THE EAST TEXAS ACQUISITION

S-11
<PAGE>

FORWARD-LOOKING STATEMENTS

S-12
<PAGE>

USE OF PROCEEDS

CAPITALIZATION

S-13
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The closing price of the Common Stock on the NYSE on April 21, 1998, was
$20.3125. As of March 1, 1998, the Company had approximately 320 stockholders
of record.

DIVIDEND POLICY

S-14
<PAGE>

CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

S-15
<PAGE>

CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997

See Notes to Pro Forma Consolidated Financial Statements.

S-16
<PAGE>

CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997

See Notes to Pro Forma Consolidated Financial Statements.

S-17
<PAGE>

CROSS TIMBERS OIL COMPANY
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

2. ACQUISITIONS

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 East Texas Acquisition that is expected to close after
December 31, 1997, funded by borrowings under the Company's revolving
credit facility.

(d) To record revenue and direct operating expenses of the East Texas
Acquisition.

S-18
<PAGE>

(i) To record federal income tax at a corporate statutory rate of 34%
related to net pro forma adjustments other than Offering adjustments.

4. PRO FORMA SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION

Estimated Quantities of Pro Forma Proved Oil and Gas Reserves

PRO FORMA PROVED OIL AND GAS RESERVES AT DECEMBER 31, 1997

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves

S-19
<PAGE>

PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AT DECEMBER
31, 1997

5. PRO FORMA DATA EXCLUDING THE EAST TEXAS ACQUISITION

S-20
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

S-21
<PAGE>

S-22
<PAGE>

SUMMARY RESERVE AND OPERATING DATA

S-23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

S-24
<PAGE>

S-25
<PAGE>

Property Sales. In 1997, 1996 and 1995, sales of producing properties
resulted in net gains of $1.8 million, $500,000 and $3 million, respectively.

S-26
<PAGE>

RESULTS OF OPERATIONS

1997 Compared to 1996

S-27
<PAGE>

1996 Compared to 1995

S-28
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

S-29
<PAGE>

Working Capital

Financing

S-30
<PAGE>

Capital Expenditures

Dividends

Cumulative dividends on Series A convertible preferred stock are paid
quarterly, when declared by the Board of Directors, based on an annual rate of
$1.5625 per share, or $1.8 million annually.

Year 2000

S-31
<PAGE>

significant suppliers or customers does not timely achieve year 2000
compliance, the Company's operations could be adversely affected.

PRODUCTION IMBALANCES

DERIVATIVES

S-32
<PAGE>

RECENT DEVELOPMENTS

EAST TEXAS ACQUISITION

The Company's internal engineers estimate proved reserves attributable to
the acquisition to be 260 Bcf of natural gas and 1.6 million Bbls of oil, or a
total of 270 Bcfe, concentrated in about 88,000 gross (59,000 net) acres at
December 31, 1997. Current net daily production is approximately 80 Mmcfe.
Proved developed reserves represent 94% of the value of the properties, with
direct production costs, excluding production and severance taxes, estimated
to be $0.25 per Mcfe.

The East Texas Properties, which are characterized by complex geology and
multiple pay zones, offer numerous production enhancement and development
drilling opportunities. The Company believes various opportunities will also
be available to enhance the value of the East Texas Properties through
modification and installation of artificial lift, improvements to gas
compression, workovers, restimulations and recompletions. In addition, more
than 100 locations have been identified for drilling during the next few
years. Production from the Travis Peak Formation--first established in the
1940s and the most prolific gas-producing formation in the East Texas Basin--
represents 80% of the acquired production. Undeveloped acreage and acreage
held by the acquired production also adds to the Company's growing acreage
inventory for Cotton Valley Reef exploration.

SAN JUAN ACQUISITION

The Company has identified 139 infill well sites in the San Juan Acquisition
properties, primarily in the Dakota and Fruitland Coal formations relating to
8.6 million BOE of proved undeveloped reserves that the Company expects will
require approximately $17.3 million to drill and complete. The Company plans
to drill 20 operated wells during 1998. In addition, the Company plans to
evaluate more than 150 potential infill well sites relating to unproved
reserves over the next year.

S-33
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

The following are results of operations for the three months ended March 31,
1998, announced on April 17, 1998, compared with results for the three months
ended March 31, 1997.

S-34
<PAGE>

BUSINESS AND PROPERTIES

Cross Timbers Oil Company is a leading United States independent energy
company engaged in the acquisition, development and exploration of oil and
natural gas properties, and in the production, processing, marketing and
transportation of oil and natural gas. The Company has consistently increased
proved reserves, production and cash flow since its inception in 1986, and
believes it is one of the most efficient domestic onshore operators in the
industry. The Company has grown primarily through acquisitions of reserves,
followed by aggressive development activities and the purchase of additional
interests in or near such reserves. The Company's oil and gas reserves are
principally located in relatively long-lived fields with well-established
production histories concentrated in western Oklahoma, the Permian Basin of
West Texas and New Mexico, the San Juan Basin of New Mexico, the Hugoton Field
of Oklahoma and Kansas and the Green River Basin of Wyoming. With the East
Texas Acquisition, the Company will acquire reserves in the East Texas Basin
of Texas and Louisiana. See "Recent Developments."

The Company has achieved substantial growth in proved reserves, production,
revenues and EBITDA over the last five years. The Company increased proved
reserves by 336% from 45.4 million BOE as of December 31, 1992 to 197.6
million BOE as of December 31, 1997 at an average acquisition and development
finding cost of $3.94 per BOE. Production increased from 5.7 million BOE in
1993 to 12.3 million BOE in 1997, and oil and gas revenues and EBITDA
increased from $74.4 million and $30.4 million, respectively, in 1993 to
$185.3 million and $113.6 million, respectively, in 1997. The Company's
average daily production for 1997 was 10,905 Bbls of oil, 220 Bbls of NGLs and
135,855 Mcf of natural gas, or a total of 33,768 BOE. The Company's average
daily production for December 1997 was 11,690 Bbls of oil, 2,596 Bbls of NGLs
and 167,157 Mcf of natural gas, or a total of 42,146 BOE.

As of December 31, 1997, the Company's estimated proved oil and gas reserves
totaled 47.9 million Bbls of oil, 13.8 million Bbls of NGLs and 815.8 Bcf of
natural gas, or a total of 197.6 million BOE. Approximately 80% of these
reserves, on a BOE basis, were proved developed reserves. The average reserve-
to-production index for the Company's oil and gas proved reserves at December
31, 1997 was 13.3 years. As of December 31, 1997, the Company owned interests
in 7,018 gross (2,483 net) wells and was the operator of wells representing
82% of the present value of cash flows before income taxes (discounted at 10%)
from estimated proved reserves. The discounted present value of cash flows
before income taxes from the Company's estimated proved reserves was $782.3
million at December 31, 1997, based on then current oil and gas prices of
$15.50 per barrel and $2.20 per Mcf, respectively. The Company has established
a successful development record and from 1993 to 1997 drilled 624 gross (321.5
net) wells, of which 607 gross (310.8 net) were commercially successful. The
Company believes that production in 1998 and 1999 will increase significantly
as a result of acquisitions completed in 1996 and 1997, the continued
development of existing properties and the drilling of certain higher-risk
prospects.

S-35
<PAGE>

COMPANY STRENGTHS

The Company believes that its historical success and future prospects are
directly related to its unique combination of strengths, including the
following:

Quality of Existing Properties. The Company's properties are characterized
by relatively long reserve lives and highly predictable well production
profiles. Based on current production from 2,483 net producing wells, the
average reserve-to-production index for the Company's proved reserves at
December 31, 1997 was 13.3 years. In general, these properties have extensive
production histories and contain significant reserves and production
enhancement opportunities. While the Company's properties are geographically
diversified, the producing fields are concentrated within each core area,
allowing for substantial economies of scale in production and cost-effective
application of reservoir management techniques gained from prior operations.

Proven Acquisition Program. The Company employs a disciplined acquisition
program refined by senior management over more than 20 years to augment its
core properties and expand its reserve base. The Company's 50 engineering and
geoscience professionals use their expertise and experience gained through the
management of existing core properties to target acquisition opportunities in
the same geographic area or with similar geological and reservoir
characteristics. Following an acquisition, these professionals implement
development programs based on their expertise and experience to enhance
production and reduce costs. Since its inception, the Company has completed
producing property acquisitions for an aggregate purchase price of $882
million, representing 186 million BOE of proved reserves. Further, the Company
has increased this acquired reserve base by 54% through developing incremental
proved reserves of 100 million BOE. In 1996 and 1997, the Company acquired 86
million BOE of proved reserves at an average acquisition cost of $4.17 per
BOE. The San Juan Acquisition accounted for 51 million BOE of such proved
reserves. The East Texas Properties will provide an additional 45 million BOE.

S-36
<PAGE>

Experienced Management and Technical Staff. Bob R. Simpson, Steffen E. Palko
and certain senior management of the Company have worked together for more
than 20 years. Mr. Simpson and Mr. Palko were co-founders of the Company in
1986 and previously served as executive officers of Southland Royalty Company,
one of the largest U.S. independent oil and gas producers prior to its
acquisition by Burlington Northern, Inc. in 1985. In addition, the Company has
50 engineering and geoscience professionals dedicated to its properties with
an average of 17 years of experience. Executive officers and directors of the
Company own approximately 10% of the Common Stock (including stock options).
No member of management is a Selling Stockholder in the Offerings.

BUSINESS STRATEGY

The Company's business strategy focuses on growth in value per share through
the selective acquisition of high-quality, long-lived, geologically complex
oil and gas producing properties and through enhancing the value of these
properties by reducing operating costs, improving efficiency and increasing
production and reserves.

Acquiring Long-lived Operated Properties. The Company seeks to acquire long-
lived, onshore operated producing properties that (i) contain geologically
complex multiple-producing horizons with the potential for increases in
reserves and production, (ii) are in the Company's core operating areas or in
areas with similar geological and reservoir characteristics and (iii) present
opportunities to reduce expenses through more efficient operations. The
Company believes that the properties it acquires provide opportunities to
increase production and reserves through the implementation of mechanical and
operational improvements, workovers, behind-pipe completions, secondary-
recovery operations, new development wells and other development activities.
The Company also seeks to acquire facilities related to gathering, processing,
marketing and transporting oil and gas in areas where it owns reserves. Such
facilities can enhance profitability by increasing production and reducing
gathering, processing, marketing and transportation costs. In addition,
ownership of such facilities provides marketing flexibility, including access
to additional markets.

Increasing Production and Reserves. A principal component of the Company's
strategy is to increase production and reserves through aggressive management
of operations and low-risk development drilling. The Company believes that its
principal properties possess geological and reservoir characteristics that
make them well suited for production increases through development and
drilling programs. The Company has generated an inventory of approximately 950
potential drilling locations for this program. The Company also reviews
operations and mechanical data on operated properties to determine if actions
can be taken to reduce operating costs or increase production. These actions
include installing, repairing and upgrading lifting equipment, redesigning
downhole equipment to improve production from different zones, modifying
gathering and other surface facilities and conducting restimulations and
recompletions. The Company may also initiate, upgrade or revise existing
secondary-recovery operations and drill development wells. As a result of its
efforts, proved reserves added by the Company through revisions, extensions
and discoveries equaled 163% of production over the five-year period ended
December 31, 1997 and 200% of production for 1997.

S-37
<PAGE>

SIGNIFICANT PROPERTIES

The following table summarizes proved reserves and discounted present value,
before income tax, of proved reserves by the Company's major operating areas
at December 31, 1997 (in thousands):

Permian Basin Area

S-38
<PAGE>

Mid-Continent Area

S-39
<PAGE>

wells operated by others. Current net production of the Elk City Field is
approximately 160 Bbls of oil and 4,500 Mcf of gas per day.

Hugoton Area

During 1997, the Company drilled 18 gross (12.1 net) wells to the Chester,
Council Grove and Chase formations. The Company plans to drill 12 wells during
1998.

Rocky Mountain Area

S-40
<PAGE>

During 1997, the Company drilled 32 gross (29 net) wells in the Fontenelle
Unit. The Company plans to drill approximately 15 wells during 1998.

RESERVES

The following are estimated quantities of proved reserves and cash flows
therefrom as of December 31, 1997, 1996 and 1995:

S-41
<PAGE>

EXPLORATION AND PRODUCTION DATA

Producing Wells

The following table summarizes the Company's producing wells as of December
31, 1997, all of which are located in the United States:

Drilling Activity

S-42
<PAGE>

Acreage

Oil and Gas Sales Prices and Production Costs

DELIVERY COMMITMENTS

Delivery commitments fluctuate continually depending on market prices and
conditions. At December 31, 1997, the Company maintained the following
commitments.

COMPETITION AND MARKETS

S-43
<PAGE>

FEDERAL AND STATE REGULATIONS

S-44
<PAGE>

ENVIRONMENTAL REGULATIONS

EMPLOYEES

S-45
<PAGE>

BOARD OF DIRECTORS AND MANAGEMENT

EXECUTIVE OFFICERS

The following is a list of the executive officers of the Company and their
principal positions with the Company.

The background of these officers is as follows:

S-46
<PAGE>

Thomas L. Vaughn has been Senior Vice President--Operations or held similar
positions with the Company since 1988. From 1986 to 1988, Mr. Vaughn owned and
operated Vista Operating Company.

BOARD OF DIRECTORS

The following is a list of the members of the Company's Board of Directors
and their principal occupations.

SELLING STOCKHOLDER

S-47
<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership and taxable disposition of Common Stock by a person or
entity other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any state thereof, (iii) an estate, the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have the authority to control all substantial decisions of the
trust (a "Non-U.S. Holder"). This summary does not address all of the United
States federal income and estate tax considerations that may be relevant to a
Non-U.S. Holder in light of its particular circumstances or to Non-U.S.
Holders that may be subject to special treatment under United States federal
income tax laws (such as insurance companies, tax-exempt organizations,
financial institutions, brokers, dealers in securities, and taxpayers that are
neither citizens nor residents of the United States, or that are foreign
corporations, foreign partnerships or foreign estates or trusts as to the
United States). Furthermore, this summary does not discuss any aspects of
state, local or foreign taxation. This summary is based on current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, judicial opinions, published positions of the United States
Internal Revenue Service (the "IRS") and other applicable authorities, all of
which are subject to change, possibly with retroactive effect. Each
prospective purchaser of Common Stock is advised to consult its tax advisor
with respect to the tax consequences of acquiring, holding and disposing of
Common Stock.

DIVIDENDS

Dividends paid by the Company to a Non-U.S. Holder of Common Stock generally
will be subject to withholding of United States federal income tax at a 30
percent rate (or such lower rate as may be specified by an applicable income
tax treaty between the United States and the Non-U.S. Holder's country of
residence) unless the dividends are effectively connected with the conduct of
a trade or business of the Non-U.S. Holder within the United States, in which
case the dividends will be taxed at ordinary United States federal income tax
rates and will not be subject to the withholding tax described above. If the
Non-U.S. Holder is a corporation, such effectively connected income may also
be subject to an additional "branch profits tax."

SALE OR DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Common Stock so long as (i) the gain is not effectively
connected with a trade or business of the Non-U.S. Holder in the United
States; (ii) in the case of a Non-U.S. Holder who is an individual and holds
the Common Stock as a capital asset, either (a) such holder is not present in
the United States for 183 or more days in the taxable year of the disposition
or (b) such holder does not have a "tax home" in the United States for United
States federal income tax purposes or does not maintain an office or other
fixed place of business in the United States to which such gain is
attributable; (iii) the Non-U.S. Holder is not subject to tax pursuant to the
provisions of United States federal income tax law applicable to certain
United States expatriates or (iv) the Common Stock continues to be "regularly
traded on an established securities market" for United States federal income
tax purposes and the Non-U.S. Holder has not held, directly or indirectly, at
any time during the five-year period ending on the date of disposition (or, if
shorter, the Non-U.S. Holder's holding period), more than 5 percent of the
outstanding Common Stock.

BACKUP WITHHOLDING AND INFORMATION REPORTING

United States backup withholding tax generally will not apply to dividends
paid by the Company on Common Stock to a Non-U.S. Holder at an address outside
the United States. The Company must report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to such holder and the amount, if
any, of tax withheld with respect to such dividends. This information may also
be made available to the tax authorities in the Non-U.S. Holder's country of
residence.

S-48
<PAGE>

Upon the sale or other taxable disposition of Common Stock by a Non-U.S.
Holder to or through a United States office of a broker, the broker must
backup withhold at a rate of 31 percent and report the sale to the IRS, unless
the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes exemption. Upon the sale or other taxable disposition of
Common Stock by a Non-U.S. Holder to or through the foreign office of a United
States broker, or a foreign broker with certain types of relationships to the
United States, the broker must report the sale to the IRS (but is not required
to backup withhold) unless the broker has documentary evidence in its files
that the seller is a Non-U.S. Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.

Backup withholding is not an additional U.S. federal income tax. Amounts
withheld under the backup withholding rules are generally allowable as a
refund or credit against such Non-U.S. Holder's United States federal income
tax liability, if any, provided that the required information is furnished to
the IRS.

The United States Treasury Department has recently issued regulations
generally effective for payments made after December 31, 1999, that will
affect the procedures to be followed by a Non-U.S. Holder in establishing such
holder's status as a Non-U.S. Holder for purposes of the withholding, backup
withholding and information reporting rules discussed herein. Among other
things, a Non-U.S. Holder may be required to furnish new certification of
foreign status. Prospective investors should consult their advisors concerning
the effect of such regulations on an investment in the Common Stock.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal estate tax
purposes) of the United States at the time of death will be included in such
individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty between the United States and such
individual's country of residence provides otherwise.

S-49
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement (the
"International Purchase Agreement") among the Company, the Selling Stockholder
and each of the underwriters named below (the "International Managers"), the
Company and the Selling Stockholder have agreed to sell to each of the
International Managers, and each of the International Managers, has severally
agreed to purchase, the number of shares of Common Stock set forth below
opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International ....................................... 250,000
Goldman Sachs International ........................................ 250,000
Bear, Stearns International Limited ................................ 250,000
Donaldson, Lufkin & Jenrette International.......................... 250,000
Lehman Brothers International (Europe) ............................. 250,000
Smith Barney Inc. .................................................. 250,000
---------
Total.......................................................... 1,500,000
=========
</TABLE>

The Company and the Selling Stockholder have also entered into a U.S.
purchase agreement (the "U.S. Purchase Agreement") with certain other
underwriters in the United States and Canada (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters"), for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.
(collectively, the co-lead managers), Bear Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc. and Smith
Barney Inc. are acting as representatives (the "U.S. Representatives" and,
together with the International Managers, the "Representatives"). Subject to
the terms and conditions set forth in the U.S. Purchase Agreement, and
concurrently with the sale of 1,500,000 shares of Common Stock to the
International Managers pursuant to the International Purchase Agreement, the
Company and the Selling Stockholder have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase from
the Company and the Selling Stockholder, an aggregate of 6,000,000 shares of
Common Stock. The public offering price per share of Common Stock and the
total underwriting discount per share are identical under the International
Purchase Agreement and the U.S. Purchase Agreement.

In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares are purchased. Under
certain circumstances, the commitments of non-defaulting International
Managers or U.S. Underwriters (as the case may be) may be increased as set
forth in the International Purchase Agreement and the U.S. Purchase Agreement,
respectively. The closing with respect to the sale of shares of Common Stock
to be purchased by the International Managers and the U.S. Underwriters are
conditioned upon one another.

The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Under the terms of the Intersyndicate
Agreement, the Underwriters are permitted to sell shares of Common Stock to
each other for the purposes of resale at the public offering price, less an
amount not greater than the selling concession. Under the terms of this
Intersyndicate Agreement, the International Managers and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to persons who are United States or Canadian persons or to
persons they believe intend to resell to persons who are United States or
Canadian persons, and the U.S. Underwriters and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock
to person who are non-United States and non-Canadian persons or to persons
they believe intend to resell to persons who are non-United States persons or
non-Canadian persons, except, in each case, for transactions pursuant to the
Intersyndicate Agreement.

S-50
<PAGE>

The International Managers have advised the Company and the Selling
Stockholder that they propose to offer the shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession
not in excess of $.55 per share. The International Managers may allow, and
such dealers may reallow, a discount not in excess of $.10 per share on sales
to certain other dealers. After the International Offering, the public
offering price, concession and discount may be changed.

The Company has granted the International Managers an option to purchase up
to 225,000 additional shares of Common Stock initially at the public offering
price set forth on the cover page of this Prospectus Supplement, less the
underwriting discount. Such option, which expires 30 days after the date of
this Prospectus Supplement, may be exercised solely to cover over-allotments.
To the extent that the International Managers exercise such option, each of
the International Managers will be obligated, subject to certain conditions,
to purchase approximately the same percentage of the option shares that the
number of shares to be purchased initially by that International Manager bears
to the total number of shares to be purchased initially by the International
Managers. The Company has also granted an option to the U.S. Underwriters,
which expires 30 days after the date of this Prospectus Supplement, to
purchase up to additional 900,000 shares of Common Stock to cover over-
allotments, if any, on terms similar to those granted to the International
Managers.

Each International Manager represents and agrees that (a) it has not offered
or sold and prior to the expiration of six months from the closing date of the
Offerings, will not offer or sell any shares of Common Stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995, (b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Common Stock in, from or otherwise involving the United
Kingdom, and (c) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the issue or sale of the Common Stock if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company or the shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or indirectly, and
neither this Prospectus nor any other offering material or advertisements in
connection with the shares of Common Stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of such country or jurisdiction.

Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page of this Prospectus.

The Company and its directors, and the Selling Stockholder, have agreed that
they will not, without the prior written consent of Merrill Lynch, offer, sell
or otherwise dispose of, any shares of Common Stock or any securities
convertible into shares of Common Stock, except for or upon the exercise of
currently outstanding options (except for the Offerings and the over-allotment
option granted to the Underwriters in the Offerings), for a period of 90 days
from the date of this Prospectus Supplement.

S-51
<PAGE>

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the Common Stock.

The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offerings.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.

VALIDITY OF COMMON STOCK

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kelly, Hart & Hallman, P.C., Fort Worth, Texas and for the
Underwriters by Andrews & Kurth L.L.P., Houston, Texas. Certain directors of
Kelly, Hart & Hallman, P.C. currently own 23,205 shares of the Common Stock.

EXPERTS

S-52
<PAGE>

GLOSSARY OF CERTAIN OIL AND GAS TERMS

Wherever used herein, the following terms shall have the meanings specified.

Bbl--One stock tank barrel, or 42 US gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.

Bcf--One billion cubic feet.

Bcfe--One billion cubic feet of natural gas equivalent.

BOE--Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl
of oil).

Developed Acreage--Acres which are allocated or assignable to producing
wells or wells capable of production.

Development Well--A well drilled within the proved area of an oil and
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

Dry Well--A well found to be incapable of producing either oil or natural
gas in sufficient quantities to justify completion as an oil or natural gas
well.

Gross Acres or Gross Wells--The total acres or wells, as the case may be, in
which a working interest is owned.

Infill Well--A well drilled between known producing wells to better develop
the reservoir.

Mbbl--One thousand Bbl.

Mmbbl--One million Bbl.

Mboe--One thousand barrels of oil equivalent.

Mcf--One thousand cubic feet.

Mcfe--One thousand cubic feet of natural gas equivalent, using the ratio of
one Bbl of crude oil to six Mcf of natural gas.

Mmcf--One million cubic feet.

Mmcfe--One million cubic feet of natural gas equivalent.

Net Acres or Net Wells--The sum of the fractional working interests owned in
gross acres or gross wells.

NGLs--Natural gas liquids.

S-53
<PAGE>

NYMEX--New York Mercantile Exchange.

PDNP--Proved developed, nonproducing or behind the pipe reserves.

Productive Well--A well that is producing oil or natural gas or that is
capable of production.

Proved Developed Reserves--Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.

Recompletion--The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

Royalty Interest--An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.

SEC--Securities and Exchange Commission.

Secondary Recovery--A method of oil and natural gas extraction in which
energy sources extrinsic to the reservoir are utilized.

Standardized Measure--The estimated future net cash flows from proved oil
and natural gas reserves computed using prices and costs, at the dates
indicated, after income taxes and discounted at 10%.

Waterflood--The injection of water into a reservoir to fill pores vacated by
produced fluids, thus maintaining reservoir pressure and assisting production.

Workover--Operations on a producing well to restore or increase production.

S-54
<PAGE>

PROSPECTUS

$400,000,000

[LOGO OF CROSS TIMBERS
OIL COMPANY APPEARS HERE]
CROSS TIMBERS OIL COMPANY

DEBT SECURITIES

PREFERRED STOCK

COMMON STOCK

WARRANTS

---------------

The Company's Common Stock and Series A Convertible Preferred Stock are
listed on the New York Stock Exchange and trade under the symbols "XTO" and
"XTOpA," respectively.

---------------

This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.

The date of this Prospectus is April 10, 1998.
<PAGE>

ADDITIONAL INFORMATION

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company incorporates herein by reference the following documents:

(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;

(b) Current Reports on Form 8-K dated February 16, 1998 (Amendment No. 1
to Report dated December 1, 1997), February 18, 1998 and February 25, 1998;

(c) The description of the Company's Common Stock contained in Form 8-A
of the Company dated April 8, 1993, as amended by Amendment No. 1 dated
June 15, 1995;

2
<PAGE>

RISK FACTORS

REPLACEMENT OF RESERVES

PRICE FLUCTUATIONS AND MARKETS

SUBSTANTIAL INDEBTEDNESS

3
<PAGE>

SUBSTANTIAL CAPITAL REQUIREMENTS

COMPETITION

ACQUISITION RISKS

DRILLING RISKS

4
<PAGE>

conditions, compliance with governmental requirements and shortages or delays
in the delivery of equipment and services.

OPERATING HAZARDS AND UNINSURED RISKS

UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES

DEPENDENCE UPON KEY PERSONNEL

GOVERNMENTAL REGULATION

5
<PAGE>

FORWARD-LOOKING STATEMENTS

6
<PAGE>

THE COMPANY

The Company is a Delaware corporation. Its principal executive offices are
located at 810 Houston Street, Suite 2000, Fort Worth, Texas 76102 and its
telephone number is (817) 870-2800.

USE OF PROCEEDS

RATIO OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for the years and periods
indicated are as follows:

7
<PAGE>

DESCRIPTION OF DEBT SECURITIES

GENERAL

8
<PAGE>

SENIOR SECURITIES

SUBORDINATION OF SENIOR SUBORDINATED SECURITIES AND SUBORDINATED SECURITIES

9
<PAGE>

CHANGE OF CONTROL

10
<PAGE>

required to remain open for at least 20 Business Days and until the close of
business on the fifth business day prior to the Change of Control Purchase
Date.

REPORTS

MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.

11
<PAGE>

EVENTS OF DEFAULT

12
<PAGE>

SATISFACTION AND DISCHARGE

AMENDMENTS AND WAIVERS

DEFEASANCE

13
<PAGE>

THE TRUSTEES

FORM, EXCHANGE, REGISTRATION AND TRANSFER

Debt Securities are issuable in definitive form or in temporary or permanent
global form.

14
<PAGE>

Debt Securities of any series will be exchangeable for other Debt Securities
of the same series and of a like aggregate principal amount and tenor of
different authorized denominations.

PAYMENT AND PAYING AGENTS

TEMPORARY GLOBAL SECURITIES

15
<PAGE>

PERMANENT GLOBAL SECURITIES

BOOK-ENTRY DEBT SECURITIES

16
<PAGE>

Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.

CERTAIN DEFINITIONS

17
<PAGE>

"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to Senior Indebtedness and Senior
Subordinated Indebtedness.

18
<PAGE>

DESCRIPTION OF PREFERRED STOCK

GENERAL

19
<PAGE>

RANK

DIVIDENDS

20
<PAGE>

CONVERTIBILITY

REDEMPTION

The terms, if any, on which shares of Preferred Stock of any class or series
may be redeemed will be set forth in the related Prospectus Supplement.

LIQUIDATION

VOTING

21
<PAGE>

NO OTHER RIGHTS

TRANSFER AGENT AND REGISTRAR

The transfer agent for each class or series of Preferred Stock will be
designated in the related Prospectus Supplement.

22
<PAGE>

DESCRIPTION OF COMMON STOCK

The outstanding shares of Common Stock are, and shares offered hereby when
issued and sold against full payment therefor will be, validly issued fully
paid and nonassessable.

23
<PAGE>

DESCRIPTION OF WARRANTS

GENERAL

DEBT WARRANTS

OTHER WARRANTS

24
<PAGE>

PLAN OF DISTRIBUTION

Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.

The specific terms and manner of sale of the Securities in respect of which
this Prospectus is being delivered will be set forth or summarized in the
applicable Prospectus Supplement.

VALIDITY OF SECURITIES

The validity of the Securities offered will be passed upon for the Company
by Kelly, Hart & Hallman, P.C., Fort Worth, Texas.

25
<PAGE>

EXPERTS

AVAILABLE INFORMATION

26
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE AN REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNEC-
TION WITH THE OFFERINGS MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OF-
FER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JU-
RISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT SUBSEQUENT TO THE DATE HEREOF THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

---------------

TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S-3
Additional Risk Factors.................................................. S-11
Forward-Looking Statements............................................... S-12
Use of Proceeds.......................................................... S-13
Capitalization........................................................... S-13
Price Range of Common Stock and Dividend Policy.......................... S-14
Pro Forma Consolidated Financial Statements.............................. S-15
Selected Historical Financial Data....................................... S-21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-24
Recent Developments...................................................... S-33
Business and Properties.................................................. S-35
Board of Directors and Management........................................ S-46
Selling Stockholder...................................................... S-47
Certain United States Federal Tax Consequences to Non-U.S. Holders....... S-48
Underwriting............................................................. S-50
Validity of Common Stock................................................. S-52
Experts.................................................................. S-52
Glossary of Certain Oil and Gas Terms.................................... S-53
PROSPECTUS
Additional Information .................................................. 2
Incorporation of Certain Documents by Reference ......................... 2
Risk Factors ............................................................ 3
Forward-Looking Statements............................................... 6
The Company ............................................................. 7
Use of Proceeds ......................................................... 7
Ratio of Earnings to Fixed Charges ...................................... 7
Description of Debt Securities .......................................... 8
Description of Preferred Stock .......................................... 19
Description of Common Stock ............................................. 23
Description of Warrants ................................................. 24
Plan of Distribution .................................................... 25
Validity of Securities .................................................. 25
Experts.................................................................. 26
Available Information ................................................... 26
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

7,500,000 SHARES

[CROSS TIMBERS OIL COMPANY LOGO APPEARS HERE]

CROSS TIMBERS OIL COMPANY

COMMON STOCK

---------------

PROSPECTUS SUPPLEMENT

---------------

MERRILL LYNCH INTERNATIONAL

GOLDMAN SACHS INTERNATIONAL

BEAR, STEARNS INTERNATIONAL LIMITED

DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL

LEHMAN BROTHERS

SALOMON SMITH BARNEY INTERNATIONAL

APRIL 21, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------