EXHIBIT 10.7
PURE RESOURCES, INC.
000 Xxxx Xxxxxxxx
Xxxxxxx, Xxxxx 00000
March 29, 0000
Xxxxx Xxx Xxxxxxx xx Xxxxxxxxxx
0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxx Dallas, Chief Financial Officer
Re: Pure Resources, Inc. - Business Opportunities Agreement
Ladies and Gentlemen:
Reference is made to the Business Opportunities Agreement (the "Agreement")
dated as of December 13, 1999 among Union Oil Company of California ("Union
Oil"), Pure Resources, Inc. (formerly named Titan Resources Holdings, Inc.) (the
"Company"), TRH, Inc., and Titan Exploration, Inc. Capitalized terms used and
not otherwise defined herein shall have the meanings given to them in the
Agreement. The Agreement was entered into to address certain legal requirements
and concerns as well as for certain practical business purposes. Although this
letter does request a limited waiver of the Agreement, we wish to make it clear
that we understand that the Agreement will remain in effect after any grant of a
limited waiver and that we will continue to remain focused on the business we
conduct in the Designated Area and any other area that you may permit us to
operate in pursuant to the limited waiver.
As you are aware, the Company proposes to acquire all of the outstanding
capital stock of Hallwood Energy Corporation ("HEC") pursuant to a negotiated
cash tender offer commenced pursuant to a Merger Agreement between the Company
and HEC (if the Company and HEC reach agreement). HEC or its subsidiaries
currently own, among other things, certain oil and gas leasehold interests, oil
and gas fee mineral interests, royalty interests and related contracts and
assets (collectively, the "Assets"), which Assets include without limitation
those matters identified on Annex A. Attached as Annex B is the "Item 2 -
Properties" section from HEC's 2000 Annual Report on Form 10-K filed March 20,
2001.
Pursuant to Section 1 of the Agreement, the Company agreed that, except
with the consent of Union Oil (which it may withhold in its sole discretion),
neither the Company nor its subsidiaries will engage in any business other than
the E&P Business and none of them will pursue any business opportunity that
involves any direct or indirect ownership interest in any properties located
outside the Designated Area. Notwithstanding Section 1 or any other provision in
the Agreement, we hereby request your limited waiver and consent (a) to the
acquisition of the Assets by the Company (directly, through subsidiaries or by
acquiring (directly or indirectly) a majority or more interest in HEC), and the
Company's (directly, or through subsidiaries) conducting the E&P Business on
properties included among the Assets following such acquisition (collectively,
the "Acquisition") and (b) to
March 29, 2001
Page 2
the Company's (and its subsidiaries') engaging in the "Extended Business," which
term means E&P Business opportunities that directly arise out of the ownership
or operation of the Assets, provided, however, that this waiver is conditioned
upon the Company's agreement with Union Oil that (and the Company hereby
covenants to and agrees with Union Oil that) it shall divest itself of any
interest in Assets listed as item 2 on Annex A prior to September 30, 2001. The
term "Extended Business" includes contractual rights and obligations under
currently existing contracts (but not rights or obligations first arising out of
any amendment to such existing contracts entered into after the date hereof)
included within the Assets and other opportunities that primarily relate to land
or minerals that are included within the Assets or located within two (2) miles
of any of the Assets provided that under no circumstances shall the term
"Extended Business" include any investment in or acquisition related to
opportunities in the off-shore areas of the Gulf of Mexico or any area outside
the continental United States. By signing below, Union Oil hereby (1) evidences
its limited waiver of the application of the Agreement's restrictions to the
Acquisition and the Extended Business (but not as to any other expansion outside
the Designated Area that is not clearly and unequivocally contemplated by the
Acquisition and the Extended Business) and (2) acknowledges that neither the
Acquisition nor the Extended Business shall be deemed a breach or violation of
the Agreement.
We hereby acknowledge that if you grant the limited waiver requested above
or any more restrictive waiver, that such limited waiver will only apply to the
Acquisition and the Extended Business and in no way shall serve to waive any
provision of the Agreement that may be applicable to future transactions or
investments by the Company that are not included within the Acquisition or the
Extended Business. Furthermore, nothing herein shall serve as a general waiver
or be construed as amending or revising in any way the definition of "Designated
Area" in the Agreement or any other provision of the Agreement.
The limited waiver that shall be effected by Union Oil's execution below
shall automatically terminate, without further action by any party, if the
Company has not consummated the Acquisition by May 30, 2001.
March 29, 2001
Page 3
Please sign this letter in the space below, fax a signed copy to Xxx
Xxxxxxxxxxx of Xxxxxxxx & Xxxxxx L.L.P. (fax 214/ 000-0000) and return the
signed original to Pure Resources, Inc. c/o Xxx Xxxxxxxxxxx, Xxxxxxxx & Xxxxxx,
L.L.P., 0000 Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000.
Very truly yours,
PURE RESOURCES, INC.
By: /s/ Xxxx Xxxxxxxxx
------------------
Xxxx X. Xxxxxxxxx,
President and Chief Executive Officer
Accepted and agreed to:
UNION OIL COMPANY OF CALIFORNIA
By: /s/ Xxxxxxx Xxxx
------------------
Name: Xxxxxxx Xxxx
Title:
---------------------
March 29, 2001
Page 4
Annex A
1. State waters leases:
a. Texas state block 1224, located in Cameron County, Texas off the coast
of South Padre Island (Boca Chica Prospect)
b. Louisiana state lease 14371 #1, Section 27 00 Xxxxx 00 Xxxx, Xxxxxxxxx
Xxxxxx.
2. 15% interest in the Z3 block in Peru
Annex B - Portion of 2000 10-K filed March 20, 2001
ITEM 2 - PROPERTIES
Exploration and Development Projects and Acquisitions
In 2000, Hallwood incurred $25,807,000 in direct property additions,
development, exploitation, and exploration costs. The costs were comprised of
$9,320,000 for property acquisitions and approximately $16,487,000 for domestic
exploration and development. Hallwood also issued 417,406 shares of its common
stock valued at $3,315,000 as part of a property acquisition completed in the
third quarter. Hallwood's 2000 capital program led to the replacement, including
revisions to prior year reserves, of 329% of 2000 production using year-end
prices of $27.00 per bbl and $9.25 per mcf. Sales of reserves in place in 2000,
which were approximately 176% of 2000 production, are excluded from the
replacement calculation.
Property Sales
Xxxxxx 0000, Xxxxxxxx received approximately $21,698,000 for the sale of
approximately 500 non-strategic xxxxx located in the Keystone, Xxxxxx and
Weesatche areas of Texas, and various oil and gas xxxxx in Oklahoma, North
Dakota, Montana and Kansas. The proceeds from these sales were all credited
against oil and gas properties without gain or loss recognition. The xxxxx sold
represented approximately 35% of Hallwood's total well count as of the beginning
of the year, approximately 16% of Hallwood's reserve value, and approximately
11% of its operating cash flow based on five year average reserve pricing. The
completion of Hallwood's 2000 sales effort has enabled Hallwood to reduce its
level of debt and to focus on a four state core area including Colorado, New
Mexico, Texas and Louisiana.
Regional Area Descriptions and 2000 Capital Budget
The following discussion of Hallwood's properties and capital projects contains
forward-looking statements that are based on current expectations, estimates and
projections about the oil and gas industry, management's beliefs and assumptions
made by management. Words such as "projects," "believes," "expects,"
"anticipates," "estimates," "plans," "could," variations of such words and
similar expressions are intended to identify such forward-looking statements.
Please refer to the section entitled "Cautionary Statement Regarding
Forward-Looking Statements" under Item 1. for a discussion of factors which
could affect the outcome of the forward-looking statements.
Gulf Coast Region
Hallwood's significant interests in the Gulf Coast Region in Louisiana and South
and East Texas consist of interests in eleven operated and producing xxxxx, one
nonproducing well and four nonoperated xxxxx located in Lafayette Parish,
Louisiana. The xxxxx produce principally from the Bol Mex formation at 13,500 to
14,500 feet. Seven additional operated producing gas xxxxx and four nonproducing
xxxxx are located primarily in the Lapice Field in St. Xxxxx Xxxxxx, Louisiana.
In South and East Texas, Hallwood has interests in approximately 250 producing
xxxxx, 81 of which are operated by the Company, and produce primarily from the
Austin Chalk, Lower Xxxx, Xxxxxx Peak, Xxxxxxx, Xxxxxx and Cotton Valley
formations at depths from 7,000 to 13,000 feet. In these same areas, Hallwood
owns interests in eight nonoperated xxxxx. Xxxxxx 0000, Xxxxxxxx expended
approximately $19,896,000 (68%), including the stock issuance described below,
of its capital budget in this region. Hallwood plans five exploration projects
and 11 exploitation and development projects in the area in 2001.
Property Acquisition. On August 30, 2000, Hallwood completed the acquisition
1
of interests in 34 producing xxxxx, five service xxxxx and 69 inactive xxxxx in
five fields located in Xxxxxxxx, San Xxxxxxxx and Frio Counties in Texas and St.
Xxxxx and Assumption Parishes in Louisiana, as well as approximately 7,000 acres
of undeveloped leasehold and 3-D seismic data. Total consideration included
approximately $3.875 million in cash and 417,406 shares of Hallwood common stock
valued at approximately $3.3 million. The properties include 13 Bcfe of proved
reserves, 21% of which are proved developed producing. Hallwood plans to spend
more than $4 million over the next two years developing the proved undeveloped
reserves and anticipates spending $4.8 million over the next two years to
acquire or shoot 3-D seismic. Hallwood feels that significant additional
recoveries may be gained with the application of 3-D seismic imaging. This
acquisition yields an estimated purchase cost per proven mcfe of $0.55. Hallwood
believes this acquisition fits strategically with its ongoing activities in the
Gulf Coast and South Texas and Hallwood will operate virtually all of the
properties acquired.
Xxxxxx Xxxxx Project. In 2000, Hallwood continued its participation with
non-operated and operated Xxxxxx projects located in the Xxxxxx Xxxxx area of
Lavaca County, Texas. Xxxxxx 0000, Xxxxxxxx participated with four different
operators in the drilling or recompletion of nine xxxxx. Four of the xxxxx, with
working interests of 12.5%, 3.1%, 15.9% and 28.8%, are producing at a combined
rate of 9,220 gross mcf per day. A decision will be made in first quarter 2001
whether or not to sidetrack another well in a more optimum position relative to
the area fault block. Hallwood plans to own a 50% working interest in the well.
Another operated, unsuccessful recompletion was attempted in an uphole sand.
Hallwood owns a 90% working interest in this well. Hallwood's exploration and
development expenditures in the Xxxxxx Xxxxx area have totaled approximately
$3,524,000 for the year 2000. Hallwood anticipates continued activity in the
area resulting from additional exploitation of the 0000 Xxxxxxx Acquisition and
from the reprocessing and evaluation of land and 3-D seismic data purchased
during the third quarter of 2000. With the recent $1,975,000 seismic
acquisition, Hallwood now owns approximately 381 square miles of 3-D seismic
data in the area. In addition to reprocessing Hallwood's seismic data, Hallwood
is also reprocessing 80-square miles of seismic with another operator. At least
two exploration projects are currently planned for 2001.
Xxxxxx 0000, Xxxxxxxx participated in the drilling or recompletion of seven
xxxxx in neighboring Victoria County, Texas, where the objective was the
shallower Frio sands. Four of the xxxxx are producing, one was plugged and
abandoned, and two are waiting on completion. Hallwood averages a 5% working
interest in the xxxxx. In addition, Hallwood anticipates that its drilling
activity in the shallower Frio and Yegua formations in Lavaca County will
increase over the next several quarters. While the potential reserves in these
shallower xxxxx are not as great as in the Xxxxxx, averaging between .5 Bcfe and
1.5 Bcfe gross per well, the risk and expense to drill the xxxxx are lower.
Goliad County Expanded Xxxxxx Project. During 2000, a 16,500-foot non-operated,
discovery well was completed in the Upper Xxxxxx, and is producing approximately
1,800 mcf per day. Hallwood owns a 20.8% working interest in the well.
Hallwood's drilling and leasehold acquisition costs during 2000 totaled
approximately $1,375,000.
Louisiana. In May 2000, Hallwood successfully completed a 13,600-foot Bol Mex 3
well located in the Xxxxx Field. The well had stabilized production rates of
approximately 25,000 mcf per day and 500 barrels of oil per day through
mid-August, but as a result of sand production has since been choked back to its
current level of approximately 10,000 mcf per day and 225 barrels of oil per
day. In 2000, Hallwood's drilling and completion costs for the well were
approximately $1,634,000. Hallwood owns an approximate 35% working interest in
the well. The originally targeted upper zone remains as behind pipe proved
nonproducing reserves while the lower zone is produced.
2
Hallwood's plans in the area include a Bol Mex 16 Xxxxx exploration well testing
sands which are productive in nearby fields and a Flambeau prospect exploration
well testing Marg Xxx xxxxx productive in the adjacent fault block. The Bol Mex
well is currently drilling and land and leasehold costs incurred in 2000 were
approximately $172,000. Hallwood will have an approximate 28% working interest
in the well that has a gross 200 Bcfe potential and an estimated $5.6 million
completed well cost. The Marg Tex well is also currently drilling. Hallwood will
have a 35% working interest in this well that has a 22 Bcfe potential and is
estimated to have a dry hole cost of $2.86 million. Hallwood also incurred
$135,000 acquiring 377 small working interests totaling less than 1% in the
Xxxxx Field and in the Bol Mex 16 exploration acreage.
Boca Chica Prospect. During 2000, a twenty-three square mile proprietary seismic
shoot was completed in the Gulf of Mexico and is currently being reprocessed and
reevaluated. If the results are favorable, Hallwood plans to participate in the
reentry of a directionally drilled 10,000-foot exploration well in the Big Hum
formation from the shore to the bottom hole location under the waters of the
Gulf of Mexico. Hallwood will have an approximate 25% working interest in the
well, which has unrisked reserve potential of 20 Bcfe. The reserve potential for
the field in which this exploratory well is located is 70 Bcfe and would require
the drilling of multiple xxxxx.
Martinsville Prospect. Hallwood acquired a 45% interest in the Martinsville
Prospect located in Nacogdoches County, Texas during the fourth quarter of 2000.
The initial well for this prospect is presently drilling and one additional
stacked dual lateral Xxxxx Lime horizontal well is planned for 2001. Hallwood
also plans to drill one or more horizontal Xxxxx Lime xxxxx on nearby acreage in
the North Xxxxxxx Field. Total costs for this project were approximately
$146,000 in 2000.
Xxxx Xxxxxxxx. Xxxxxx 0000, Xxxxxxxx incurred approximately $930,000 for costs
associated with completing two xxxxx, and for various gas gathering, gas
treating, and produced water-handling facility costs associated with the Xxxx
prospect area. One well tested the Georgetown formation and was completed in the
Buda formation and the other well is a dual lateral Buda formation development
well. Both xxxxx are currently producing. Seven potential drilling locations
exist.
3
Greater Permian Region
Hallwood has significant interests in the Greater Permian Region, which includes
West Texas and Southeast New Mexico. In this region, Hallwood has interests in
400 productive oil and gas xxxxx (321 of which are operated), 8 nonproductive
oil and gas xxxxx (five operated) and 13 operated salt-water disposal xxxxx. In
2000, Hallwood expended approximately $2,794,000 (10%) of its capital budget on
projects in this area. Hallwood plans one exploration project and 24
exploitation and development projects in 2001. The following is a description of
the significant areas and 2000 capital projects within the Greater Permian
Region.
Carlsbad/Catclaw Area. Hallwood's interests in the Carlsbad/Catclaw Area as of
December 31, 2000 consist of 85 producing oil and gas xxxxx and four
nonproducing xxxxx. The xxxxx are located on the northwestern edge of the
Delaware Basin in Xxx, Xxxx and Xxxxxx Counties, New Mexico. The Company
operates 36 of these xxxxx. The xxxxx produce at depths ranging from
approximately 2,500 feet to 14,000 feet from the Delaware, Atoka, Bone Springs
and Xxxxxx formations. In 2000, Hallwood spent approximately $364,000 for one
recompletion and for costs associated with producing xxxxx. Xxxxxxxx also
participated in the testing of a horizontal well drilled in the Red Hills field
located in Lea County, New Mexico. Gross unrisked reserve potential for the well
is approximately 65 Bcfe and Hallwood owns an approximate 3.5% working interest.
Hallwood incurred approximately $161,000 for drilling costs on the well and the
results of drilling are currently being evaluated. If deemed to be a commercial
well, seven additional xxxxx could be drilled.
Spraberry Area. Hallwood's interests in the Spraberry Area consist of 315
producing xxxxx, located in Dawson, Upton, Xxxxxx and Xxxxx Counties, Texas. The
Company operates 292 of the producing oil and gas xxxxx and also owns interests
in four nonproducing xxxxx. Current production is predominately from the Upper
and Lower Spraberry, Clearfork Canyon, Xxxx, and Fusselman formations at depths
ranging from 5,000 feet to 9,000 feet. In 2000, Hallwood initiated a 20 well
infill drilling program in its Greater Permian Basin and Hallwood estimates that
over sixty 80-acre infill drilling locations exist in this area. Historically,
West Texas Permian production has been predictable, and a drilling program
coupled with an appropriate crude oil hedging program can be expected to yield
relatively safe and adequate returns. During the fourth quarter of 2000,
Hallwood successfully drilled and completed three xxxxx out of the 20 prospects,
is currently completing a fourth well, and began drilling a fifth well which
will be completed in first quarter of 2001. Total costs on the projects during
2000 were approximately $2,080,000. Hallwood plans to drill the remaining 15
xxxxx in 2001. The top 20 prospects could yield an overall rate of return in
excess of 40% giving effect to moderate commodity prices and increased costs for
oilfield goods and services and rig costs.
Rocky Mountain Region
Hallwood has significant interests in the Rocky Mountain Region, which include
producing properties in Colorado and Northwest New Mexico. The Company has
interests in 125 producing oil and gas xxxxx, 119 of which are operated by
Hallwood, 10 nonproducing xxxxx, and three salt-water disposal xxxxx. Hallwood
expended approximately $2,661,000 (9%) of its 2000 capital budget in this area.
Hallwood plans 11 exploitation and development projects in the area in 2001. The
following is a description of the major projects for the region for the year
2000.
Colorado Western Slope Project. Xxxxxx 0000, Xxxxxxxx incurred
4
approximately $987,000 in the Colorado Western Slope area to drill two xxxxx,
workover two xxxxx and perform maintenance work on several others. The
post-workover production rates have increased on the xxxxx effected.
San Xxxx Basin Project - Colorado and New Mexico. Hallwood's interest in the San
Xxxx Basin consists of 83 producing gas xxxxx (78 operated), 10 operated
nonproducing xxxxx and three salt water disposal xxxxx located in San Xxxx
County, New Mexico and LaPlata County, Colorado. Hallwood operates 52 producing
xxxxx in New Mexico, 33 of which produce from the Fruitland Coal formation at
approximately 2,200 feet and 19 of which produce from the Picture Cliffs, Mesa
Verde and Dakota formations at 1,200 to 7,000 feet. Hallwood also operates 26
producing xxxxx in La Plata County, Colorado. The xxxxx in Colorado produce from
the Fruitland Coal formation at depths of 1,800-2,200 feet. Hallwood, along with
many other industry partners, made application to the Colorado Oil and Gas
Commission for field wide infill drilling in the Fruitland Coal formation. The
application was to reduce the present 320-acre spacing units to 160 acres,
because the existing spacing units could not be adequately drained by a single
well. Approval was granted in July 2000, and could result in as many as 18
locations on the acreage in which Hallwood has an indirect interest through its
special purpose tax credit vehicle. During the fourth quarter of 2000, Hallwood
completed the first two infill recompletions, which are performing as expected.
A third well was completed in the first quarter of 2001, and a fourth location
is currently drilling. Total year 2000 costs for these projects were
approximately $482,000. Five or more locations will be drilled in 2001 and up to
nine locations will be drilled in 2002. Rig availability will dictate the
ultimate number of locations drilled in 2001. Gross reserves per well average
4.5 Bcfe with gross average total completed well costs of $492,000. In 2000,
Hallwood also incurred approximately $860,000 for maintenance, gas gathering
systems, a sidetrack, interest acquisitions and miscellaneous projects in the
area.
In addition to the Colorado infill locations, Hallwood has the potential for 14
similar locations in New Mexico if infill drilling is permitted there. Total
completed well costs in this area average $354,000 and gross reserves per well
averaged 3.6 Bcfe. Overall, Hallwood's drilling program in this area is
anticipated to yield finding and development costs of $0.35 to $0.45 per mcfe,
on a net basis and net reserve additions of up to 71 Bcfe. Additional upside may
exist as evidenced by secondary recovery projects already underway in the San
Xxxx Basin. These pilot secondary recovery projects involving CO2 and nitrogen
injection may be additive to Hallwood properties. There can be no assurance that
these projects will yield positive results but current data suggests that an
additional 200 Bcfe of gross recoverable gas may exist.
Other
The remaining $3,771,000 (13%) of Hallwood's capital expenditures incurred in
2000 was devoted to technical general and administrative expenditures, delay
rental costs, and numerous other projects which were completed or are underway
and which are individually less significant.
Future Plans
Hallwood's capital budget for 2001 is expected to be $50,000,000, with
$30,000,000 targeted for exploration, exploitation, and development. In total,
Hallwood plans to participate in 8 exploration projects and 54 exploitation and
development projects during 2001. Fifteen percent of the capital budget has been
allocated to the San Xxxx Basin, 30% to the Greater Permian Basin, 15% to South
Texas, 30% to South Louisiana, and 10% to other areas. An additional $20,000,000
is available for acquisitions, debt reduction, stock repurchases, and other
capital projects.
5
During 2000, Hallwood experienced a rig availability shortage. For the year
2001, Hallwood has aggressively pursued reservation of rigs to accommodate
Hallwood's continuous drilling plans. These efforts have resulted in a record
number of rigs currently under contract and/or drilling (5 operated and 5
non-operated). Substantial drilling, completion and operational cost increases
are being experienced throughout the industry.
Company Reserves, Production and Discussion by Significant Regions
The following table presents the December 31, 2000 reserve data by significant
regions.
Proved Reserve Quantities Present Value of Future Net Cash Flows
Proved Proved
Mcf of Gas Bbls of Oil Developed Undeveloped Total
---------- ------------ -------------- ----------- --------
(In thousands)
Gulf Coast Region 28,360 1,672 $ 81,546 $ 47,902 $129,448
Greater Permian Region 33,234 7,134 93,294 16,465 109,759
Rocky Mountain Region 121,228 17 245,299 71,494 316,793
------- ----- -------- -------- --------
182,822 8,823 $420,139 $135,861 $556,000
======= ===== ======== ======== ========
The following table presents the oil and gas production for significant regions
for the periods indicated.
Production for the Production for the
Year Ended December 31, 2000 Year Ended December 31, 1999
---------------------------- ----------------------------
Mcf of Gas Bbls of Oil Mcf Gas Bbls of Oil
---------- ------------- ------- ------------
(In thousands)
Gulf Coast Region 7,196 166 5,234 189
Greater Permian Region 2,643 403 2,758 000
Xxxxx Xxxxxxxx Xxxxxx 12,229 2 9,862 151
Other 180 111 409 148
------ ------ ------ ---
22,248 682 18,263 925
====== ====== ====== ===
The following table presents the Company's extensions and discoveries by
significant regions.
For the Year Ended December 31, 2000 For the Year Ended December 31,1999
------------------------------------ -----------------------------------
Mcf of Gas Bbls of Oil Mcf of Gas Bbls of Oil
---------- ----------- ---------- -----------
(In thousands)
Gulf Coast Region 3,611 63 5,708 113
Greater Permian Region 4,670 1,563 291 58
Rocky Mountain Region 44,945 4,346 9
Other 584
------ ----- ------ ---
53,226 1,626 10,929 180
====== ===== ====== ===
Average Sales Prices and Production Costs
The following table presents the average oil and gas sales price and average
production costs per equivalent mcf of gas computed at the ratio of six mcf of
gas to one barrel of oil.
6
2000 1999 1998
------ ------ ------
Oil and condensate - $23.64 $16.52 $13.65
Natural gas - 2.68 1.90 2.02
Production costs (per equivalent mcf of gas) .80 .72 .65
Productive Oil and Gas Xxxxx
The following table summarizes the productive oil and gas xxxxx as of December
31, 2000 owned by Hallwood. Productive xxxxx are producing xxxxx and xxxxx
capable of production. Gross xxxxx are the total number of xxxxx in which
Hallwood has an interest. Net xxxxx are the sum of Hallwood's fractional
interests owned in the gross xxxxx.
Gross Net
Productive Xxxxx
Oil 447 302
Gas 360 166
--- ---
Total 807 468
=== ===
Oil and Gas Acreage
The following table sets forth the developed and undeveloped leasehold acreage
held directly by Hallwood as of December 31, 2000. Developed acres are acres
which are spaced or assignable to productive xxxxx. Undeveloped acres are acres
on which xxxxx have not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas, regardless of whether or
not such acreage contains proved reserves. Gross acres are the total number of
acres in which Hallwood has a working interest. Net acres are the sum of
Hallwood's fractional interests owned in the gross acres.
Gross Net
----- ---
(in thousands)
Developed acreage 214 118
Undeveloped acreage 123 62
--- ----
Total 337 180
=== ===
At December 31, 2000, Hallwood held undeveloped acreage in Texas, Louisiana, New
Mexico, Colorado, and California.
Drilling Activity
The following table sets forth the number of xxxxx drilled by Hallwood in the
most recent three years.
Year Ended December 31,
2000 1999 1998
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Development Xxxxx:
Productive 6 2.4 1 .5 12 3.6
Dry 1 .8 1 .5 5 1.5
-- --- - --- -- ---
7
Total 7 3.2 2 1 17 5.1
== === = === == ===
Exploratory Xxxxx:
Productive 34 15.7 11 4.1 17 4.3
Dry 8 3.8 8 2.4 17 3.0
-- ---- -- --- -- ---
Total 42 19.5 19 6.5 34 7.3
== ==== == === == ===
Office Space
Hallwood leases office space in Denver, Colorado, for approximately $600,000 per
year under a lease that terminates on December 31, 2006 and office space in
Midland, Texas for approximately $7,000 per year under a lease that terminates
on September 30, 2003. Hallwood also sub-leases office space in Houston, Texas
for approximately $42,000 per year under a lease that terminates on October 14,
2001.
8
