1. CROSS TIMBERS OIL COMPANY 2000 Annual Report

2. ABOUT THE REPORT
From Alaska to Arkoma, our work takes us to diverse regions of the
country – each area abundant with natural and man-made beauty.
As you turn the pages of this report, we hope to convey the essence
of these treasures through our collection of photographs.
ON THE COVER
A lone East Texas explorer navigates Caddo Lake’s bayous and
cypress swamps.
The eastern part of Texas is blessed with richly textured landscapes.
Beneath this visual bounty, mother nature has hidden deposits of oil
and gas deep within the rocks. In 2000, our team of scientific
explorers completed a journey of discovery in this basin. Their
“find” – a trillion cubic feet of natural gas resources – will fuel our
growth as a leading natural gas producer for years to come.
COMPANY PROFILE
Cross Timbers Oil Company, established in 1986, is a premier
domestic natural gas producer engaged in the acquisition,
exploitation and development of high-quality, long-lived oil and gas
properties. Since going public in 1993, proved oil and gas reserves
have grown at a compound annual rate of 34% to 2.252 trillion
cubic feet of gas equivalent. Cross Timbers operates 92% of its
properties, which are concentrated in Texas, Arkansas, Oklahoma,
Kansas, New Mexico, Wyoming, Louisiana and Alaska. The
Company is listed on the New York Stock Exchange under the
symbol “XTO.” It also created the Cross Timbers Royalty Trust
(“CRT” traded on the NYSE) and the Hugoton Royalty Trust
(“HGT” traded on the NYSE) which went public in 1992 and
1999, respectively.

3. FINANCIAL HIGHLIGHTS
2000 1999 1998
In thousands except production, per share and per unit data
Financial
Total revenues $ 600,851 $ 341,295 $ 249,486
Income (loss) before income tax and minority interest $ 176,432(a) $ 70,605(b) $ (105,570)(c)
Earnings (loss) available to common stock $ 115,235(a) $ 44,964(b) $ (71,498)(c)
Per common share (d)
Basic $ 1.62 $ 0.64 $ (1.10)
Diluted $ 1.55 $ 0.63 $ (1.10)
Operating cash flow (e) $ 344,638 $ 132,683 $ 78,480
Operating cash flow per share (d) $ 4.84 $ 1.89 $ 1.21
Total assets $ 1,591,904 $ 1,477,081 $ 1,207,005
Long-term debt
Senior $ 469,000 $ 684,100 $ 615,000
Subordinated notes and other $ 300,000 $ 307,000 $ 305,411
Total stockholders’ equity $ 497,367 $ 277,817 $ 201,474
Common shares outstanding at year-end (d) 77,556 73,334 67,091
Production
Daily production
Oil (Bbls) 12,941 14,006 12,598
Gas (Mcf) 343,871 288,000 229,717
Natural gas liquids (Bbls) 4,430 3,631 3,347
Mcfe 448,098 393,826 325,390
Average price
Oil (per Bbl) $ 27.07 $ 16.94 $ 12.21
Gas (per Mcf) $ 3.38 $ 2.13 $ 2.07
Natural gas liquids (per Bbl) $ 19.61 $ 11.80 $ 7.62
Proved Reserves
Oil (Bbls) 58,445 61,603 54,510
Gas (Mcf) 1,769,683 1,545,623 1,209,224
Natural gas liquids (Bbls) 22,012 17,902 17,174
Mcfe 2,252,425 2,022,653 1,639,328
(a) Includes effect of a $43.2 million pre-tax gain on significant asset sales, a $55.8 million pre-tax derivative fair-value loss and $26.1 million in non-cash
incentive compensation expense.
(b) Includes effect of a $40.6 million pre-tax gain on sale of Hugoton Royalty Trust units.
(c) Includes effect of a $93.7 million pre-tax net loss on investment in equity securities and a $2 million pre-tax, non-cash impairment charge.
(d) Adjusted for the three-for-two stock splits effected on February 25, 1998 and September 18, 2000.
(e) Cash provided by operating activities before changes in operating assets and liabilities and exploration expense.
Daily Production Proved Reserves Operating Cash Flow Total Revenues
Glossary (in MMcfe) (in Bcfe) (in millions) (in millions)
$400 $700
500 2,500
Bbls Barrels (of oil or NGLs)
Bcf Billion cubic feet (of gas)
$600
Bcfe Billion cubic feet equivalent
2,000
400
BOE Barrels of oil equivalent $300
$500
BOPD Barrels of oil per day
E&P Exploration & production
1,500
300
MBO Thousand barrels of oil $400
Mcf Thousand cubic feet (of gas) $200
Mcfe Thousand cubic feet equivalent
$300
MMcf Million cubic feet (of gas) 1,000
200
MMcfe Million cubic feet equivalent
$200
NGLs Natural gas liquids
$100
Tcf Trillion cubic feet (of gas) 500
100
Tcfe Trillion cubic feet equivalent $100
One barrel of oil is the energy equivalent
of six Mcf of natural gas. 0 0 0
0
96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00
1

4. TO OUR SHAREHOLDERS
Simply stated . . . Cross Timbers had its best year ever in our other core areas, the potential reserve additions the Company
2000. The ongoing success of our exceptional development pro- now owns grow to more than 1.5 Tcfe.
gram coupled with higher commodity prices resulted in a land- Building strong financials. With operations in high gear,
slide of record-setting achievements: we are determined to achieve solid fiscal performance in 2001.
By locking-in a NYMEX gas price above $5.50 per Mcf for the
Operations yielded cash flow in excess of $344 million or
majority of our production, we should realize cash flow in excess
$4.84 per share, with earnings reaching $1.62 per share.
of $500 million for the year, an amount greater than the cumula-
Gas production averaged 344 MMcf per day, almost tive cash flow of the Company from 1993 through 1999. Most
20% higher than 1999. Including liquids, the daily
importantly, this sizeable profit provides us the flexibility to fully
production rate improved to over 448 MMcfe.
fund our capital objectives. Fifty percent will be dedicated to the
Proved reserves grew by 11% to 2.25 Tcfe at year-end development program and the balance will be devoted to
2000, with 79% natural gas. enhancing shareholder value through high-return acquisitions
and prudent balance sheet improvements.
Cash margins doubled to $2.10 per Mcfe, up from $.92
per Mcfe in 1999. Company valuation is on the rise. The emerging Cross
Timbers’ profile – a top natural gas producer with internally gen-
Debt slid to a historic low level of $.34 per Mcfe.
erated production and reserve growth and a solid capital structure
The stock price hit an all-time high of $29 in December, – has led to an upward trend in our market valuation. We have
reflecting appreciation of more than 350% for the year. steadily created value on a per share basis since going public in
1993. Ownership of gas reserves has grown sequentially while
These accomplishments have elevated the Company to “top
debt is pegged at a historically low level per Mcfe and is still
of class” status among the independents. Even more impressive,
heading lower. So the investment community is now paying
we believe the best is yet to come. Production is slated for
more attention. Our stock price has risen impressively. But the
dramatic growth and 2001 financial performance is on pace to set
good news is that there’s plenty more room to grow.
new records. Just as importantly, the underlying value of our
Historically, reserves such as ours have been valued at about
reserves, our “gold in the vault,” is increasing with the stronger
$1.00 per Mcf in the ground. We believe the market today is
commodity price environment.
$1.50 or better and if this commodity price environment persists,
Accelerating internal growth. Our extensive operated
reserve values should move towards $2.00 per Mcf. Our “Money
positions in the San Juan Basin, Arkoma Basin and East Texas
Grows in Texas” graph on page 3 depicts our reserve value sensi-
provide an unparalleled inventory of low-risk drill bit opportuni-
tivity per share through next year. As you can see, $1.50 per
ties. These high-impact projects provide a new facet to the
Mcfe next year is a $48 share price, while $2.00 per Mcfe is a $67
proven Cross Timbers’ strategy – double-digit, internally
share price. These estimates also assume we achieve our 3 Tcfe
generated growth.
reserve goal next year.
For both 2001 and 2002, natural gas production is targeted
to increase 20% per year. By comparison, the entire energy sector THE GOALS
looks to grow gas volumes only 2% to 3% annually. We also A banner year in 2000 allowed us to exceed all the targets we
expect our Company’s reserve base to steadily build to 3 Tcfe articulated at its onset – $4.00 per share in cash flow ($4.84 actu-
within the same period, a 50% increase from the year-end 1999 al), a debt level of $0.40 to $0.45 per Mcfe ($0.34 actual) and
level of 2 Tcfe. Notably, this substantial increase in both reserves reserves of 40 Mcfe (44 actual) per share prior to the three-for-two
and production can be achieved through our existing stock split completed in September 2000.
property base. For 2001, we have established new goals to further enhance
Making a discovery. We take pride in our proven process – value and make Cross Timbers a market standout.
buying quality reserves and working hard to make them better. These targets include:
Our exploitation model is low-risk, consistent and lucrative. Still,
Generating $6.00 in cash flow and $3.00 in earnings on a
the overwhelming success in our East Texas Freestone Trend is far
per share basis.
surpassing our expectations. Trend production is slated to
Increasing our natural gas production by 20% and total
increase from 50 MMcf per day to more than 200 MMcf per day
production by 15% to 18%.
during the next two years. Our development program, which has
identified more than 500 well locations with average reserve tar- Growing our proved reserve base to 2.6 Tcfe by year end.
gets of 3.5 Bcfe (2.4 Bcfe net), is striving to bring over 1.2 Tcfe of
Improving our equity level to a position of 50% of total
resource potential to fruition. In essence, the Company will deliver book capitalization.
a “discovery” from the heart of a long-established, premier gas
Cash flow and debt. Our cash flow goal will allow the
basin, thus achieving successful exploration-type results without
Company to fund its development program of $250 million and
exploration-type risks. When combined with the upsides from
2

5. OUTLOOK
have $250 million remaining for other purposes. To date, we
have utilized $167 million of this excess to purchase an additional Since 1996, Cross Timbers has been growing at a dizzying
240 Bcfe of reserves in our high-impact East Texas Freestone pace. Our purchase of more than $1 billion of premier, long-
Trend. Meanwhile, by achieving the earnings target, shareholders’ lived, gas-producing properties, coupled with aggressive exploita-
equity should grow to about $750 million by year-end 2001 from tion, has tripled the Company’s production and reserves. At the
$497 million at year-end 2000. This alone takes our equity to same time, our exploitation performance has produced stellar
book capitalization ratio to a comfortable 50% level. All remain- results – leading the industry in drill bit finding costs and culmi-
ing cash flow, $80 million plus, can then be used to enhance busi- nating with a trillion cubic foot “discovery” of natural gas in the
ness performance – whether expanding our existing reserve base, East Texas Basin. All in all, Cross Timbers has built itself into a
increasing the drilling budget, repurchasing Company stock or premier owner and exploiter of domestic natural gas reserves and
further reducing debt. production.
Money Grows in Texas
Production and reserves. Gas produc- Prices have doubled. From our perspec-
XTO Reserve Valuation (per share)
tion volumes for 2001 should average $75
tive, we are in a new era for natural gas. The
$67
between 405 and 410 MMcf per day, with an reason – scarcity. Over the past ten years,
$60 $57
exit rate approaching 450 MMcf. In our East domestic production remained relatively flat.
$55
$52
Texas Freestone Trend alone, we plan to drill All incremental gas demand, the result of
$48
$47
$44
$45
80 development wells, each contributing net $40
economic growth and environmental concern,
$39
$37
reserves of 2.4 Bcfe. Combined with the $31
was satisfied by imports. At this juncture,
$29
$30
240 Bcfe of natural gas reserves already three key factors have created a fundamental
purchased in 2001, we anticipate achieving change in the supply/demand market: 1) the
$15
our 2001 reserve goal in short order. natural decline of U.S. production is
approaching 20% per year; 2) supply-side
0
FINANCIAL RESULTS TODAY 2001e 2002e
prospects continue to deteriorate along with
$1.25 per Mcfe $1.50 per Mcfe
In 2000, cash flow from operations hit a
the nation’s exploration infrastructure; and 3)
$1.75 per Mcfe $2.00 per Mcfe
record $344.6 million or $4.84 per share, a
more than 90% of increased demand for
160% increase from $132.7 million or $1.89
electricity is slated to be fueled by natural gas – up from just
per share in 1999. The Company reported earnings available to
15% currently. The result is tight supply in the face of
common stock of $115.2 million, or $1.62 per share, compared
burgeoning demand.
with earnings of $45 million or $0.64 per share for 1999.
For gas producers, this should result in prices that, while still
Excluding after-tax, non-cash incentive compensation, gains on
volatile, will remain at a higher level for the next several years.
asset sales and losses in the fair value of certain derivatives related
We predict a range between $4.00 and $6.00 per Mcf. As the
to the Company’s hedging activities, our earnings were
marketplace adapts to this new paradigm, we expect to reap the
$140.1 million or $1.97 per share for the year 2000, compared
rewards through stronger valuations driven by increased reserves,
with $14.8 million or $0.21 per share for 1999.
earnings and cash flow. Our dedicated team of more than 600
Higher production and stronger commodity prices also
strong will be here working to make it happen.
resulted in record revenues. In 2000, revenues totaled
Simply stated . . . the future has never been brighter for
$600.9 million, a 76% increase from $341.3 million in 1999.
Cross Timbers.
Operating income for the year increased to $212.1 million, a
122% gain from $95.4 million for 1999. We appreciate your continued support.
COMMON STOCK OFFERING
Early in 2000, the Board of Directors, in recognition of the
significant value of our common stock, authorized the repurchase
of up to 8.25 million shares, or 11% of the 73.4 million shares
Bob R. Simpson
outstanding at year-end 1999. During the first half of the year, we
Chairman and Chief Executive Officer
repurchased 5.3 million shares for $41.4 million, or $7.88 per share.
In November 2000, we recycled these shares by selling 6.6
million shares of common stock from treasury in a public offering.
Proceeds of $126.1 million, or $19.11 per share, were used for
debt reduction, sharply improving our balance sheet. We
Steffen E. Palko
decreased the debt level and increased shareholders’ equity simul-
Vice Chairman and President
taneously – clearing the way for our stock to trade at higher
multiples of cash flow and earnings.
March 30, 2001
3

7. OPERATIONS OVERVIEW
At Cross Timbers, we identify and acquire high- substantial reserve additions for the Company. Our well-
quality, long-lived oil and gas producing properties. We proven strategy of acquiring and improving premier prop-
then strive to increase their value by deploying talented erties will generate tremendous results from this trend.
professionals to optimize efficiencies, reduce costs and The upsides already identified – 1.2 Tcf of natural gas –
apply technical innovation to find, develop and produce ensure continued natural gas growth in 2001 and beyond.
still more reserves. Consistent application In 2000, our natural gas drilling pro-
Operational Performance
of this “acquire and exploit” strategy has gram targeted all of the core gas areas – the
Getting Bigger and Getting Better
500 $2.00
created a focused, opportunity-driven Arkoma Basin (40 wells), East Texas (43
459
growth machine with a rich property base of 400 wells), the San Juan Basin (34 wells), Major
$1.50
legacy assets and an unprecedented portfolio and Woodward counties of northwestern
341
of development prospects. With strong Oklahoma (32 wells) and the Fontenelle
300
$1.00
commodity prices, we are now shifting our Unit of southwestern Wyoming (five wells).
200
163
development efforts into overdrive. The Development of oil reserves focused on
$0.50
$0.48
Company is primed to achieve record-set- our Permian Basin properties in Texas and
100 $0.37
$0.28
ting internal production growth of 15% to the Middle Ground Shoal Field in Alaska.
0 0
18% for the next two years in a highly prof- In West Texas, we drilled 34 wells. Our
1998 1999 2000
Development cost ($MM)
itable manner: generating a rate of return of University Block 9 drilling program again
Drill bit reserves added (Bcfe)
30% at a gas price of $2.50 per Mcf and highlighted the Devonian Formation with
Finding cost ($ per Mcfe)
100% at $5.00 per Mcf. For an industry 16 vertical wells and seven horizontal side-
struggling with steep production declines, the surprise tracks being completed. In the Prentice Northeast Unit,
answer is that . . . we drilled 11 development wells. In the Cook Inlet, we
initiated our development plan for the waterflood exten-
“Cross Timbers’ disciplined, proven strategy has sion in the Middle Ground Shoal Field.
built a growth vehicle that emulates exploration success Moving into 2001, we established a $250 million
— without the high risk.” budget for our development and exploration program with
a majority (66%) allocated to East Texas. More than 85%
DEVELOPMENT will be deployed to increase our natural gas production by
Cross Timbers implemented its most ambitious capital 20%. In total, we plan to drill about 285 wells and imple-
program to date during 2000, spending $168 million on ment more than 400 workover and recompletion activities
development and exploration activities. This program during the year compared to 208 wells
developed 459 Bcfe of reserves, replacing 280% of produc- and 400 workovers in 2000.
tion at an industry-leading finding cost of just $0.37 per
Lower 48
Fontenelle
Mcfe. Over the past three years, Area Producing Areas
Green River Valley, Wyoming
The meandering Green River cuts a the Company significantly stepped-
swath through the high plains.
up capital expenditures from $78
Hugoton Area
million to $168 million while finding costs remained
San Juan Basin
consistently low. Impressively, during this time, drill bit Arkoma Basin
production replacement increased from 137% to 280% per
year (see Operational Performance exhibit). This remark- East Texas Basin
Permian Basin
able achievement speaks volumes about the quality of the
Company’s reserve base and the talent of its technical and
operations staff.
The year’s major achievement was the “discovery” of
our expansive, multi-pay East Texas Freestone Trend where
our rich property base yielded record production rates and
5

9. KEY AREAS the Bald Prairie Field. Our work exceeded all expectations.
East Texas Production from our East Texas properties increased to a
record daily production rate of 144 MMcf, up more than
This producing region is well known as one of our
35% year over year. We also increased reserves to 639
nation’s premier gas basins. It has a well-established history
Bcfe, more than doubling the size of our initial acquisition.
of producing oil and gas from a range of pay intervals,
Cross Timbers has a unique approach to developing
running from 7,000 feet to 13,000 feet. Due to their
this new Bossier sand-
expansive areal extent and
Summary of Proved Reserves by Area stone play. While other
multi-pay nature, major SEC Assumptions – December 31, 2000
gas basins such as the East (in thousands) operators focus primarily
Proved Reserves Discounted
Natural Gas Natural Gas Present Value before on the Bossier sandstones,
Texas Basin seem to be
Liquids Equivalents Income Tax of
our program centers on
continuously reinvigorated Area Oil (Bbls) Gas (Mcf) (Bbls) (Mcfe) Proved Reserves
East Texas 2,870 621,645 – 638,865 $ 2,575,779 33.2%
479,004 2,028,993 26.2% multi-pay development
with new plays overlooked Arkoma Basin 38 478,776 –
San Juan Basin 1,447 291,829 22,012 432,583 1,249,886 16.1% of the deeper horizons,
in previous development Hugoton
Royalty Trust (a) 2,877 326,582 – 343,844 1,230.419 15.9% including the Cotton
cycles. Today, the most
Permian Basin 35,285 34,909 – 246,619 451,071 5.8%
1.7% Valley sandstones,
exciting onshore natural Alaska Cook Inlet 13,873 – – 83,238 128,412
Cross Timbers
0.8% Bossier sandstones and
gas play in the nation is Royalty Trust (b) 1,710 12,410 – 22,670 63,185
Other 345 3,532 – 5,602 20,887 0.3% Cotton Valley limestone.
occurring in East Texas.
Total 58,445 1,769,683 22,012 2,252,425 $7,748,632 100.0%
As a result, our economics
Key players have rushed (a) Includes Cross Timbers’ ownership in the Hugoton Royalty Trust and the
related underlying properties.
per well are not depend-
into the area to drill for (b) Includes Cross Timbers’ ownership in the Cross Timbers Royalty Trust and the
related underlying properties.
ent upon the success of
the high-rate gas produc-
any single zone. We refer to this area of multiple
tion of the over-pressured Bossier sandstones. Fortunately,
productive horizons, based on geologic structures, as our
Cross Timbers staked its claim to this “boom” early.
East Texas Freestone Trend.
In 1998, our Company established its initial position
A key component to our success involves applying
with the acquisition of 251 Bcfe focused in eight produc-
technical innovation. We evolved our completion tech-
ing fields. These fields were among the most prolific in
niques to best suit the tight-sand characteristics of the
the basin, having already produced almost 2 Tcfe, primarily
reservoirs. Conventional gelled-sand fracturing has been
from the Travis Peak Formation. While our initial work
replaced by high-rate water fracturing. The results have
focused on expanding Travis Peak development, we also
yielded higher initial production rates at only 30% to
began testing deeper productive horizons – Cotton Valley
40% of the cost.
sandstones, Bossier sandstones and Cotton Valley lime-
stone. Our success with this “pilot program” during 1999
exposed tremendous potential in these deeper horizons.
We mapped the deeper intervals, identified development
areas and expanded the productive limits of our existing
property base. The results of our
Fort Davis, Texas
Sunrise casts long shadows from the development program and the associat-
remains of this age-old army outpost.
ed studies pointed to the western shelf
of the basin as the most prospective area – mainly
Freestone, Robertson, Limestone and Leon counties.
During 2000, the Company drilled 43 wells in these
areas, 19 of which targeted multi-pay completions in
Freestone County’s Freestone Field. We also completed 72
workovers and recompletions. Fifteen recompletions tar-
Fort Stockton, Texas
geted the Bossier and Cotton Valley sandstones located in
The world’s largest roadrunner, Paisano
Pete, is alive and well at the corner of
Main Street and Highway 290.
7

11. Each new well targets the Cotton Valley sandstones, Thus, our procedure of simultaneously completing and
Bossier sandstones and Cotton Valley limestone intervals commingling the intervals will actualize this relatively
while leaving shallower Travis Peak potential behind-pipe untapped, rich reserve base.
for future development. These deeper pay intervals can In 1999, the Company drilled four wells to test the
produce 1 Bcf to 3 Bcf of gas reserves each. Thus, an indi- Cotton Valley limestone, Cotton Valley sandstones and
vidual wellbore could contribute from 2 Bcf to as much as Bossier sandstones. The combined rate exceeded 4 MMcf
9 Bcf of reserves. Our engineers have conservatively per day per well and reserves topped 4 Bcf per well. Based
assigned an average risk-adjusted reserve target of on these stellar results, the Company drilled 19
3.5 Bcfe (2.4 Bcfe net) in total for each well. With additional wells targeting deeper intervals during
more than 49,000 net acres and over 500 identified 2000. The first month’s
Gamma ray curve from the
Newsome #10 identifying the
well locations, Cross Timbers has proved-up the extensive pay zones in the typical daily production aver-
Freestone Field wellbore.
equivalent of an exploration-type “discovery.” This aged 3.8 MMcf per
resource potential of more well, with reserve projections of 4 Bcf per well. We
Shiprock, New Mexico
This volcanic plume, named the “rock
than 1.2 Tcf of natural gas focused on testing the productivity of new infill
with wings” by the Navajo, rises from
will fuel internally generated development wells, along with drilling six delin-
the southwestern desert.
growth in both reserves and production for many eation wells strategically located at the outer edge
years to come. of the field. These “step-out” wells proved just as
Freestone Field. Freestone Field is defined by successful as their infill counterparts, producing at
a deeper Cotton Valley limestone structure that is comparable rates.
reflected up into the shallower horizons. The field Thus, the entire
was originally developed for the Travis Peak acreage position was
interval, with only a few wells producing from the defined as prospective
deeper horizons. With a hydrocarbon column of for field development.
over 200 feet, the Cotton Valley limestone structure In fact, one of the
in this field has been highly productive where best wells drilled, the
completed. Older wells completed in this zone have Eppes No. 6, was a Bossier ‘D’ sandstone – photo
produced more than 3 Bcf each. western step-out well that aver- micrograph depicting the pore
system surrounding the
Up the wellbore, two additional zones have aged over 5.5 MMcf per day in the quartz grains.
proven highly productive. The Bossier sandstones first month of production.
are deposited and draped over the limestone in three During the 14 months that elapsed while testing
separate productive reservoirs. These horizons vary these wells, Freestone Field production increased
in thickness from 20 feet to 150 feet per sand. The five-fold to 42 MMcf per day from 8 MMcf per day.
original wells with production from the Bossier The Company expects to drill 36 wells in
sandstones have yielded reserves ranging from 1 Bcf Freestone Field during 2001 with another 50 to 60
to 2.5 Bcf each. The third zone, the Cotton Valley sand- potential locations beyond that for future development.
stones, is deposited above the Bossier sandstones and covers We believe, with our plan fully implemented, the field
a 700-foot section. These heterogeneous sandstones will yield more than 120 MMcf per day by the end of
contain numerous productive “pays” ranging from 20 feet 2002. Our future development targets 300 Bcfe of
to 100 feet in thickness. gas reserves.
Bald Prairie Field. Like Freestone Field, the produc-
These limited tests of the deeper horizons gave us a
tantalizing look at this trend’s tremendous development tive limits of this Robertson County field are defined by
potential. Again, the secret to achieving commercial pro- the presence of a Cotton Valley limestone structure, from
duction in any of these tight zones is the correct fracturing which the majority of existing wells produce gas. Several
technique. Past development efforts typically failed due to scattered completions in the Bossier sandstones have
reservoir damage caused by poor completion methods. proven productive, delineating upside opportunity.
9

13. In 2000, Cross Timbers focused on recompleting produc- Other Fields. Cross Timbers has additional upsides
ing wells into two behind-pipe pay zones, the Bossier and in all of its East Texas fields. In Opelika and Tri-Cities,
Cotton Valley sandstones. The 15 workovers proved previous operators bypassed reserves in the Cotton Valley
successful. Daily production rates averaged 1.5 MMcf and sandstones. Further, the Travis Peak and Rodessa forma-
additional reserves were estimated at 2 Bcf per well. tions provide numerous opportunities for recompletion and
Due to this program, field production increased rapidly to multi-zone development. The Whelan, North Lansing
22 MMcf from 6 MMcf per day during the fourth quarter and Logansport fields also provide opportunities for field
of 2000. extensions and infill drilling. In total, the Company plans
Recent acquisitions have increased Cross Timbers’ to drill two wells and perform 12 workovers in these fields
position from 3,500 acres to 10,000 acres in this prolific during 2001.
field. Each producing Cotton Valley limestone well is
expected to recover more than Arkoma Basin
2 Bcf. The reserve potential for The Arkoma Basin stretches
each well completed and commin- over 200 miles from central
gled in multiple zones is about Arkansas into southeastern
4 Bcf. Development plans for 2001 Oklahoma. This expansive
include 24 additional recomple- basin was first developed in the
tions and 24 new wells. We have 1920s to supply gas to Little
also identified 150 potential well Rock, Fort Smith and other
locations for development with total smaller surrounding towns.
impact projected at 380 Bcf of gas Over the years it has gained a reputation
Four Corners Area, New Mexico
reserves. As a result, Bald Prairie as a long-lived, high-quality natural gas
Look out for falling rocks and big arrows.
will be one of our most active development resource. Characterized as geologically
areas in 2001. complex and multi-pay, the basin has very shallow decline
Willow Springs Field. This Gregg County field, rates. Much like the East Texas Basin, the Arkoma Basin
although not located in the Freestone Trend, has been a has generated renewed interest and Cross Timbers entered
focus area for Cross Timbers. Willow Springs produces in grand style.
from both the Travis Peak and Cotton Valley sandstones at In 1999, the Company acquired 480 Bcfe for $468
depths ranging from 8,500 feet to 10,500 feet. The million to become the largest natural gas producer in
Company’s development plan has entailed drilling deeper Arkansas with an acreage position of more than 340,000
to the less exploited Cotton Valley sandstones and then net acres. The Company embarked on a massive undertak-
commingling with the shallower
Glass Mountains, Oklahoma ing – a geologic mapping of the region’s more than 20
Sediments speckled with “glassy”
Travis Peak zone. The same high- producing intervals. To aid in this enormous task, we
gypsum cascade from the mesas and
rate water fracturing technique
buttes into the muddy wash. acquired more than 2,000 miles of 2-D seismic lines to
innovated for our East Texas Freestone Trend fields is reprocess and reinterpret with the newest technology avail-
utilized in Willow Springs. able. Combined with subsurface mapping, this seismic
A total of 24 wells have been drilled since our acquisi- data will provide a better understanding of the basin’s
tion, with 12 occurring last year. Our 2000 development complex faulting and depositional patterns. This equates
drilling program included several step-out wells that to finding more hydrocarbon “traps.” The Company has
extended the productive limits of the field to both the also initiated the use of electric imaging logs on new wells
northeast and southwest. The 15 wells planned for 2001 to better define reservoir traps and limits. This technical
will test field limits and continue our successful infill pro- approach will lead to more drilling locations and, in fact, a
gram. Daily production has increased to 38 MMcf from competitive advantage for Cross Timbers. The Company is
8 MMcf in just two years. also designing a 3-D seismic program in Oklahoma where
data acquisition should begin in the next several months.
11

15. The Company’s net production from 1,100 wells totals feet. As this Mississippian-aged interval is comparable to
more than 100 MMcf per day, with 85% from operated intervals that the Company has successfully developed in
leases. During 2000, the first full year of our operations on the Anadarko Basin, we used a similar high-rate water
the properties, the Company drilled 40 wells and completed fracturing technique which resulted in an initial daily rate
more than 120 workovers. Our initial work focused on the of 1.3 MMcf. The Company has identified eleven potential
installation of 74 wellhead compressors that reduced locations for the Boone and Penters intervals on this struc-
producing pressures and increased daily production by an ture. We plan to drill three of those wells in 2001.
average of 100 Mcf per well. Due to the multi-pay nature In total, the Company plans to drill 42 wells in the
of the basin, the Company has identified substantial upside Fairway Trend during 2001. The majority of which will
in the existing wellbores. We successfully recompleted be located in the Aetna, Cecil and Peter Pender fields
numerous wells to unopened pay zones where we expect to gain substantial
in 2000. production rate and reserves.
Arkansas Overthrust Trend.
In 2001, the Company plans to
accelerate both development drilling This area, located just south of the
and workovers across its acreage posi- Fairway Trend, typically has multiple
LS
CHO
tion. The Arkoma property base is thrust faults that created isolated reser-
NI
divided into three distinct areas with voirs. Production is found at varying
TU
RN
ER
unique geologic and producing charac- depths, ranging from 3,500 feet to
NER
TUR
teristics – the Arkansas Fairway Trend, 7,500 feet. In this area, the key to
the Arkansas Overthrust Trend and the drilling successful new wells is pene-
TU
Oklahoma Cromwell/Atoka Trend. tration of the pay zone near the crest
RN
ER
Arkansas Fairway Trend. The of the imbricate fold where greater
Arkoma Overthrust Area – Electrical imaging logs
identify faults and structural dip in the Glen Jones
majority of the Company’s production fracturing occurs, thus enhancing the
#3 which defines the imbricate fault trap in the
flows from this extensive area of the flow characteristics in the rock.
Glen Jones #4.
basin, which produces from multiple reservoirs at depths The use of electric imaging logs has greatly assisted in
ranging from 2,500 feet to 7,500 feet. The structural identifying optimal well locations in this highly
setting of the area is dominated by east-west faults forming faulted area.
isolated traps in the Atokan-aged and Morrowan-aged During 2000, we drilled nine wells in the Overthrust
sandstones. New wells will target these traps. Trend with average initial daily rates of 1.5 MMcf and
During 2000, the Company drilled 25 Fairway wells reserves of 1.4 Bcfe per well. One of our best wells, the
with a success rate of 95%. The average daily flow rate Glen Jones 4-20, initially produced at 4 MMcf per day.
was 1 MMcf, with reserves of Surprisingly, the productive zone in this well is not present
Kenai River, Alaska
Braving the frigid waters, a lone 1 Bcfe per well. Our process has in an offset well only 400 feet away due to the complex
angler casts for another king salmon.
already defined numerous additional faulting. With the electrical imaging tool, we were able to
drilling locations based on both structural and stratigraphic pinpoint the crest of the imbricate fold and successfully
separation. The Orr and Hale sandstones were the focus pay find a new reservoir. The Company plans to drill 18 new
intervals for our new wells in the Aetna and Cecil fields. wells during 2001 in this highly prospective area.
Oklahoma Cromwell/Atoka Trend. In this area of
The Silex Field, also in the Fairway Trend, was one of
the first fields discovered in the Arkoma Basin and is still southeastern Oklahoma, the Cromwell sandstones are our
providing new opportunities. In 2000, we drilled the Silex primary target with the Atoka sandstones and Wapanuka
8-22 to test the deeper horizons of this mature structure. limestones as secondary objectives. Our development
This well encountered productive carbonate intervals in the activities are focused in the Ashland and South Pine
Boone and Penters formations at a depth of only 4,500 Hollow fields.
13

17. The Ashland Field has produced over 70 Bcf to date. within the next several years. This will give the Company
Our efforts have concentrated on 80-acre infill wells to better 30 additional locations with aggregate net reserve potential
capture the substantial gas in place. Using 2-D seismic to of 20 Bcf. During 2001, the Company plans to drill ten
identify the Atoka anomalies, we strategically drill our Fruitland Coal wells.
Mesaverde Formation. This prolific formation pro-
wells to encounter not only the Cromwell sandstones but
also shallower secondary targets. Completion techniques duces from three main sandstone intervals: the Cliffhouse,
utilize the same successful water fracturing and commin- Menefee and Point Lookout. The Company drilled six new
gling practices employed in the Anadarko and East Texas wells and recompleted three wells to the Mesaverde during
basins. Five wells were drilled in Ashland Field during 2000 with excellent results. These activities yielded aver-
2000 with average initial daily production rates of age initial rates of 900 Mcf
1.7 MMcf and reserves totaling 1.3 Bcf per well. The per day per well and added
Company plans to drill 12 wells in 2001. reserves of 1 Bcf per well.
With development costs of
San Juan Basin about $0.50 per Mcfe, the
Cross Timbers entered the San Juan Basin in wells are highly economic.
December of 1997 with the purchase of 290 Bcfe for A recent regulatory ruling
$195 million. Since then, gross operated production has allowing 80-acre spacing
increased by 56% to 75 MMcf per day and reserves, has given us an abundance
including sales and production, have grown to 647 Bcfe. of new opportunities.
A large portion of this increase can be attributed to opera- Eighty new locations
tional improvements, primarily compression. During containing about 80 Bcf
2000, the Company installed 75 wellhead compressors, of reserve potential are
bringing total installations to 230 since we assumed available for develop-
operations. These projects increased daily production rates ment, along with numerous Alma, Arkansas
Popeye longs for another can of
by 100 Mcf per well and reserves by 300 MMcf per well. recompletions. Cross Timbers
spinach to bust out of the clink.
During 2000, we drilled 36 wells and performed 170 plans to drill and complete 13
workovers. Drilling focused on the Fruitland Coal (ten wells to the Mesaverde during 2001.
Dakota Formation. The Dakota horizon produces
wells), Pictured Cliffs (14 wells), Mesaverde (six wells) and
Dakota (six wells). The Company plans to drill 43 wells from a total of six separate sandstone reservoirs at depths
and complete more than 100 workovers and recompletions ranging from 6,500 feet to 7,500 feet. The Company has
during 2001. focused its drilling efforts in areas where the bottom three
Fruitland Coal. To date, the Company has focused sandstones were generally not penetrated by older wells.
the majority of its Fruitland Coal development efforts on Therefore, these sandstones were undrained, resulting in
trend extensions. This coalbed methane play, first pursued more prolific production. These new wells were also
in the basin in the 1980s, has fueled a substantial increase drilled deeper, through the Dakota, to test the previously
in basin-wide production into the untapped Burro Canyon and Morrison sandstones. During
Windmill, Kansas
On the Great Plains, these isolated
1990s. For Cross Timbers, our 2000, the Company drilled six successful wells to the
steel towers spin wind power into
running water. coalbed methane development is Dakota and deeper horizons. These wells had initial rates of
focused on the northwestern portion of the basin surround- 600 Mcf per day and reserves of 1 Bcf per well.
ing the city of Farmington. The Company drilled ten Cross Timbers operates more than 400 Dakota produc-
wells during 2000, several of which were successful step- ers drilled on 160-acre spacing and discussions are under-
out wells. Daily production from this unconventional way to reduce the spacing to 80 acres. If approved, the
formation has risen to 12 MMcf from 2 MMcf since Company sees another 200 potential Dakota well locations,
Cross Timbers assumed operations. with an aggregate target of about 60 Bcf. Reduced spac-
Discussions are underway to reduce spacing require- ing in the Mesaverde and Dakota will generate tremendous
ments to 160 acres from 320 acres, with approval expected development opportunities for the future.
15

19. Burro Canyon and Morrison Formations. new wells completed during the past year. Once again,
trend extension was the key to success. For example, the
Cross Timbers is spearheading a new play for production
Hughes 2-6, a northern step-out well, was completed at a
from sandstones located just below the Dakota. We have
daily rate of 1.5 MMcf. During 2001, the Company plans
encountered productive Burro Canyon and Morrison
to continue the successful development program begun in
intervals in about a third of our Dakota development wells.
the Chester in 1999 with 15 additional wells.
These wells produce at high sustained rates. One example,
Development in the Fontenelle Unit included five suc-
the Kutz Federal 12E, was completed in the Burro Canyon
cessful wells and five re-stimulations. Drilling focused on
sandstones during 1999 produc-
Ozark Mountains, Arkansas
Born of a source deep in the mountains,
continued 80-acre development of the Frontier sandstones
ing at a daily rate of 1.4 MMcf.
the Mulberry River winds through the
with a successful step-out well that extended the eastern
rolling terrain. This well has produced 550 MMcf
boundary. Plans for 2001 call for increased activity levels
and is still holding its initial rate of 1.4 MMcf per day
that include drilling ten wells and continuing the successful
after 18 months. Also, Cross Timbers owns an interest in
re-stimulation program with seven workovers.
the Davis A Federal 1M that started production at 6 MMcf
The Hugoton Field of Oklahoma has seen a develop-
per day from the Burro Canyon and Morrison sandstones.
ment resurgence with successful recompletions to the
After producing more than 1 Bcf in nine months, the well
Towanda Formation and a new re-stimulation technique
still has a daily rate above 2.5 MMcf. Another well, the
for the older Chase Group producers. During 2000, the
Aztec Gas Com 4E, a recent Morrison sandstone comple-
Company’s Towanda development consisted of eight
tion, is also producing at daily rates exceeding 2.5 MMcf.
successful workovers, divided between recompletions and
These are exceptional completion rates for the mature San
deepenings of older wells. These activities yielded average
Juan Basin and bode well for a new cycle of development.
daily rates of 190 Mcf per well and reserves of 400 MMcf
Hugoton Royalty Trust Area per well. Economics were exceptional due to the low
development costs of just $0.15 per Mcfe. The Company
During 2000, the Company drilled 39 wells and com-
also embarked
pleted 90 workovers. Development drilling in Oklahoma
on a pilot proj-
was focused in Major and Woodward counties (32 wells),
ect to test new
the Hugoton Field (one well) and the Elk City Unit (one
re-stimulation
well). Also, five wells were drilled in the Fontenelle Unit
techniques in
of Wyoming.
the Hugoton
In Major and Woodward counties, the Chester and
Chase inter-
Mississippian formations were the primary targets. In
vals. Fifteen
Major County, 18 successful wells were drilled with aver-
of these re-
age initial rates of 700 Mcf per day and reserves of 1 Bcf
stimulations
per well. The Mississippian (Osage) trend development
were completed
was successfully extended to the south and east. The
Rusk, Texas
during 2000 with daily rate
Stanford 5-2, a southern step-out well, was completed at The Texas State Railroad is over a
hundred years old and still keeping it
increases averaging 75 Mcf per
a rate of 30 BOPD and 1.3 MMcf per day. Based on the
on the tracks.
well, doubling the prior rate. The
economic success of this well, three additional offset wells
Company produces approximately 29 MMcf per day from
will be drilled during 2001 with a total of ten wells drilled
400 operated wells in the Hugoton Chase Formation.
in the Mississippian (Osage) trend during the next year.
Plans for 2001 include ten Towanda completions and 35
The Chester Formation, with its four separate produc-
Hugoton Chase re-stimulations.
ing intervals, was the primary target for 14 wells drilled in
We plan to spend $15 million to drill 37 wells and
Woodward County during 2000. Daily operated produc-
perform 61 workovers and recompletions during 2001 in
tion in this area has increased to 14 MMcf from 8 MMcf.
the Hugoton Royalty Trust properties.
The Quinlan area has received the most attention with ten
17

20. Permian Basin We plan to drill ten infill wells in 2001 and see an
University Block 9. This West Texas field produces additional 30 to 40 well locations for future development.
from the Wolfcamp, Pennsylvanian and Devonian formations
Alaska
which range in depth from 8,400 feet to 10,000 feet.
Middle Ground Shoal Field. The Middle Ground
Development primarily focused on the deeper Devonian
Shoal Field in Alaska’s Cook Inlet has been producing oil
Formation leaving the shallower zones for future develop-
since the late 1960s. To date, more than 120 million Bbls
ment. Sixteen vertical and seven horizontal sidetracks were
have been recovered and our engineers estimate over 30 mil-
completed during 2000. As a result, field production
lion Bbls of remaining potential. After a comprehensive
surged to 3,900 BOPD, a rate not seen since 1975.
engineering and geologic study, we began our development
The vertical Devonian wells had average initial rates of
plan to accelerate extraction and maximize reserve recovery
175 BOPD and reserves of 180 MBO per well. Two southern
from this complex, multi-pay structure.
extension wells, the University 9D-6 and BA-5, tested at
Prior to our acquisition in 1998, a
160 BOPD and 300 BOPD, respectively.
total of 28 producing wells and 11 injec-
The success of these wells instilled new life
tors had been utilized to produce 3,950
into an area of the field where development
BOPD through a full-scale waterflood
was once considered uncertain. The
operation. This complex structure is
University H-3 well, an eastern step-out
separated by a crestal fault that creates
well, produced at 200 BOPD, proving up
East and West flanks. Numerous oil-
additional locations in the eastern portion of
bearing zones within the Tyonek
the field.
Formation, ranging from 7,000 feet to
The seven horizontal sidetrack wells in
10,000 feet, remained virtually unswept.
the Devonian interval were completed at
Thus, our team created a
producing rates averaging 150 BOPD each.
development plan to increase daily pro-
Several of these were successful multi-lateral A crestal fault separates the field into East
and West flanks, trapping the hydrocarbons of duction to more than 5,000 BOPD.
horizontals. These innovative sidetracks use
the Tyonek reservoirs.
In 2000, we initiated our opera-
an existing wellbore to develop reserves that
tional plan by expanding the development program on the
would have historically required two new vertical wells to
West Flank. First, two producing wells were converted to
adequately drain. By using the multi-laterals, we can drill
injectors. The volume of injected water was increased and
and complete for just 25% of the cost of two vertical wells.
oil volumes quickly responded in offset producers. Next,
During 2001, the Company will focus on further devel-
two successful sidetrack wells were drilled to tap previously
opment of the Devonian Formation with six vertical wells
untouched pockets of oil. As a result, production has risen
and 12 horizontal sidetracks.
Prentice Northeast Unit. This West Texas waterflood to about 4,400 BOPD, substantially ahead of our original
projections.
unit is located in Terry and Yoakum counties and produces
Development plans for 2001 include completing three
from the Glorieta and Clear Fork formations at depths from
new producing wells along with optimizing the pressure
6,800 feet to 7,700 feet.
and volume performance of our waterflood expansion.
In 1995, Cross Timbers initiated a 10-acre development
Development costs should be about $12 million.
drilling program. A total of 92 wells have been drilled to
date with 11 wells completed during 2000. Production has
EXPLORATION
averaged about 3,400 BOPD for the past several years due to
Using our 3-D seismic model, we drilled and completed
our continuing program of drilling ten wells per year.
three wells offsetting our successful 1999 Cowboy prospect
Individual wells produce at initial rates of about 100 BOPD
wildcat in the Nemaha Ridge area of central Oklahoma.
and recover reserves averaging 70 MBO. During 2000,
The Cowboy prospect was completed at an initial rate
drilling activities proved-up areas in the northern and east-
of 230 BOPD while our new wildcat wells averaged
ern portions of the unit, where delineation wells encountered
155 BOPD each.
high oil cuts, indicating pockets of unswept reserves.
18

21. Also during 2000, we drilled a successful test well, As of December 31, 2000, estimated future net cash
the Vernon Black 2-28, in the South Pine Hollow Field of flows before income tax totaled $15.2 billion based on
southeastern Oklahoma. Initial gas production averaged realized prices of $25.49 per Bbl of oil, $9.55 per Mcf of
more than 3 MMcf per day from the Cromwell gas and $26.33 per Bbl of NGLs. The present
Proved Reserves
sandstones. We anticipate more locations in this value before income tax, discounted at 10%, was
by Category
(in Bcfe)
area based on a new seismic evaluation. $7.7 billion, compared to the year-end 1999 level
2500
In 2001, we will continue to pursue these of $1.8 billion. The realized prices at year-end
exploration successes and other high-impact 1999 were $24.17 per Bbl of oil, $2.20 per Mcf
2000
projects. Plans call for exploration tests in the of gas and $13.83 per Bbl of NGLs.
high-potential region of the southern overthrust 1500 Assuming NYMEX prices of $25.00 per Bbl
trend of the Arkoma Basin of Arkansas where we of oil and $5.00 per Mcf of gas, estimated future
hold 80,000 acres. This prospect area is 20 net cash flows before income tax would total
1000
miles south of our Washburn Anticline Trend $7.4 billion while present value before income
where fields have produced more than 50 Bcfe. tax, discounted at 10%, would be $3.8 billion.
500
We expect to drill the first exploration well here Importantly, total proved reserves would decrease
during the first half of 2001. by only 1% to 2.224 Tcfe.
0
96 97 98 99 00
Finally, the Company will initiate several Oil prices increased 60% in 2000 to an
Oil NGLs Gas
wells to test the outer limits of our East Texas average of $27.07 per Bbl, up from $16.94 per
Freestone Trend. In total, the exploration Bbl in 1999. This increase reflects OPEC’s continuing
budget is $10 million for the year. resolve to maintain higher oil prices through production
cuts when necessary. On the natural gas front, increased
RESERVES AND PRODUCTION demand driven by more seasonal weather and rising elec-
After several consecutive years of aggressive acquisi- tricity generation needs clashed with declining domestic
tions, Cross Timbers shifted its focus in 2000 to the huge productive capacity to result in reduced gas in storage,
inventory of exploitation opportunities created by the higher prices and increased volatility. As such, our average
execution of its “acquire and exploit” strategy. gas price for 2000 rose 59% to $3.38 per Mcf from an
Estimated proved oil and gas reserves at year-end 2000 average of $2.13 per Mcf in 1999. The NGLs price per Bbl
totaled 2.252 Tcfe, up 11% from 2.022 Tcfe at year-end averaged $19.61, up 66% from the 1999 average sales price
1999. This translates to 29 Mcfe for each share of the of $11.80 per Bbl.
Company’s common stock.
Proved Oil & Gas Reserves
The Company replaced 491 Bcfe or 300% of 2000 December 31, 2000
production at a cost of $0.41 per Mcfe. Through the drill (in thousands)
Oil Gas NGLs
bit, we replaced 280% of production at a cost of $0.37 per (Bbls) (Mcf) (Bbls) Mcfe
Proved developed 46,334 1,328,953 16,448 1,705,645
Mcfe. For the past five years Cross Timbers has replaced Proved undeveloped 12,111 440,730 5,564 546,780
478% of its production at a finding cost of just $0.64 per Total proved 58,445 1,769,683 22,012 2,252,425
Estimated future net cash flows,
Mcfe. This remarkable performance places Cross Timbers before income tax $ 15,239,560
Present value before income tax $ 7,748,632
among the best in the industry for finding cost and produc-
tion replacement statistics and is a direct result of the
Changes in Proved Reserves
strength of our strategy, technical team and legacy asset base. (in thousands)
Oil Gas NGLs
During 2000, the Company produced 4.7 million Bbls (Bbls) (Mcf) (Bbls) Mcfe
December 31, 1999 61,603 1,545,623 17,902 2,022,653
of oil, 1.6 million Bbls of NGLs and 125.9 Bcf of natural
Revisions 2,709 142,974 3,709 181,482
gas. Oil and NGLs production averaged 17,371 BOPD, Extensions and discoveries 1,145 258,843 1,951 277,419
Production (4,736) (125,857) (1,622) (164,005)
down 2% from 1999 due primarily to property sales. Daily Purchases in place 833 26,557 72 31,987
gas production averaged 343.9 MMcf, up 19% from 288.0 Sales in place (3,109) (78,457) – (97,111)
December 31, 2000 58,445 1,769,683 22,012 2,252,425
MMcf in 1999.
Based on SEC assumptions
19