Rule 424(b)(5)
Reg. No. 333-46909
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 10, 1998)
2,000,000 Shares
Cross Timbers Oil Company
Common Stock
Cross Timbers Oil Company (the "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.
All of the shares of common stock of the Company, par value
$0.01 per share (the "Common Stock"), offered hereby will be
sold by the Company (the "Offering"). The Company's Common
Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "XTO". The last reported sale price of the
shares of Common Stock on the NYSE on July 7, 1999 was $14.00 per
share.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE 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.
_________________________
Lehman Brothers Inc. (the "Underwriter") has agreed to
purchase from the Company 2,000,000 shares of Common Stock for
an aggregate purchase price of $26.5 million or $13.25 per
share.
The Underwriter proposes to offer the 2,000,000 shares of Common
Stock included in the Offering from time to time for sale in one
or more transactions on the NYSE, in the over-the-counter market
or otherwise, at prices prevailing at the time of sale, at
prices related to prevailing prices, or at negotiated prices,
subject to prior sale when, as and if delivered to and
accepted by the Underwriter. See "Underwriting".
The Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
____________________________
The shares of Common Stock offered hereby are offered by Lehman
Brothers Inc. as specified herein, subject to receipt and
acceptance by them and subject to their right to reject any
order in whole or in part. It is expected the certificates for
the shares will be ready for delivery in New York, New York on or
about July 12, 1999.
LEHMAN BROTHERS
The date of this Prospectus Supplement is July 8, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Risk Factors S-3
We Must Replace Reserves We Produce S-3
Prices of Oil and Natural Gas Fluctuate
Widely Based on Market Conditions S-3
We Have Incurred Substantial Indebtedness S-3
We Have Substantial Capital Requirements S-3
We Are in a Highly Competitive Business S-4
There Are Risks in Acquiring Producing Properties S-4
There Are Many Risks in Drilling Oil and Gas Wells S-4
We Cannot Insure Against All Operating Hazards S-4
Our Reserves Are Uncertain S-5
We Depend Upon Certain Key Persons S-5
We Face Many Government Regulations S-5
Forward-Looking Statements S-5
Cross Timbers Oil Company S-6
Use of Proceeds S-6
Recent Developments S-6
Underwriting S-7
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
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors:
We Must Replace the Reserves We Produce
Our success depends upon finding, acquiring and developing oil
and gas reserves that are economically recoverable. Unless we are
able to successfully explore for, develop or acquire proved
reserves, our proved reserves will decline through depletion. To
increase reserves and production, we must:
continue our development drilling and recompletion programs;
pursue our exploration drilling program; and
undertake other replacement activities, including property
acquisitions.
We cannot assure, however, the success of our exploration,
development and acquisition activities.
Prices of Oil and Natural Gas Fluctuate Widely Based on Market
Conditions, and Any Decline Will Adversely Affect Our Financial
Condition
Our results of operations depend upon the prices received for our
oil and gas. We sell most of our oil and gas at current market
prices rather than through fixed-price contracts. The prices we
receive depend upon factors beyond our control, which include:
weather conditions;
the supply and price of foreign oil and gas;
the level of consumer product demand;
worldwide economic conditions;
political conditions in the Middle East;
the price and availability of alternative fuels;
the proximity to and capacity of transportation facilities; and
worldwide energy conservation measures.
Moreover, government regulations, such as regulation of natural gas
transportation and price controls, can affect product prices in the
long-term.
Any decline in oil and gas prices adversely affects our financial
condition. If the oil and gas industry experiences significant price declines,
we may, among other things, be unable to meet our financial
obligations or make planned capital expenditures.
We Have Incurred Substantial Debt
We have substantial debt and may incur more. This poses risks to
holders of our securities. If we are unsuccessful in increasing
production from existing reserves or developing new reserves, we
may lack the funds to pay principal and interest on our debt
obligations, and the value of any outstanding preferred or common
stock may decline. Our debt also affects our ability to finance
future operations and capital needs and may preclude pursuit of
other business opportunities.
We Have Substantial Capital Requirements
We make, and will continue to make, substantial capital
expenditures for the acquisition, development, production,
exploration and abandonment of our oil and gas reserves. We intend
to finance our capital expenditures primarily through cash flow
from operations and bank borrowings. Lower oil and gas prices,
however, reduce cash flow and the amount of credit available under
our bank revolving credit facility. Costs of exploration and
development decreased from $88.6 million in 1997 to $77.4 million
in 1998. We initially budgeted $60 million for exploration and
development expenditures in 1999. With recent higher oil prices,
we anticipate 1999 expenditures to be between $70 million and $90
million, depending upon the price of oil and gas.
We believe that, after debt service, we will have sufficient cash
from operating activities to finance our exploration and
development expenses through 1999. If revenues decrease, however,
and we are unable to obtain additional debt or equity financing, we
may lack the capital necessary to replace our reserves or to
maintain production at current levels.
We Are in a Highly Competitive Business
The oil and gas industry is highly competitive. We compete with
major oil companies, independent oil and gas businesses, and
individual producers and operators, many of which have greater
financial and other resources than us. In addition, the industry
as a whole competes with other industries which supply energy and
fuel to industrial, commercial and other consumers.
There Are Risks in Acquiring Producing Properties
We constantly evaluate acquisition opportunities and frequently
engage in bidding and negotiation for acquisitions. If successful
in this process, we may alter or increase our capitalization
through the issuance of additional debt or equity securities, the
sale of production payments or other measures. Our current bank
revolving credit agreement and the indentures governing outstanding
debt securities, however, contain covenants that limit our ability
to incur additional debt. Any change in capitalization affects our
risk profile.
A change in capitalization, however, is not the only way acquisitions affect
our risk profile. Acquisitions may alter the nature of our business. This
would occur when the character of acquired properties is substantially
different from our existing properties in terms of operating or geologic
characteristics.
There Are Many Risks in Drilling Oil and Gas Wells
Our drilling activities subject us to many risks, including the
risk that we will not find commercially productive reservoirs.
Drilling for oil and gas can be unprofitable, not only from dry
wells, but from productive wells that do not produce sufficient
revenues to return a profit. Also, title problems, weather
conditions, governmental requirements and shortages or delays in
the delivery of equipment and services can delay our drilling
operations or result in their cancellation. The cost of drilling,
completing and operating wells is often uncertain, and we cannot
assure that new wells will be productive or that we will recover
all or any portion of our investment.
We Cannot Insure Against All Operating Hazards
Our operations are subject to inherent hazards and risks such as:
fires;
natural disasters;
explosions;
formations with abnormal pressures;
blowouts;
collapses of wellbore, casing or other tubulars;
pipeline ruptures; and
spills.
Any of these events could cause a loss of hydrocarbons,
environmental pollution, personal injury claims, damage to our
properties, or damage to the properties of others. As protection
against operating hazards, we maintain insurance coverage against
some, but not all, potential losses. Our coverages include:
operator's extra expense;
physical damage to certain assets;
employer's liability;
comprehensive general liability;
automobile; and
workers' compensation.
We do not believe that insurance coverage for all environmental
damages that could occur is available at a reasonable cost. We
believe that our insurance is adequate and customary for companies
of similar size and operation, but losses could occur for uninsured
risks or in amounts exceeding existing coverage. The occurrence of
an event that is not fully covered by insurance could affect our
financial condition and results of operations.
Our Reserves Are Uncertain
Estimating our proved reserves involves many uncertainties,
including factors beyond our control. Petroleum engineers consider
many factors and make assumptions in estimating our oil and gas
reserves and future net cash flows. These factors include:
historical production from the area compared with production from
other producing areas;
the assumed effect of governmental regulation; and
assumptions concerning future oil and gas prices, future
production and development costs, severance and excise taxes,
and capital expenditures.
Lower oil and gas prices generally cause lower estimates of proved reserves.
Estimates of reserves and expected future cash flows prepared by
different engineers, or by the same engineers at different times,
may differ substantially. Ultimately, actual production, revenues
and expenditures relating to our reserves will vary from any
estimates, and these variations may be material.
We Depend Upon Certain Key Persons
Our success depends upon our Chairman of the Board of Directors
and Chief Executive Officer, Bob R. Simpson, our Vice Chairman of
the Board and President, Steffen E. Palko, and a limited number of
other senior management personnel. Loss of the services of any of
these individuals may affect our operations.
We Face Many Government Regulations
Extensive federal, state and local regulation of the oil and gas
industry significantly affects our operations. In particular, our
oil and gas exploration, development and production, and our
storage and transportation of liquid hydrocarbons, are subject to
stringent environmental regulations. These regulations have
increased the costs of planning, designing, drilling, installing,
operating and abandoning oil and gas wells and other related
facilities. These regulations may become more demanding in the
future.
We may need to expend significant resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements. Although we believe that our operations generally
comply with applicable laws and regulations, we may incur
substantial additional costs and liabilities in our oil and gas
operations as a result of stricter environmental laws, regulations
and enforcement policies.
FORWARD-LOOKING STATEMENTS
Some statements made by the Company in this prospectus supplement
and incorporated by reference from documents filed with the SEC are
"forward-looking statements." These prospective statements include
projections related to:
production and cash flows;
number and location of planned wells;
completion of property acquisitions;
completion of repurchases of Cross Timbers common stock;
sources of funds necessary to conduct operations and complete
acquisitions; acquisition and development budgets;
anticipated dividend payments;
anticipated oil and gas price changes; and establishing and
selling interests in royalty trusts.
In determining these projections, we make numerous assumptions,
including assumptions with respect to:
the quality of our properties;
our oil and gas production and development expenditures;
our potential for growth;
the demand for oil and gas;
our sources of liquidity and bank credit availability;
the impact of production imbalances on liquidity;
the likelihood of regulatory approval of our operations;
the impact of regulatory compliance;
the impact of losing an oil or gas purchaser;
the impact of new rules promulgated by the Federal Energy
Regulatory Commission; and
the impact of new legislation in Oklahoma related to infill
drilling.
Risks, uncertainties and other factors may cause our actual
results to differ materially from anticipated results expressed or
implied by these prospective statements. The most significant of
these risks, uncertainties and other factors are discussed under
"Risk Factors" in this prospectus supplement and in sections of
documents we incorporate by reference, including "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties." You are urged to
carefully consider these factors.
CROSS TIMBERS OIL COMPANY
Cross Timbers is a leading United States independent energy
company. We acquire, develop, and explore oil and natural gas
properties, and produce, process, market and transport oil and
natural gas. We have consistently increased our proved reserves,
production and cash flow since we started our operations in 1986.
Our growth has come primarily through acquisition of reserves,
followed by aggressive development activities and the purchase of
additional interests in or near our existing reserves. Our oil and
gas fields generally tend to have long remaining reserve lives and
predictable production profiles based on well-established
production histories. Our properties are concentrated in:
the Permian Basin of West Texas and New Mexico;
the Hugoton area of Kansas and Oklahoma;
the Anadarko Basin of Oklahoma;
the Green River Basin of Wyoming;
the San Juan Basin of northwestern New Mexico; the East Texas
Basin of Texas and Louisiana; and
the Middle Ground Shoal Field in Alaska's Cook Inlet.
Cross Timbers is a Delaware corporation. Our principal executive
offices are located at 810 Houston Street, Suite 2000, Fort Worth, Texas 76102
and our telephone number is (817) 870-2800.
USE OF PROCEEDS
We intend to apply approximately $11.5 million of the net proceeds
from the offering to repurchase shares of our Common Stock currently
held by Shell Oil Company. The shares were previously issued to
Shell in connection with the Company's purchase of properties in the
Cook Inlet of Alaska. The Company will use the remainder of the net
proceeds, approximately $15 million, to repay outstanding
indebtedness under our bank revolving credit facility. The facility
bears interest at a floating rate based on LIBOR + 1-3/8%, currently
6.5%, and matures on June 30, 2003. We incurred our bank debt to
finance recent acquisitions of oil and natural gas producing
properties, purchases of equity securities of other energy
companies, repurchases of our common stock, and development
expenditures.
RECENT DEVELOPMENTS
Recently we formed the Hugoton Royalty Trust. We transferred to
it 80% net profits interests in our properties located in the
Hugoton area of Kansas and Oklahoma, the Anadarko Basin of Oklahoma
and the Green River Basin of Wyoming. We retained the underlying
working interests in the properties, including the remaining 20% net
profits interests. The 80% nets profits interests represent
approximately 30% of our reserves as of December 31, 1998. In April
1999, we sold trust units to the public representing approximately 43% of our
trust units of the Hugoton Royalty Trust. We used the net proceeds
of approximately $149 million from the sale to reduce bank debt. We
may form two additional trusts, one with interests in the San Juan
Basin and one with interests in the Permian Basin.
In May 1999, we sold non-operated producing properties in the San
Juan Basin of New Mexico to Vastar Resources, Inc. for $29.5
million. We used the proceeds from the sale to reduce bank debt.
Our total long-term debt is currently $740 million.
On July 1, we acquired with an affiliate of Lehman Brothers Holdings
Inc., the common stock of Spring Holding Company, a private oil and gas
company located in Tulsa, Oklahoma, for total consideration of $85
million, consisting of $39 million in cash and 4 million shares of
Cross Timbers' common stock. Cross Timbers and Lehman Brothers
Holdings each indirectly own through a holding company 50% of all
outstanding common stock of Spring and have equal board
representation and control of Spring. We issued 4 million shares of
our common stock at an agreed value of $11.425 per share for our
interest in 50% of Spring, and we received $3.2 million in cash.
Lehman Brothers Holdings contributed $42.5 million in cash. At a
later date, Cross Timbers will have the right to purchase, and
Lehman Brothers Holdings will have the right to sell to Cross
Timbers, Lehman Brothers Holdings' 50% equity interest.
Spring Holding Company owns about 1,400 producing wells on 340,000
net acres located primarily in the Arkoma Basin of Arkansas and Oklahoma.
Spring estimates proved reserves at December 31, 1998 to be 264
billion cubic feet of natural gas equivalent, of which 99% is
natural gas. First quarter daily production from this acquisition
averaged 66 million cubic feet of natural gas equivalent. As of
July 1, 1999, Spring's debt was approximately $148 million.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement with Lehman Brothers Inc. (the "Underwriter"), the Company
has agreed to sell to the Underwriter and the Underwriter has agreed
to purchase from the Company, 2,000,000 shares of common stock.
Under the terms and conditions of the Underwriting Agreement, the
Underwriter is committed to take and pay for all of the common stock included
in the offering, if any are taken.
The Underwriter proposes to offer the 2,000,000 shares of common
stock included in the Offering from time to time for sale in one of
more transactions on the New York Stock Exchange, in the over-the-
counter market or otherwise, at prices prevailing at the time of
sale, at prices related to prevailing prices, or at negotiated
prices, subject to prior sale when, as and if delivered to and
accepted by the Underwriter. In connection with the sale of the
2,000,000 shares of commons stock in the offering, the Underwriter
may be deemed to have received compensation from the Company in the
form of underwriting discounts.
The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act
of 1933.
