<PAGE>
Filed Pursuant to Rule 424(B)(5)
SEC File No. 333-46909
Prospectus Supplement
(To Prospectus dated April 10, 1998)
6,000,000 Shares
[CROSS TIMBERS OIL COMPANY LOGO]
Cross Timbers Oil Company
Common Stock
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Cross Timbers Oil Company is offering all the shares of common stock in this
offering. The common stock is listed on the New York Stock Exchange under the
symbol "XTO." The last reported sale price of the shares of common stock on the
New York Stock Exchange on November 16, 2000 was $21 5/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-3.
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price............. $19.375 $116,250,000
Underwriting Discount............. $.250 $1,500,000
Proceeds to Cross Timbers Oil
Company.......................... $19.125 $114,750,000
</TABLE>
We have granted the underwriter a 30-day option to purchase up to an additional
600,000 shares of common stock on the same terms as set forth above to cover
over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR 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, as the underwriter, expects to deliver the shares of common
stock against payment in New York, New York on November 24, 2000.
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Lehman Brothers
November 17, 2000
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
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TABLE OF CONTENTS
Prospectus Supplement
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Page
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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 Debt........................................ S-3
We Have Substantial Capital Requirements................................. S-4
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-6
Forward-Looking Statements................................................ S-6
Cross Timbers Oil Company................................................. S-7
Use of Proceeds........................................................... S-7
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
</TABLE>
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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 we receive 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
. the effect of 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. As a result, the value of our outstanding
preferred stock and 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.
S-3
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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, then increased to $90.2
million in 1999. We originally budgeted $120 million for exploration and
development expenditures in 2000. We now believe exploration and development
expenditures for 2000 will be approximately $140 million as a result of
additional activity and increased service costs. We are in the process of
setting our 2001 capital budget with a goal of generating double-digit
production growth. As a result, we expect our capital budget for 2001 to be
greater than our capital budget for 2000.
We believe that, after debt service, we will have sufficient cash from
operating activities to finance our exploration and development expenses
through 2000. 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 opportunities to acquire oil and gas properties and
frequently engage in bidding and negotiation for these 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;
S-4
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. 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:
. assumptions concerning future oil and gas prices, future production and
development costs, severance and excise taxes, and capital expenditures;
. historical production from the area compared with production from other
producing areas; and
. the assumed effect of governmental regulation.
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.
S-5
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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 financial and managerial resources 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 Cross Timbers 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;
. establishing and selling interests in royalty trusts; and
. estimates of the effect of the implementation of financial accounting
pronouncements.
In determining these projections, we make numerous assumptions, including
assumptions relating 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; and
. the impact of new rules promulgated by the Federal Energy Regulatory
Commission.
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.
S-6
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CROSS TIMBERS OIL COMPANY
Cross Timbers is a leading United States independent energy company. We
acquire, develop, and explore for oil and gas properties, and produce, process,
market and transport oil and 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;
. the Arkoma Basin of Arkansas and Oklahoma; 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
Cross Timbers will use the net proceeds of approximately $114,750,000, or
$126,225,000 if the underwriter's over-allotment option is exercised in full,
to repay outstanding indebtedness under our bank revolving credit facility. The
facility bears interest at a floating rate based on LIBOR +1 5/8%, currently
8.28%, and matures on May 12, 2005. We incurred our bank debt primarily to
finance acquisitions of oil and natural gas producing properties, repurchases
of our common stock, and development expenditures.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement,
dated November 17, 2000, Cross Timbers has agreed to sell to Lehman Brothers
Inc., and Lehman Brothers Inc. has agreed to purchase, 6,000,000 shares of
common stock.
Cross Timbers has granted to Lehman Brothers Inc. an option to purchase up to
600,000 additional shares of common stock, exercisable to cover over-
allotments, if any, at the public offering price less the underwriting
discounts shown on the cover page of this prospectus supplement. Lehman
Brothers Inc. may exercise this option in full or in part any time until 30
days after the date of the underwriting agreement.
Under the terms and conditions of the underwriting agreement, Lehman Brothers
Inc. is committed to take and pay for all of the common stock included in this
offering, if it takes any common stock.
Lehman Brothers Inc. proposes to offer the common stock in part directly to
the public at the public offering price set forth on the cover page of this
prospectus supplement. After the shares of common stock are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by Lehman Brothers Inc.
Cross Timbers has agreed that, without the consent of Lehman Brothers Inc.,
Cross Timbers will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of common stock or any securities that may be converted
into or exchanged for any shares of common stock for a period of 90 days from
the date of this
S-7
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prospectus supplement. Two executive officers of Cross Timbers have agreed
under lock-up agreements that, without the prior written consent of Lehman
Brothers Inc., they will not, directly or indirectly, offer, sell or otherwise
dispose of any shares of common stock or any securities that may be converted
into or exchanged for any shares of common stock for the period ending 30 days
after the date of this prospectus supplement.
Cross Timbers has agreed to indemnify Lehman Brothers Inc. against certain
liabilities, including liabilities under the Securities Act of 1933.
In connection with this offering, Lehman Brothers Inc. may engage in
stabilizing transactions, over-allotment transactions and covering transactions
in accordance with Regulation M under the Securities Exchange Act of 1934.
Lehman Brothers Inc. may purchase and sell shares of common stock in the open
market. These transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short sales involve
the sale by Lehman Brothers Inc. of a greater number of shares than they are
required to purchase in the offering. "Covered" short sales are sales made in
an amount not greater than Lehman Brothers Inc.'s option to purchase additional
shares from Cross Timbers in the offering. Lehman Brothers Inc. may close out
any covered short position by either exercising its option to purchase
additional shares or purchasing shares in the open market. In determining the
source of shares to close out the covered short position, Lehman Brothers Inc.
will consider, among other things, the price of shares available for purchase
in the open market as compared to the price at which they may purchase shares
through the over-allotment option. "Naked" short sales are any sales in excess
of the option. Lehman Brothers Inc. must close out any naked short position by
purchasing shares in the open market. A naked short position is more likely to
be created if Lehman Brothers Inc. is concerned that there may be a downward
pressure on the price of the common stock in the open market after pricing that
could adversely affect investors who purchase in the offering. Stabilizing
transactions consist of various bids for or purchases of common stock made by
Lehman Brothers Inc. in the open market prior to the completion of the
offering.
Similar to other purchase transactions, Lehman Brothers Inc.'s purchases to
cover the short sales may have the effect of raising or maintaining the market
price of the common stock or preventing or retarding a decline in the market
price of the common stock. As a result, the price of the common stock may be
higher than the price that might otherwise exist in the open market.
Lehman Brothers Inc. or its affiliates have from time to time provided
investment banking, financial advisory, trustee and lending services to Cross
Timbers and its affiliates in the ordinary course of business for which they
have received customary fees, and they may continue to do so.
On July 1, 1999, Cross Timbers acquired, with an affiliate of Lehman Brothers
Inc., the common stock of Spring Holding Company, a private oil and gas company
located in Tulsa, Oklahoma, for total consideration of $85 million. Cross
Timbers and the Lehman Brothers Inc. affiliate each indirectly owned, through a
holding company, 50% of Spring and had equal board representation and control
of Spring. On September 15, 1999, Cross Timbers purchased Lehman's interest in
Spring for $44.3 million.
On September 15, 1999, Cross Timbers acquired, with an affiliate of Lehman
Brothers Inc., certain Arkoma Basin oil and natural gas properties from Ocean
Energy Inc. for $231 million in cash. Cross Timbers and the Lehman Brothers
Inc. affiliate each indirectly owned and controlled 50% of the Arkoma Basin
properties through a holding company. On March 31, 2000, Cross Timbers
purchased Lehman's interest in these Arkoma Basin properties for $111 million.
Cross Timbers estimates that total expenses of the offering, other than
underwriting discounts and commissions, will be less than $100,000.
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[LOGO OF LEHMAN BROTHERS]
6,000,000 Shares
[CROSS TIMBERS OIL COMPANY LOGO]
Cross Timbers Oil Company
Common Stock
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Prospectus Supplement
November 17, 2000
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Lehman Brothers
