-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GbR8kpstX7/dRliwRUFbMzvnBmcWDf4NlChCavM2K265KdxG49By21VHhEh421US N/yKqm1PcYUZ/rQIZ1bSUQ== /in/edgar/work/0000927356-00-002065/0000927356-00-002065.txt : 20001114 0000927356-00-002065.hdr.sgml : 20001114 ACCESSION NUMBER: 0000927356-00-002065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN GAS RESOURCES INC CENTRAL INDEX KEY: 0000856716 STANDARD INDUSTRIAL CLASSIFICATION: [4922 ] IRS NUMBER: 841127613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10389 FILM NUMBER: 759412 BUSINESS ADDRESS: STREET 1: 12200 N PECOS ST CITY: DENVER STATE: CO ZIP: 80234-3439 BUSINESS PHONE: 3034525603 MAIL ADDRESS: STREET 1: 12200 NORTH PECOS ST CITY: DENVER STATE: CO ZIP: 80234 10-Q 1 0001.txt FORM 10-Q - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------ Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) - ---------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________ Commission file number 1-10389 ------------------------------ WESTERN GAS RESOURCES, INC. --------------------------- (Exact name of registrant as specified in its charter) Delaware 84-1127613 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12200 N. Pecos Street, Denver, Colorado 80234-3439 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (303) 452-5603 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code No changes - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report). Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- On November 1, 2000, there were 32,332,190 shares of the registrant's Common Stock outstanding. 1 - -------------------------------------------------------------------------------- Western Gas Resources, Inc. Form 10-Q Table of Contents PART I - Financial Information Page - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheet - September 30, 2000 and December 31, 1999................................................ 3 Consolidated Statement of Cash Flows - Three and nine Months Ended September 30, 2000 and 1999................................ 4 Consolidated Statement of Operations - Three and nine Months Ended September 30, 2000 and 1999......................... 5 Consolidated Statement of Changes in Stockholders' Equity - Nine Months Ended September 30, 2000............................. 6 Notes to Consolidated Financial Statements....................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 12 Item 3. Quantatative and Qualitative Disclosures about Market Risk....... 20 PART II - Other Information - --------------------------- Item 1. Legal Proceedings................................................ 24 Item 4. Submission of matters to a vote of security holders.............. 25 Item 6. Exhibits and Reports on Form 8-K................................. 25 Signatures.................................................................. 26 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (Dollars in thousands, except share data)
September 30, December 31, 2000 1999 ---------- ---------- ASSETS (unaudited) ------ Current assets: Cash and cash equivalents..................................................... $ 13,842 $ 14,062 Trade accounts receivable, net................................................ 391,875 196,739 Product inventory............................................................. 49,996 35,228 Parts inventory............................................................... 8,869 10,318 Assets held for sale.......................................................... - 7,237 Other......................................................................... 5,384 9,571 ---------- ---------- Total current assets........................................................ 469,966 273,155 ---------- ---------- Property and equipment: Gas gathering, processing and transmission.................................... 862,677 808,274 Oil and gas properties and equipment.......................................... 134,281 104,137 Construction in progress...................................................... 45,485 39,987 ---------- ---------- 1,042,443 952,398 Accumulated depreciation, depletion and amortization........................... (296,366) (260,081) ---------- ---------- Total property and equipment, net........................................... 746,077 692,317 Other assets: Gas purchase contracts (net of accumulated amortization of $32,836 and $31,273, respectively)...................................................... 35,319 36,883 Other......................................................................... 13,511 47,131 ---------- ---------- Total other assets.......................................................... 48,830 84,014 ---------- ---------- Total Assets................................................................... $1,264,873 $1,049,486 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable.............................................................. $ 413,877 $ 240,235 Accrued expenses.............................................................. 33,992 41,075 Dividends payable............................................................. 4,221 4,218 ---------- ---------- Total current liabilities................................................... 452,090 285,528 Long-term debt................................................................. 378,800 378,250 Deferred income taxes payable.................................................. 57,288 35,965 ---------- ---------- Total liabilities............................................................. 888,178 699,743 ---------- ---------- Stockholders' equity: Preferred stock, par value $.10; 10,000,000 shares authorized: $2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding ($35,000,000 aggregate liquidation preference)............................. 140 140 $2.625 cumulative convertible preferred stock; 2,760,000 shares issued and outstanding ($138,000,000 aggregate liquidation preference)................ 276 276 Common stock, par value $.10; 100,000,000 shares authorized; 32,323,974 and 32,186,747 shares issued, respectively...................................... 3,258 3,220 Treasury stock, at cost, 25,016 shares in treasury............................ (788) (788) Additional paid-in capital.................................................... 399,523 397,522 Accumulated deficit........................................................... (25,681) (51,064) Accumulated other comprehensive income........................................ 851 1,321 Notes receivable from key employees secured by common stock................... (884) (884) ---------- ---------- Total stockholders' equity.................................................. 376,695 349,743 ---------- ---------- Total liabilities and stockholders' equity..................................... $1,264,873 $1,049,486 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine Months Ended September 30, ----------------------- 2000 1999 --------- ----------- Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Net income (loss)............................................................................ $ 38,043 $ (15,882) Add income items that do not affect cash: Depreciation, depletion and amortization.................................................... 41,733 37,850 (Gain) loss on the sale of property and equipment........................................... (9,436) 21,406 Distributions (less than) in excess of equity income, net................................... (858) (354) Foreign currency translation adjustments.................................................... (470) (1,864) Deferred income taxes....................................................................... 22,320 (9,204) Other non-cash items, net................................................................... 2,611 493 --------- ----------- 93,943 32,445 Adjustments to working capital to arrive at net cash provided by (used in) operating activities: (Increase) decrease in trade accounts receivable............................................ (192,511) 4,910 (Increase) decrease in product inventory.................................................... (14,768) 16,176 Decrease in parts inventory................................................................. 1,449 201 Decrease in other current assets............................................................ 7,005 11,546 Decrease in other assets and liabilities, net............................................... - 444 Increase (decrease) in accounts payable..................................................... 169,955 (1,062) Decrease in accrued expenses................................................................ (8,720) (5,085) --------- ----------- Net cash provided by (used in) operating activities.......................................... 56,353 59,575 --------- ----------- Cash flows from investing activities: Purchases of property and equipment......................................................... (72,970) (49,043) Proceeds from the dispositions of property and equipment.................................... 26,462 148,100 Contributions to equity investees........................................................... 13 (100) --------- ----------- Net cash used in investing activities........................................................ (46,495) 98,957 --------- ----------- Cash flows from financing activities: Net proceeds from exercise of common stock options.......................................... 2,039 54 Proceeds from issuance of long-term debt.................................................... - 155,000 Debt issue costs paid....................................................................... (7) (9,319) Payments on revolving credit facility....................................................... (922,286) (2,022,000) Borrowings under revolving credit facility.................................................. 949,836 1,815,500 Prepayment of 1995 Senior Notes............................................................. (27,000) - Payments on notes........................................................................... - (84,047) Dividends paid.............................................................................. (12,660) (12,648) --------- ----------- Net cash provided by financing activities.................................................... (10,078) (157,460) --------- ----------- Net increase (decrease) in cash and cash equivalents......................................... (220) 1,072 Cash and cash equivalents at beginning of period............................................. 14,062 4,400 --------- ----------- Cash and cash equivalents at end of period................................................... $ 13,842 $ 5,472 ========= ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues: Sale of residue gas....................................... $ 739,431 $ 392,679 $ 1,659,104 $ 1,107,734 Sale of natural gas liquids............................... 155,136 97,660 412,743 237,514 Processing, transportation and storage revenue............ 12,956 11,799 36,251 36,118 Other, net................................................ 2,313 3,412 8,706 9,846 ----------- ----------- ----------- ----------- Total revenues.......................................... 909,836 505,550 2,116,804 1,391,212 ----------- ----------- ----------- ----------- Costs and expenses: Product purchases......................................... 833,266 456,246 1,911,136 1,251,424 Plant operating expense................................... 18,515 17,096 50,877 50,615 Oil and gas exploration and production expense............ 5,038 2,346 10,975 6,029 Depreciation, depletion and amortization.................. 14,201 13,095 41,733 37,850 (Gain)/loss on fixed assets............................... (3,802) (27) (9,436) 21,690 Selling and administrative expense........................ 8,500 5,759 23,989 21,711 Interest expense.......................................... 8,889 9,365 24,916 25,118 ----------- ----------- ----------- ----------- Total costs and expenses................................ 884,607 503,880 2,054,190 1,414,437 ----------- ----------- ----------- ----------- Income (loss) before income taxes.......................... 25,229 1,670 62,614 (23,225) Provision (benefit) for income taxes: Current................................................... - (528) 537 754 Deferred.................................................. 9,058 1,140 22,320 (9,204) ----------- ----------- ----------- ----------- Total provision (benefit) for income taxes.............. 9,058 612 22,857 (8,450) ----------- ----------- ----------- ----------- Income (loss) before extraordinary items................... 16,171 1,058 39,757 (14,775) Extraordinary charge for early extinguishment of debt, net of tax benefit of $997,000 and $700,000, respectively.. (1,714) - (1,714) (1,107) ----------- ----------- ----------- ----------- Net income (loss).......................................... 14,457 1,058 38,043 (15,882) Preferred stock requirements............................... (2,610) (2,610) (7,829) (7,829) ----------- ----------- ----------- ----------- Income (loss) attributable to common stock................. $ 11,847 $ (1,552) $ 30,214 $ (23,711) =========== =========== =========== =========== Income (loss) per share of common stock.................... $ .37 $ (.05) $ .94 $ (.74) =========== =========== =========== =========== Weighted average shares of common stock outstanding........ 32,263,430 32,150,111 32,208,697 32,148,699 =========== =========== =========== =========== Income (loss) per share of common stock - assuming dilution......................................... $ .36 $ (.05) $ .92 $ (.74) =========== =========== =========== =========== Weighted average shares of common stock outstanding - assuming dilution......................................... 32,945,023 32,150,111 32,745,413 32,148,699 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except share amounts)
Shares of Shares of $2.625 $2.625 $2.28 Cumulative Shares $2.28 Cumulative Cumulative Convertible Shares Of Common Cumulative Convertible Preferred Preferred of Common Stock Preferred Preferred Stock Stock Stock in Treasury Stock Stock ------------ ------------- ------------ ------------- ------------ ------------- Balance at December 31, 1999............................. 1,400,000 2,760,000 32,161,731 25,016 $ 140 $ 276 Comprehensive Income: Net income ....................... - - - - - - Foreign Currency Translation...................... - - - - - - Comprehensive Income Dividends: Dividends declared on common stock............................ - - - - - - Dividends declared on $2.28 cumulative preferred stock....... - - - - - - Dividends declared on $2.625 cumulative convertible preferred stock............................ - - - - - - Stock options exercised........... - - 162,243 - - - ------------ ------------- ------------ ------------- ------------ ------------- Balance at September 30, 2000..... 1,400,000 2,760,000 32,323,974 25,016 $ 140 $ 276 ============ ============= ============ ============= ============ =============
Accumulated Other Notes Total Additional Compre- Receivable Stock- Common Treasury Paid-in Accumulated hensive from Key holders' Stock Stock Capital Deficit Income Employees Equity ---------- ---------- ------------- ------------- -------------- ------------- ------------ Balance at December 31, 1999............................. $3,220 $(788) $397,522 $(51,064) $1,321 $(884) $349,743 Comprehensive Income: Net income ....................... - - - 38,043 - - 38,043 Foreign Currency Translation...................... - - - - (470) - (470) ------------ Comprehensive Income 37,573 ------------ Dividends: Dividends declared on common stock............................ - - - (4,830) - - (4,830) Dividends declared on $2.28 cumulative preferred stock....... - - - (2,397) - - (2,397) Dividends declared on $2.625 cumulative convertible preferred stock............................ - - - (5,433) - - (5,433) Stock options exercised........... 38 - 2,001 - - - 2,039 ---------- ---------- ------------- ------------- -------------- ------------- ------------ Balance at September 30, 2000.....$ 3,258 $ (788) $ 399,523 $ (25,681) $ 851 $ (884) $ 376,695 ========== ========== ============= ============= ============== ============= ============
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) GENERAL The interim consolidated financial statements presented herein should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 1999. The interim consolidated financial statements as of September 30, 2000 and for the three and nine month periods ended September 30, 2000 and 1999 included herein are unaudited but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results for such periods. The results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results of operations expected for the year ended December 31, 2000. Prior year's amounts in the interim consolidated financial statements and notes have been reclassified as appropriate to conform to the presentation used in 2000. STOCK BASED COMPENSATION In March 2000, the FASB issued Interpretation No. 144, an interpretation of APB Opinion No. 25, "Accounting for Certain Transactions Involving Stock Compensation," regarding the accounting treatment of repriced stock options. This interpretation became effective July 1, 2000. Under this interpretation, we will be required to record compensation expense (if not previously accrued) equal to the number of unexercised repriced options multiplied by the amount by which our stock price at the end of any quarter exceeds $21 per share. We have options covering 148,133 common shares outstanding at September 30, 2000 which were treated as repriced options. Based on our stock price at September 30, 2000 of $25.06 per share, we have recorded additional compensation expense of $600,000 in the third quarter of 2000. Extraordinary Item - Early Extinguishment of Debt In September 2000, we prepaid $27.0 million of outstanding indebtedness to insurance companies, originally due to be paid in November 2005, with funds available under our Revolving Credit Facility. In connection with this prepayment, we made a pre-tax make-whole payment of approximately $2.0 million and expensed capitalized fees of approximately $752,000. The combined costs of approximately $2.7 million, net of a tax benefit of $997,000, are reflected as an extraordinary loss on early extinguishment of debt in the third quarter of 2000. The net extraordinary loss of $1.7 million decreased earnings per share of common stock - assuming dilution by $.05. EARNINGS PER SHARE OF COMMON STOCK Earnings per share of common stock is computed by dividing income attributable to common stock by the weighted average number of shares of common stock outstanding. In addition, earnings per share of common stock - assuming dilution is computed by dividing income attributable to common stock by the weighted average number of shares of common stock outstanding as adjusted for potential common shares. Income attributable to common stock is income less preferred stock dividends. We declared preferred stock dividends of $2.6 million and $7.8 million, respectively, for each of the three and nine month periods ended September 30, 2000 and 1999. Common stock options, which are potential common shares, had a dilutive effect on earnings and increased the weighted average number of shares of common stock outstanding by 681,593 and 536,716 for the three and nine month periods ended September 30, 2000. Common stock options, which are potential common shares, were anti-dilutive for the period ended September 30, 1999 and were not included in the calculation of earnings per share for that period. The numerators and the denominators for the three month periods ended September 30, 2000 and 1999 are not adjusted to reflect our $2.625 Cumulative Convertible Preferred Stock outstanding. These shares are antidilutive as the incremental shares result in an increase in earnings per share after giving effect to the dividend requirements. OTHER INFORMATION Black Lake. In December 1999, we signed an agreement for the sale of our Black Lake facility and related reserves for gross proceeds of $7.8 million, subject to final accounting adjustment. This sale closed in January 2000. This transaction resulted in an approximate pre-tax loss of $7.3 million, which was accrued in the fourth quarter of 1999. 7 Western Gas Resources-California, Inc. In January 2000, we sold all the outstanding stock of our wholly-owned subsidiary, Western Gas Resources- California, Inc. ("WGR-California") for $14.9 million. The only asset of this subsidiary was a 162 mile pipeline in the Sacramento basin of California. The pipeline was acquired through the exercise of an option by us in a transaction which closed simultaneously with the sale of WGR-California. We recognized a pre-tax gain on the sale of approximately $5.4 million in the first quarter of 2000. Arkoma. In August 2000, we sold our Arkoma gathering system for gross proceeds of $10.5 million. This sale resulted in an approximate pre-tax gain of $3.9 million, subject to final accounting adjustment. The proceeds from these sales were used to reduce borrowings outstanding under the Revolving Credit Facility. Westana. In February 2000, we acquired the remaining 50% interest in the Westana Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company are reflected in revenues in Other, net on the Consolidated Statement of Operations. Beginning in March 2000, the results of these operations are fully consolidated and are included in Revenues and Costs and expenses. Additionally, in March 2000, our investment in the Westana Gathering Company has been reclassified from Other assets to Property and equipment. SUPPLEMENTARY CASH FLOW INFORMATION Interest paid was $23.3 million and $21.6 million for the nine months ended September 30, 2000 and 1999, respectively. No income taxes were paid during the nine months ended September 30, 2000 or 1999. SUBSEQUENT EVENTS In November 2000, we purchased in open market transactions a total of 33,690 shares of our $2.28 cumulative preferred stock for total cost, including broker commissions, of approximately $851,000, or an average of $25.25 per share of preferred stock. These shares will be retired. Our Board of Directors has authorized the repurchase from time to time of up to an additional $1.2 million of preferred stock in open market transactions. SEGMENT REPORTING We operate in four principal business segments as follows: Gas Gathering and Processing, Production, Marketing and Transmission. These segments are separately monitored by management for performance against our internal forecast and are consistent with our internal financial reporting package. These segments have been identified based upon the differing products and services, regulatory environment and the expertise required for these operations. In our Gas Gathering and Processing segment we connect producers' wells to our gathering systems for delivery to our processing or treating plants, process the natural gas to extract NGLs and treat the natural gas in order to meet pipeline specifications. The results of our Black Lake facility and related reserves, which were sold in December 1999, are included in this segment for the 1999 periods. The residue gas and NGLs extracted at our processing facilities are sold by our Marketing segment. The activities of our Production segment include the exploration and development of gas properties primarily in basins where our gathering and processing facilities are located. The majority of the production from these properties is sold by our Marketing segment. Our Marketing segment buys and sells gas and NGLs nationwide and in Canada from or to a variety of customers. In addition, this segment also markets gas and NGLs produced by our gathering, processing and production assets. The operations associated with the Katy Facility, which was sold in April 1999, are included in the Marketing segment for the three and nine months ended September 30, 1999. Also included in this segment are our Canadian marketing operations (which are immaterial for separate presentation). The Marketing segment also includes losses associated with our equity gas and NGL hedging program of $10.6 million and $4.4 million for the quarters ended September 30, 2000 and September 30, 1999, respectively and of $20.2 million and $6.7 million for the nine months ended September 30, 2000 and September 30, 1999, respectively. 8 The Transmission segment reflects the operations of the MIGC and MGTC pipelines. The majority of the revenue presented in this segment is derived from the transportation of residue gas for our Gas Gathering and Processing, Production and Marketing segments. The following table sets forth our segment information as of and for the three and nine month periods ended September 30, 2000 and 1999 (dollars in thousands). Due to our integrated operations, the use of allocations in the determination of business segment information is necessary. Intersegment revenues are valued at prices comparable to those of unaffiliated customers.
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ---------- ----------- ----------- ---------- ---------- ---------- ----------- Quarter ended September 30, 2000 Revenues from unaffiliated customers...... $ 26,338 $ 783 $ 903,127 $ 1,844 $ 28 $ - $ 932,120 Interest income........................... 34 - - - 7,340 (7,158) 216 Other, net................................ 3 (38) (23,845) - 1,341 39 (22,500) Intersegment sales........................ 200,016 21,440 43,823 3,775 14 (269,068) - -------- -------- ---------- ------- ------- --------- ---------- Total revenues............................ 226,391 22,185 923,105 5,619 8,723 (276,187) 909,836 -------- -------- ---------- ------- ------- --------- ---------- Product purchases......................... 174,832 1,217 922,802 (236) 25 (265,374) 833,266 Plant operating expense................... 16,145 104 28 2,356 278 (396) 18,515 Oil and gas exploration and production expense................... - 7,466 - - - (2,428) 5,038 -------- -------- ---------- ------- ------- --------- ---------- Operating profit.......................... $ 35,414 $ 13,398 $ 275 $ 3,499 $ 8,420 $ (7,989) $ 53,017 ======== ======== ========== ======= ======= ========= ========== Depreciation, depletion and amortization.. 9,682 2,709 41 397 1,372 - 14,201 Interest expense.......................... 8,889 Gain on sale of assets.................... (3,802) Selling and administrative expense........ 8,500 ---------- Income (loss) before income taxes......... $ 25,229 ========== Identifiable assets....................... $542,703 $116,432 $ 62 $46,909 $39,971 $ - $ 746,077 ======== ======== ========== ======= ======= ========= ==========
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ---------- ----------- ----------- ---------- ---------- ---------- ----------- Quarter ended September 30, 1999 Revenues from unaffiliated customers...... $ 9,990 $ 744 $ 496,311 $ 1,706 $ 216 $ - $ 508,967 Interest income........................... - 105 23 - 6,095 (5,975) 248 Other, net................................ 44 - (4,702) 46 947 - (3,665) Intersegment sales........................ 109,340 7,093 24,783 4,012 14 (145,242) - -------- -------- ---------- ------- ------- --------- ---------- Total revenues............................ 119,374 7,942 516,415 5,764 7,272 (151,217) 505,550 -------- -------- ---------- ------- ------- --------- ---------- Product purchases......................... 81,253 551 520,594 - (722) (145,430) 456,246 Plant operating expense................... 15,590 25 (1,659) 2,988 373 (221) 17,096 Oil and gas exploration and production expense................... 147 2,199 - - - - 2,346 -------- -------- ---------- ------- ------- --------- ---------- Operating profit.......................... $ 22,384 $ 5,167 $ (2,520) $ 2,776 $ 7,621 $ (5,566) $ 29,862 ======== ======== ========== ======= ======= ========= ========== Depreciation, depletion and amortization.. 9,271 2,280 40 324 1,180 - 13,095 Interest expense.......................... 9,365 Loss on sale of assets.................... (27) Selling and administrative expense........ 5,759 ---------- Income (loss) before income taxes......... $ 1,670 ========== Identifiable assets....................... $523,168 $ 83,834 $ 88 $47,984 $37,243 $ - $ 692,317 ======== ======== ========== ======= ======= ========= ==========
9
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ---------- ----------- ----------- ---------- ---------- ---------- ----------- Nine months ended September 30, 2000 Revenues from unaffiliated customers...... $ 44,512 $ 2,913 $2,091,842 $ 6,099 $ 89 $ - $2,145,455 Interest income........................... 68 2 27 - 19,597 (19,179) 515 Other, net................................ 1,675 3 (32,756) - 1,873 39 (29,166) Intersegment sales........................ 520,359 49,347 83,104 12,494 31 (665,335) - -------- -------- ---------- ------- ------- --------- ---------- Total revenues............................ 566,614 52,265 2,124,217 18,593 21,590 (684,475) 2,116,804 -------- -------- ---------- ------- ------- --------- ---------- Product purchases......................... 421,085 2,749 2,142,760 (236) (65) (655,157) 1,911,136 Plant operating expense................... 44,623 412 28 6,620 206 (1,012) 50,877 Oil and gas exploration and production expense................... 31 20,068 - - - (9,124) 10,975 -------- -------- ---------- ------- ------- --------- ---------- Operating profit.......................... $100,875 $ 29,036 $ (571) $12,209 $21,449 $ (19,182) $ 143,816 ======== ======== ========== ======= ======= ========= ========== Depreciation, depletion and amortization.. 27,244 9,091 121 1,230 4,047 - 41,733 Interest expense.......................... 24,916 Gain on sale of assets.................... (9,436) Selling and administrative expense........ 23,989 ---------- Income (loss) before income taxes......... $ 62,614 ========== Identifiable assets....................... $542,703 $116,432 $ 62 $46,909 $39,971 $ - $ 746,077 ======== ======== ========== ======= ======= ========= ==========
Gas Gathering Elim- and Trans- inating Processing Production Marketing mission Corporate Entries Total ---------- ----------- ----------- ---------- ---------- ---------- ----------- Nine months ended September 30, 1999 Revenues from unaffiliated customers...... $ 33,204 $ 1,688 $1,349,574 $ 5,402 $ 754 $ - $1,390,622 Interest income........................... 1 256 84 - 19,366 (19,165) 542 Other, net................................ 158 - (3,439) 487 2,842 - 48 Intersegment sales........................ 274,835 17,823 63,723 12,194 42 (368,617) - -------- -------- ---------- ------- ------- --------- ---------- Total revenues............................ 308,198 19,767 1,409,942 18,083 23,004 (387,782) 1,391,212 -------- -------- ---------- ------- ------- --------- ---------- Product purchases......................... 209,072 1,456 1,409,452 - (722) (367,834) 1,251,424 Plant operating expense................... 41,693 132 13 8,817 856 (896) 50,615 Oil and gas exploration and production expense................... 354 5,719 (44) - - - 6,029 -------- -------- ---------- ------- ------- --------- ---------- Operating profit.......................... $ 57,079 $ 12,460 $ 521 $ 9,266 $22,870 $ (19,052) $ 83,144 ======== ======== ========== ======= ======= ========= ========== Depreciation, depletion and amortization.. 26,868 5,516 1,186 844 3,436 - 37,850 Interest expense.......................... 25,118 Loss on sale of assets.................... 21,690 Selling and administrative expense........ 21,711 ---------- Income (loss) before income taxes......... $ (23,225) ========== Identifiable assets....................... $523,168 $ 83,834 $ 88 $47,984 $37,243 $ - $ 692,317 ======== ======== ========== ======= ======= ========= ==========
10 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board, the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 2000. Under SFAS No. 133, which was subsequently amended by SFAS No. 138, we will be required to recognize the change in the market value of all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of the underlying transaction. We do not believe the adoption of SFAS No. 133 will have a material impact on our earnings or financial position as it relates to our equity hedging program. We currently anticipate adopting mark to market accounting in the first quarter of 2001 for the remainder of our marketing activities. We cannot at this time determine the impact of adopting mark-to-market on our earnings or financial position. LEGAL PROCEEDINGS Reference is made to "Part II - Other Information - Item 1. Legal Proceedings," of this Form 10-Q. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS - ------------- The following discussion and analysis relates to factors which have affected our consolidated financial condition and results of operations for the three and nine months ended September 30, 2000 and 1999. Prior year amounts have been reclassified as appropriate to conform to the presentation used in 2000. You should also refer to our interim consolidated financial statements and notes thereto included elsewhere in this document. This section, as well as other sections in this Form 10-Q, contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, such as "may," "intend," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. In addition to the important factors referred to herein, numerous factors affecting the gas processing industry generally and in the specific markets for gas and NGLs in which we operate could cause actual results to differ materially from those in such forward-looking statements. Results of Operations Three and nine months ended September 30, 2000 compared to the three and nine months ended September 30, 1999 (Dollars in thousands, except per share amounts and operating data).
Three Months Ended Nine Months Ended September 30, September 30, ------------------ Percent ---------------------- Percent 2000 1999 Change 2000 1999 Change -------- -------- ------- ---------- ---------- ------- Financial results: Revenues................................... $909,836 $505,550 80 $2,116,804 $1,391,212 52 Gross profit............................... 42,618 16,794 154 111,519 23,604 372 Net income (loss).......................... 14,457 1,058 1,266 38,043 (15,882) -- Income (loss) per share of common stock.... .37 (.05) -- .94 (.74) -- Income (loss) per share of common stock - assuming dilution........................ .36 (.05) -- .92 (.73) -- Net cash provided by operating activities...................... $ 34,317 $ 15,827 117 $ 56,353 $ 59,575 (5) Operating data: Average gas sales (MMcf/D)................. 1,970 1,775 11 1,810 1,960 (8) Average NGL sales (MGal/D)................. 3,170 2,815 13 3,040 2,875 6 Average gas prices ($/Mcf)................. $ 4.08 $ 2.41 70 $ 3.34 $ 2.07 61 Average NGL prices ($/Gal)................. $ .53 $ .38 40 $ .50 $ .30 66
Net income increased $13.4 million for the three months ended September 30, 2000 compared to 1999. The increase in net income was primarily attributable to significantly higher gas and NGL prices in 2000 compared to the prior year, increased production from the Powder River coal bed methane development, improved marketing margins and an after-tax gain of $2.4 million on the sale of our Arkoma gathering system in August 2000 which was partially offset by a $1.7 million after-tax extraordinary loss on the early extinguishment of long-term debt. Net income increased $53.9 million for the nine months ended September 30, 2000 compared to 1999. The increase in net income was primarily attributable to significantly higher gas and NGL prices in 2000 compared to the prior year, increased production from the Powder River coal bed methane development, improved marketing margins and an after-tax gain of $3.1 million recognized on the sale of the stock of our wholly-owned subsidiary, Western Gas Resources- California, in the first quarter of 2000 and an after-tax gain of $2.4 million recognized on the sale of the Arkoma gathering system in the third quarter of 2000 which was partially offset by a $1.7 million after-tax extraordinary loss on the early extinguishment of long-term debt. The results for the nine months ended September 30, 1999 include a combined after-tax loss of $14.8 million from the sale of the Giddings, Katy storage and MiVida facilities and related severance charges and an after-tax extraordinary loss of $1.1 million for the early extinguishment of long-term debt. Revenues from the sale of gas increased $346.8 million to $739.4 million in the third quarter of 2000 compared to the same period in 1999. This increase was primarily due to an improvement in product prices and an increase in the sale of product 12 purchased from third parties. Average gas prices realized by us increased $1.68 per Mcf to $4.08 per Mcf in the third quarter of 2000 compared to the same period in 1999. Included in the realized gas price were approximately $9.2 million of losses recognized in the third quarter of 2000 related to futures positions on equity gas volumes. We have entered into additional futures positions for the majority of our equity gas for the remainder of 2000 and to a lesser extent in 2001. See further discussion in " -Liquidity and Capital Resources - Risk Management Activities." Average gas sales volumes increased 196 MMcf per day to 1,969 MMcf per day for the three months ended September 30, 2000 compared to the same period in 1999. This increase is due to an increase in both product purchased from third parties and in production from our facilities, primarily our Powder River coal bed methane development. Revenues from the sale of gas increased $551.4 million to $1,659.1 million in the nine months ended September 30, 2000 compared to the same period in 1999. This increase was due to an improvement in product prices in 2000 which more than offset a reduction in sales volume. Average gas prices realized by us increased $1.27 per Mcf to $3.34 per Mcf in the nine months ended September 30, 2000 compared to the same period in 1999. Included in the realized gas price were approximately $15.8 million of losses recognized in the nine months ended September 30, 2000 related to futures positions on equity gas volumes. We have entered into additional futures positions for the majority of our equity gas for the remainder of 2000 and to a lesser extent in 2001. See further discussion in " - Liquidity and Capital Resources - Risk Management Activities." Average gas sales volumes decreased 137 MMcf per day to 1,813 MMcf per day in the nine months ended September 30, 2000 compared to the same period in 1999. This decrease was due to a reduction in the sale of gas purchased from third parties resulting from the sale in 1999 of our Katy gas storage facility. Revenues from the sale of NGLs increased $57.5 million in the third quarter of 2000 compared to the same period in 1999. This increase is due to an improvement in product prices and an increase in sales volume. Average NGL prices realized by us increased $.15 per gallon to $.53 per gallon in the third quarter of 2000 compared to the same period in 1999. Included in the realized NGL price were approximately $1.4 million of losses recognized in the third quarter of 2000 related to futures positions on equity NGL volumes. We have additional futures positions in place for a portion of our equity NGL production for the remainder of 2000. See further discussion in " - Liquidity and Capital Resources - Risk Management Activities." Average NGL sales volumes increased 357 MGal per day to 3,172 MGal per day in the third quarter of 2000 compared to the same period in 1999. This increase in NGL volume is primarily due to an increase in the sale of NGLs purchased from third parties. Revenues from the sale of NGLs increased approximately $175.2 million in the nine months ended September 30, 2000 compared to the same period in 1999. This increase is due to an improvement in product prices and an increase in sales volume. Average NGL prices realized by us increased $.20 per gallon to $.50 per gallon in the nine months ended September 30, 2000 compared to the same period in 1999. Included in the realized NGL price were approximately $4.5 million of losses recognized in the nine months ended September 30, 2000 related to futures positions on equity NGL volumes. We have additional futures positions in place for a portion of our equity NGL production for the remainder of 2000. See further discussion in " - Liquidity and Capital Resources - Risk Management Activities." Average NGL sales volumes increased 173 MGal per day to 3,039 MGal per day in the nine months ended September 30, 2000 compared to the same period in 1999. This increase in NGL volume is due to an increase in the sale of NGLs purchased from third parties. Product purchases increased by $377.0 million and $659.7 million in the third quarter and nine months ended September 30, 2000, respectively, compared to the same period in 1999 primarily due to an increase in commodity prices in both periods and an increase in residue gas and NGLs purchased from third parties in the third quarter of 2000. Overall, combined product purchases as a percentage of sales of all products remained constant at 93% for the quarters ended September 30, 2000 and 1999, and decreased 1% to 92% for the nine months ended September 30, 2000 compared to the same period in 1999. The reduction in this percentage was primarily due to increased sales of gas produced from our coal bed methane wells in the Powder River basin. These sales have no corresponding product purchases. This percentage is also affected by the volume of sales of third-party product and the margin earned on those sales. Marketing margins on residue gas averaged $.024 per Mcf in the third quarter of 2000 and $.019 per Mcf in the nine months ended September 30, 2000. These represent significant increases from the margins realized during the comparable periods in 1999 of $.001 per Mcf and $.011 per Mcf, respectively. The margins realized in 2000 are reflective of the current volatile market conditions and our ability to benefit from these conditions through our transportation arrangements. Marketing margins on NGLs averaged $.008 per gallon in the third quarter and nine months ended September 30, 2000 compared to approximately $.006 per gallon and $.004 per gallon in the same periods in 1999, respectively. There is no assurance, however, that these market conditions for our gas and NGL products and related margins will continue in the future or that we will be in a similar position to benefit from them. 13 Oil and gas exploration and production expenses increased $2.7 million and $4.9 million in the third quarter and nine months ended September 30, 2000 compared to the same periods in 1999, respectively. These increases are due to increased production taxes and lease operating expense resulting from our increased drilling and production activities in the Powder River coal bed methane development. Selling and administrative expenses increased $2.7 million and $2.3 million in the third quarter and the nine months ended September 30, 2000 as compared to the same periods in 1999, respectively. These increases are due to higher insurance costs, increased compensation and severance costs, increased accruals for doubtful accounts and compensation recorded for repriced stock options. Depreciation, depletion and amortization increased by $1.1 million and $3.9 million in the third quarter and the nine months ended September 30, 2000 as compared to the same periods in 1999 primarily as a result of our increasing operations in the Powder River basin coal bed methane development. Extraordinary charge for early extinguishment of debt increased by an after- tax charge of $1.7 million in the third quarter of 2000 and by $600,000 in the nine months ended September 30, 2000 as compared to the same periods in 1999. In September 2000, we prepaid $27.0 million of outstanding indebtedness to insurance companies, originally due to be paid in November 2005, with funds available under our Revolving Credit Facility. In connection with this prepayment, we paid a pre-tax make-whole payment of approximately $2.0 million and expensed capitalized fees of approximately $752,000. Other Information Black Lake. In December 1999, we signed an agreement for the sale of our Black Lake facility and related reserves for gross proceeds of $7.8 million, subject to final accounting adjustment. This sale closed in January 2000. This transaction resulted in an approximate pre-tax loss of $7.3 million which was accrued in the fourth quarter of 1999. Western Gas Resources-California, Inc. In January 2000, we sold all of the outstanding stock of our wholly-owned subsidiary, Western Gas Resources- California, Inc., ("WGR-California"), for $14.9 million. The only asset of this subsidiary was a 162 mile pipeline in the Sacramento basin of California. The pipeline was acquired through the exercise of an option by us in a transaction which closed simultaneously with the sale of WGR-California. We recognized a pre-tax gain on the sale of approximately $5.4 million in the first quarter of 2000. Arkoma. In August 2000, we sold our Arkoma gathering system for gross proceeds of $10.5 million. This sale resulted in an approximate pre-tax gain of $3.9 million, subject to final accounting adjustment. The proceeds from these sales were used to reduce borrowings outstanding under the Revolving Credit Facility. Westana. In February 2000, we acquired the remaining 50% interest in the Westana Gathering Company for a net purchase price of $9.8 million. The results from our ownership through February 2000 of a 50% equity interest in the Westana Gathering Company are reflected in revenues in Other, net on the Consolidated Statement of Operations. Beginning in March 2000, the results of these operations are fully consolidated and are included in Revenues and Costs and expenses. Additionally, in March 2000, our investment in the Westana Gathering Company has been reclassified from Other assets to Property and equipment. Business Strategy Our long-term business plan is to increase our profitability by: (i) optimizing the efficiency of existing operations; (ii) entering into additional agreements with third-party producers who dedicate acreage to our gathering and processing operations; and (iii) investing in projects or acquiring assets that complement and extend our core natural gas gathering, processing, production and marketing businesses. We constantly seek to improve the profitability of our existing operations by increasing natural gas throughput levels through new well connections and expansion of gathering systems, increasing our efficiency through the consolidation of existing gathering and processing facilities, evaluating the economic performance of each of our operating facilities to ensure that a targeted rate of return is achieved and controlling operating and overhead expenses. 14 We continually seek to increase reserves dedicated to our facilities. Our operations are located in some of the most actively drilled oil and gas producing basins in the United States. We enter into agreements under which we gather and process natural gas produced on acreage dedicated to us by third parties. We contract for production from new wells and newly dedicated acreage in order to replace declines in existing reserves that are dedicated for gathering and processing at our facilities. We also seek to increase reserves supplying our facilities by developing our own production, such as in the Powder River basin. We have increased our dedicated estimated reserves from 2.3 Tcf at December 31, 1994 to 2.8 Tcf at December 31, 1999. In 1999, including the reserves developed by us and associated with our joint ventures and partnerships and excluding the reserves associated with the facilities sold during this period, we connected new reserves to our facilities to replace approximately 142% of throughput. In order to obtain additional dedicated acreage and to secure contracts on favorable terms, we may participate to a limited extent with third party producers in exploration and production activities that supply our facilities. For the same reason, we may also offer to sell ownership interests in our facilities to selected producers. We will continue to invest in projects that complement and extend our core natural gas gathering, processing, production and marketing businesses including the consideration of expansion into additional geographic areas in the continental United States and Canada. In the third quarter of 2000, our Board of Directors retained an executive search firm to identify and evaluate both internal and external candidates to replace our current Chief Executive Officer and President, Lanny Outlaw who has informed the Board of his intention to retire May 31, 2001. Liquidity and Capital Resources Our sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under our financing facilities and proceeds from offerings of debt and equity securities. In the past, these sources have been sufficient to meet our needs and finance the growth of our business. We can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects, and we may be required to seek alternative financing sources. In 1999, we completed the sales of our Giddings, Katy and MiVida facilities. In connection with the sale of Katy, we sold gas held in storage at this facility. In December 1999, we contracted for the sale of the Black Lake facility and related reserves. This sale closed in January 2000. In 2000, we sold the stock of our subsidiary, Western Gas Resources-California, Inc. and our Arkoma gathering system for a combined pre-tax gain of approximately $9.3 million. We used the proceeds from these sales of approximately $183 million to reduce debt. Product prices, sales of inventory, the volumes of natural gas processed by our facilities, the margin on third-party product purchased for resale, as well as the timely collection of our receivables will affect all future net cash provided by operating activities. Additionally, our future growth will be dependent upon obtaining additions to dedicated plant reserves, acquisitions, new project development, marketing, efficient operation of our facilities and our ability to obtain financing at favorable terms. We believe that the amounts available to be borrowed under the Revolving Credit Facility, together with net cash provided by operating activities and the sale of non-strategic assets, will provide us with sufficient funds to connect new reserves, maintain our existing facilities, complete our current capital expenditure program and make any scheduled debt principal payments. Depending on the timing and the amount of our future projects, we may be required to seek additional sources of capital. Our ability to secure additional capital is in some cases restricted by our financing facilities, although we may request additional borrowing capacity from our lenders, seek waivers from our lenders to permit us to borrow funds from third parties, seek replacement financing facilities from other lenders, use stock as a currency for acquisitions, sell existing assets or a combination of alternatives. While we believe that we would be able to secure additional financing, if required, we can provide no assurance that we will be able to do so or as to the terms of any additional financing. We also believe that cash provided by operating activities and amounts available under our Revolving Credit Facility will be sufficient to meet our debt service and preferred stock dividend requirements for 2000 and 2001. While several of our plants have experienced declines in dedicated reserves, overall we have been successful in connecting additional reserves to more than offset the natural declines. Higher gas prices, improved technology, e.g., 3-D seismic and horizontal drilling, and increased pipeline capacity from the Rocky Mountain region have stimulated drilling in many of our operating areas. The overall level of drilling will depend upon, among other factors, the prices for oil and gas, the drilling budgets of third-party producers, the energy policy and regulation by governmental agencies and the availability of foreign oil and gas, none of which is within our control. There is no assurance that we will continue to be successful in replacing the dedicated reserves processed at our facilities. 15 We have effective shelf registration statements filed with the Securities and Exchange Commission for an aggregate of $200 million of debt securities and preferred stock, along with the shares of common stock, if any, into which those securities are convertible, and $62 million of debt securities, preferred stock or common stock. Our sources and uses of funds for the nine months ended September 30, 2000 are summarized as follows (dollars in thousands):
Sources of funds: Borrowings under revolving credit facility....................... $ 949,836 Proceeds from the dispositions of property and equipment......... 26,462 Net cash provided by operating activities........................ 56,353 Proceeds from exercise of common stock options................... 2,039 Other............................................................ 13 ---------- Total sources of funds......................................... $1,034,703 ========== Uses of funds: Payments related to long-term debt (including debt issue costs).. $ 922,293 Capital expenditures............................................. 72,970 Dividends paid................................................... 12,660 Early extinguishment of 1995 Senior debt......................... 27,000 ---------- Total uses of funds............................................ $1,034,923 ==========
Additional sources of liquidity available to us are our inventories of gas and NGLs in storage facilities. We store gas and NGLs primarily to ensure an adequate supply for long-term sales contracts and for resale during periods when prices are favorable. We held gas in storage and in imbalances of approximately 13.9 Bcf at an average cost of $3.31 per Mcf at September 30, 2000 compared to 10.9 Bcf at an average cost of $2.18 per Mcf at September 30, 1999 under storage contracts at various third-party facilities. At September 30, 2000, we had hedging contracts in place for anticipated sales of approximately 13.8 Bcf of stored gas at a weighted average price of $3.84 per Mcf for the stored inventory. We held NGLs in storage of 14,213 MGal, consisting primarily of propane and normal butane, at an average cost of $.41 per gallon and 15,700 MGal at an average cost of $.28 per gallon at September 30, 2000 and 1999, respectively, at various third-party storage facilities. At September 30, 2000, we had no significant hedging contracts in place for anticipated sales of stored NGLs. Preferred Stock Repurchase Program In November 2000, we purchased in open market transactions a total of 33,690 shares of our $2.28 cumulative preferred stock for total cost, including broker commissions, of approximately $851,000, or an average of $25.25 per share of preferred stock. These shares will be retired. Our Board of Directors has authorized the repurchase from time to time of up to an additional $1.2 million of preferred stock in open market transactions. Capital Investment Program Primarily as a result of additional drilling behind our systems and in the Powder River basin, we have increased our capital budget for the year ending December 31, 2000 by approximately $15.8 million. We now expect capital expenditures related to existing operations to be approximately $105.5 million during 2000, consisting of the following: (i) approximately $60.9 million related to gathering, processing and pipeline assets, of which $7.8 million is for maintaining existing facilities and $9.8 million for acquisition of the remaining 50% interest in the Westana Gathering Company; (ii) approximately $39.6 million related to exploration and production activities; and (iii) approximately $5.0 million for miscellaneous items. Overall, capital expenditures in the Powder River basin coal bed methane development and in southwest Wyoming operations represent 47% and 12%, respectively, of the total 2000 budget. As of September 30, 2000, we have expended $73.0 million, consisting of the following: (i) $37.2 million related to gathering, processing and pipeline assets, of which $4.6 million is for maintaining existing facilities and $9.8 million for acquisition of the remaining 50% interest in the Westana Gathering Company; (ii) $30.0 million related to exploration and production activities; and (iii) $5.8 million for miscellaneous items. 16 Coal Bed Methane - We continue to develop our Powder River basin coal bed methane gathering system and our coal seam gas reserves in Wyoming. We have acquired drilling rights on approximately 1,075,000 gross acres, or 520,000 net acres, in the basin. On approximately 18% of this acreage position, we have established proven developed and undeveloped reserves. Production of coal bed methane from the Powder River basin has been expanding, and approximately 225 MMcf/D of gas volumes in the month of September 2000 were being produced by several operators in the area, including 174 MMcf/D gross production by our partners and us, or 69 MMcf/D net to our interest. We transport most of the coal bed methane gas under firm transportation or gathering agreements through our MIGC interstate pipeline or the Fort Union gathering system. In addition we have 108 MMcf/D firm transportation capacity on other interstate pipelines with access to gas markets in the Rocky Mountain and Midwest regions of the United States. We currently project gross production rates of approximately 200 MMcf/D, or 78 MMcf/D net, at December 31, 2000 and approximately 300 MMcf/D, or 117 MMcf/D net, at December 31, 2001. Given the uncertainties associated with obtaining drilling and water discharge permits and of drilling in unproven areas, there is no assurance, however, that we will reach these projected volumes. Our production is derived primarily from wells drilled to depths of 400 to 1,200 feet in the Wyodak coal formation. In 2000, we expect to drill approximately 1070 gross wells, or 535 net wells, to the Wyodak coal, the majority of which are on locations with proven, undeveloped reserves. During the first nine months of 2000, we have drilled 777 gross wells, or 389 net wells, to this formation. At October 31, 2000, a total of 713 gross wells are awaiting connection, including 611 gross wells with pending water discharge permits from the Wyoming Department of Environmental Quality, the DEQ, as discussed below. As part of our drilling plans for 2000, we expect to drill approximately 150 gross wells in pilot areas including the Big George coal. The Big George formation is deeper and under higher pressure and if successful could result in higher reserves per well than the Wyodak coal formation. The average drilling, completion and gathering cost for our Wyodak coal bed methane wells is approximately $80,000 with reserves per well of approximately 320 MMcf. As deeper wells are drilled and other coal formations are explored, particularly the Big George formation, the average drilling cost is expected to increase. Future drilling on federal acreage will be delayed until the completion of an Environmental Impact Statement for the majority of the Powder River basin. This study is currently expected to be completed in the first quarter of 2002. Our drilling plans for 2000 and 2001 are not expected to be substantially affected by this study due to our large inventory of non-federal drilling locations. In addition, the DEQ has approved changes in the standards for surface water discharge on some components of the water being discharged from coal bed wells and continues to evaluate changes in other standards and policies, particularly its anti-degradation policy as it pertains to barium content and the sodium absorption ratio, SAR. The DEQ has requested the Environmental Quality Council to hold a public hearing on these standards and policies. The DEQ may cease granting water discharge permits until the hearing is conducted. As we have throughout the development of this play, we will continue to work with the DEQ and other regulatory agencies to address any concerns with the quality of the water discharged. We currently anticipate that the hearing will be held in January 2001 and should result in the DEQ's decision to resume issuance of water discharge permits. However, we can make no assurance as to the timing of the January 2001 hearing or the DEQ's decision regarding the issuance of new water discharge permits or the conditions under which new water discharge permits will be granted. The timing of our drilling schedule and related capital expenditures for Powder River coal bed methane development may be negatively affected if the DEQ's decision is not reached in January 2001 or if the terms of the water discharge permits are unfavorable. Our capital budget in this area provides for expenditures of approximately $50.0 million during 2000 of which $36.0 million was spent during the first nine months of 2000. This capital budget includes approximately $35.5 million for drilling costs for our interest in approximately 1,000 wells, production equipment and undeveloped acreage and $14.5 million for compression. In March 2000, we entered into a ten-year operating lease agreement for compression equipment of which $7.5 million was available at September 30, 2000. Depending upon future drilling success, we may need to make additional capital expenditures to continue expansion in this basin. However, because of drilling and other uncertainties beyond our control, we can make no assurance that we will incur this level of capital expenditure or that we will make future capital expenditures. We own an approximate 13% equity interest in Fort Union Gas Gathering L.L.C., the only asset of which is a 106-mile long, 24-inch gathering pipeline and treater to gather and treat natural gas in the Powder River basin in northeast Wyoming. We are the construction manager and field operator of Fort Union. This system has a capacity of approximately 450 MMcf/D of natural gas with expansion capability and averaged 183 MMcf/D of throughput in the third quarter of 2000. In the third quarter of 2000, the operating committee of Fort Union approved preliminary plans to increase the capacity of the gathering system and header to 635 MMcf/D. The header delivers coal bed methane gas to a treating facility near Glenrock, Wyoming and accesses interstate pipelines serving gas markets in the Rocky Mountain and Midwest regions of the United States. We 17 currently have a long-term agreement for firm gathering services on 60 MMcf/D of capacity at $.14 per Mcf on Fort Union and a right to contract for additional capacity as the system expands. Southwest Wyoming - Our facilities in southwest Wyoming are comprised of the Granger facility and a 72% ownership interest in the Lincoln Road facility, or collectively the Granger Complex. These facilities have a combined operational capacity of 285 MMcf/D and processed an average of 163 MMcf/D in the third quarter of 2000. We also own the rights to drill on 360,000 gross acres, or 40,000 net acres, in the Jonah field and Hoback basin which includes the Pinedale anticline area. We are currently participating in the development of a portion of this acreage. We have an approximate 11.25% working interest in 1,920 gross acres in the Jonah field and have agreed to participate in the drilling of 15 gross wells in 2000. Eight of these wells have been completed and are currently producing a combined gross volume of 26 MMcf/D for processing at our Granger facility. We also have an approximate 10% working interest in 22,000 gross acres along the Pinedale anticline section of the Hoback basin and have agreed to participate in the drilling of 13 gross wells in 2000. None of these wells have been completed. Our total capital budget in this area provides for expenditures of approximately $12.2 million during 2000, of which $4.2 million was spent in the first nine months of 2000. This capital budget includes approximately $3.7 million for drilling costs and production equipment and approximately $8.5 million related to the gathering systems and plant facilities. Because of drilling and other uncertainties beyond our control, we can provide no assurance that we will incur this level of capital expenditure or that we will make future capital expenditures. Financing Facilities Revolving Credit Facility. The Revolving Credit Facility is with a syndicate of banks and provides for a maximum borrowing commitment of $250 million consisting of an $83 million 364-day Revolving Credit Facility, or Tranche A, and a five-year $167 million Revolving Credit Facility, or Tranche B. At September 30, 2000, $73.8 million in total was outstanding under this facility. The Revolving Credit Facility bears interest at various spreads over the Eurodollar rate, or the greater of the Federal Funds rate or the agent bank's prime rate. We have the option to determine which rate will be used. We also pay a facility fee on the commitment. The interest rate spreads and facility fee are adjusted based on our debt to capitalization ratio and range from .75% to 2.00%. At September 30, 2000, the interest rate payable on the facility was 8.1% per annum. We are required to maintain a total debt to capitalization ratio of not more than 60% through December 31, 2000 and not more than 55% thereafter, and a senior debt to capitalization ratio of not more than 40% through December 31, 2001 and not more than 35% thereafter. The agreement also requires a quarterly test of the ratio of EBITDA (excluding some non-recurring items) for the last four quarters, to interest and dividends on preferred stock for the same period. The ratio must exceed 1.50 to 1.0 through September 30, 2000 and increases periodically to 3.25 to 1.0 by December 31, 2002. This facility is guaranteed and secured via a pledge of the stock of our significant subsidiaries. We utilize excess daily funds to reduce any outstanding balances on the Revolving Credit Facility and associated interest expense. Master Shelf Agreement. In December 1991, we entered into a Master Shelf Agreement with The Prudential Insurance Company of America. Amounts outstanding under the Master Shelf Agreement at September 30, 2000 are as indicated in the following table (dollars in thousands):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due - ------------------- -------- ------ ------------------ --------------------------------------------------- October 27, 1992 $ 25,000 7.99% October 27, 2003 8,333 on each of October 27, 2001 through 2003 December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity July 28, 1995 50,000 7.61% July 28, 2007 10,000 on each of July 28, 2003 through 2007 -------- $150,000 ========
Our agreement with Prudential was amended in 1999 to reflect the following provisions. We are required to maintain a current ratio of at least .9 to 1.0; a minimum tangible net worth equal to the sum of $300 million plus 50% of consolidated net earnings earned from January 1, 1999 plus 75% of the net proceeds of any equity offerings after January 1, 1999; a total debt to capitalization ratio of not more than 60% through December 31, 2001 and of not more than 55% thereafter and a senior debt to capitalization ratio of 40% through March 2002 and 35% thereafter. This agreement also requires an EBITDA to interest ratio of not less than 2.0 to 1.0 increasing to a ratio of not less than 3.75 to 1.0 by March 31, 2002 and an EBITDA to interest on senior debt ratio of not less than 2.25 to 1.0 increasing to a ratio of not less than 5.50 to 1.0 by March 31, 2002. EBITDA in these calculations excludes some non- recurring items. In addition, this agreement contains a calculation limiting 18 dividends under which approximately $47.4 million was available at September 30, 2000. We are currently paying an annual fee of 0.50% on the amounts outstanding on the Master Shelf Agreement. This fee will continue until we have received an implied investment grade rating on our senior secured debt. Borrowings under the Master Shelf Agreement are guaranteed by and secured via a pledge of the stock of our significant subsidiaries. 1995 Senior Notes. In 1995, we sold $42 million of Senior Notes, the 1995 Senior Notes, to a group of insurance companies with an interest rate of 8.16% per annum. In March 1999, we prepaid $15 million of the principal amount outstanding on the 1995 Senior Notes at par. The remaining principal amount outstanding of $27 million was prepaid in September 2000 with funds available under our Revolving Credit Facility. In connection with the prepayment in 2000, we made a pre-tax make-whole payment of approximately $2.0 million and expensed capitalized fees of approximately $752,000. The combined costs of approximately $2.7 million, net of a tax benefit of $997,000, are reflected as an extraordinary loss on early extinguishment of debt in the third quarter of 2000. Senior Subordinated Notes. In 1999, we sold $155.0 million of Senior Subordinated Notes in a private placement with a final maturity of 2009 due in a single payment. The Subordinated Notes bear interest at 10% per annum and were priced at 99.225% to yield 10.125%. These notes contain maintenance covenants which include limitations on debt incurrence, restricted payments, liens and sales of assets. The Subordinated Notes are unsecured and are guaranteed on a subordinated basis by our significant subsidiaries. In November 1999, we exchanged the privately placed notes for registered publicly tradeable notes under the same terms and conditions. We incurred approximately $5.0 million in offering commissions and expenses which have been capitalized and will be amortized over the term of the notes. Covenant Compliance. We were in compliance with all covenants in our debt agreements at September 30, 2000. Taking into account all the covenants contained in these agreements, we had approximately $130 million of available borrowing capacity at September 30, 2000. To increase our borrowing capacity, strengthen our credit ratings and to reduce our overall debt outstanding, we may continue to dispose of non-strategic assets and investigate alternative financing sources including the issuance of public debt, project-financing, joint ventures and operating leases. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Risk Management Activities Our commodity price risk management program has two primary objectives. The first goal is to preserve and enhance the value of our equity volumes of gas and NGLs with regard to the impact of commodity price movements on cash flow, net income and earnings per share in relation to those anticipated by our operating budget. The second goal is to manage price risk related to our gas, crude oil and NGL marketing activities to protect profit margins. This risk relates to hedging fixed price purchase and sale commitments, preserving the value of storage inventories, reducing exposure to physical market price volatility and providing risk management services to a variety of customers. We utilize a combination of fixed price forward contracts, exchange-traded futures and options, as well as fixed index swaps, basis swaps and options traded in the over-the-counter, or OTC, market to accomplish these objectives. These instruments allow us to preserve value and protect margins because corresponding losses or gains in the value of the financial instruments offset gains or losses in the physical market. We use futures, swaps and options to reduce price risk and basis risk. Basis is the difference in price between the physical commodity being hedged and the price of the futures contract used for hedging. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the commodity being hedged. Basis risk exists in natural gas primarily due to the geographic price differentials between cash market locations and futures contract delivery locations. We enter into futures transactions on the New York Mercantile Exchange, or NYMEX, and the Kansas City Board of Trade and through OTC swaps and options with various counterparties, consisting primarily of financial institutions and other natural gas companies. We conduct our standard credit review of OTC counterparties and have agreements with these parties that contain collateral requirements. We generally use standardized swap agreements that allow for offset of positive and negative exposures. OTC exposure is marked-to-market daily for the credit review process. Our OTC credit risk exposure is partially limited by our ability to require a margin deposit from our major counterparties based upon the mark-to-market value of their net exposure. We are subject to margin deposit requirements under these same agreements. In addition, we are subject to similar margin deposit requirements for our NYMEX counterparties related to our net exposures. The use of financial instruments may expose us to the risk of financial loss in certain circumstances, including instances when (i) equity volumes are less than expected, (ii) our customers fail to purchase or deliver the contracted quantities of natural gas or NGLs, or (iii) our OTC counterparties fail to perform. To the extent that we engage in hedging activities, we may be prevented from realizing the benefits of favorable price changes in the physical market. However, we are similarly insulated against decreases in these prices. We hedged a portion of our estimated equity volumes of gas and NGLs in 2000 at pricing levels approximating our 2000 operating budget. Our equity gas and NGL hedging strategy for 2000 establishes a minimum price while allowing varying levels of market participation above the minimum. As of September 30, 2000, we had hedged approximately 38%, or 35,000 MMBtu/day, of our anticipated equity gas for the balance of 2000 at a weighted average NYMEX equivalent minimum price of $2.33 per MMBtu and an additional 24%, or 22,000 MMBtu/day, with collars with a minimum price of $2.10 per MMBtu and a maximum price of $2.44 per MMBtu NYMEX equivalent price. We also hedged an incremental 10,000 MMBtu/day of anticipated equity production for October 2000 through March 2001 with collars at a weighted average NYMEX equivalent minimum price of $2.75 per MMBtu and a maximum price of $3.50 per MMBtu. We have also hedged a portion of our estimated equity volumes of gas in 2001. As of September 30, 2000, we had hedged approximately 36%, or 36,000 MMBtu/day, of our anticipated equity gas for the first quarter of 2001 at a weighted average NYMEX equivalent price of $4.14 per MMBtu and an additional 10%, or 10,000 MMBtu/day in the first quarter, with collars with a minimum price of $2.75 per MMBtu and a maximum price of $3.50 per MMBtu NYMEX equivalent price. For the remainder of 2001, we have hedged 40%, or 41,000 MMBtu/day, of our anticipated equity gas for the second, third and fourth quarters of 2001 at a weighted average NYMEX equivalent price of $4.14 per MMBtu. Additionally, we have hedged approximately 26%, or 25,000 Bbl per month of our anticipated equity natural gasoline, condensate and crude oil for 2000 using a collar with a minimum price of $15.00 per Bbl and maximum price of $17.00 per Bbl NYMEX crude oil monthly average price. We have also hedged approximately 46%, or 195,000 Bbl per month, of our anticipated equity production of NGLs for 2000 with a minimum weighted average Mt. Belvieu composite price of $0.27 per gallon. We do not have any hedges in place for crude oil or NGLs in 2001. 20 At September 30, 2000, we had $1.2 million of unrecognized gains in inventory that will be recognized primarily during the fourth quarter of 2000. At September 30, 2000, we had unrecognized net losses of $10.0 million related to financial instruments that may be offset by corresponding unrecognized net gains from our obligations to sell physical quantities of gas and NGLs. We enter into speculative futures, swap and option trades on a very limited basis for purposes that include testing of hedging techniques. Our policies contain strict guidelines for these trades including predetermined stop-loss requirements and net open position limits. Speculative futures, swap and option positions are marked-to-market at the end of each accounting period and any gain or loss is recognized in income for that period. Net gains or losses from these speculative activities for the quarters and nine months ended September 30, 2000 and 1999 were not material. Foreign Currency Derivative Market Risk As a normal part of our business, we enter into physical gas transactions which are payable in Canadian dollars. We enter into forward purchases and sales of Canadian dollars from time to time to fix the cost of our future Canadian dollar denominated natural gas purchase, sale, storage and transportation obligations. This is done to protect marketing margins from adverse changes in the U.S. and Canadian dollar exchange rate between the time the commitment for the payment obligation is made and the actual payment date of such obligation. As of September 30, 2000, the net notional value of such contracts was approximately $11.4 million in Canadian dollars, which approximates its fair market value. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board, the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), effective for fiscal years beginning after June 15, 2000. Under SFAS No. 133, which was subsequently amended by SFAS No. 138, we will be required to recognize the change in the market value of all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending upon the nature of the underlying transaction. We do not believe the adoption of SFAS No. 133 will have a material impact on our earnings or financial position as it relates to our equity hedging program. We currently anticipate adopting mark to market accounting in the first quarter of 2001 for the remainder of our marketing activities. We cannot at this time determine the impact of adopting mark-to-market on our earnings or financial position. 21 Principal Facilities The following tables provide information concerning our principal facilities at September 30, 2000. We also own and operate several smaller treating, processing and transmission facilities located in the same areas as our other facilities.
Average for the Nine Months Ended September 30, 2000 Gas Gas ----------------------------------------------- Year Placed Gathering Throughput Gas Gas NGL In System Capacity Throughput Production Production Plant Facilities (1) Service Miles(2) (MMcf/D)(3) (MMcf/D)(4) (MMcf/D)(5) (MGal/D)(5) - --------------------------- --------- ----------------- ------------ -------------- -------------- --------------- Texas Bethel Treating (6)...... 1997 86 300 170 167 - Gomez Treating........... 1971 385 280 109 100 - Midkiff/Benedum.......... 1949 2,173 165 149 94 921 Mitchell Puckett Gathering............... 1972 90 120 100 64 1 Louisiana Toca (7)(8).............. 1958 - 160 126 121 103 Wyoming Coal Bed Methane Gathering............... 1990 444 223 204 190 - Fort Union Gas Gathering (15).................... 1999 106 450 75 75 - Granger(7)(9)(10)........ 1987 482 235 141 117 368 Hilight Complex (7)...... 1969 626 80 18 14 60 Kitty/Amos Draw (7)...... 1969 314 17 12 8 47 Lincoln Road (10)........ 1988 149 50 20 19 22 Newcastle (7)............ 1981 146 5 3 2 18 Red Desert (7)........... 1979 111 42 15 13 26 Reno Junction (9)........ 1991 - - - - 92 Oklahoma Arkoma (16).............. 1985 76 12 10 9 - Chaney Dell.............. 1966 2,054 130 52 42 170 Westana (14)............. 1981 871 45 67 48 114 New Mexico San Juan River (6)....... 1955 140 60 26 20 37 Utah Four Corners Gathering... 1988 104 15 2 2 13 ----------------- ------------ -------------- -------------- --------------- Total................... 8,357 2,389 1,299 1,105 1,992 ================= ============ ============== ============== ===============
Average for the Nine Months Ended September 30, 2000 ---------------------------- Year Pipeline Gas Placed In Transmission Capacity Throughput Transmission Facilities (1) Service Miles(2) (MMcf/D)(2) (MMcf/D)(4) - --------------------------- --------- ----------------- ------------ -------------- MIGC (11)(13).............. 1970 245 130 175 MGTC (12).................. 1963 252 18 13 ----------------- ------------ -------------- Total.................... 497 148 188 ================= ============ ==============
Footnotes on following page. 22 (1) Our interest in all facilities is 100% except for Midkiff/Benedum (73%); Lincoln Road (72%); Newcastle (50%) and Fort Union gathering system (13%). We operate all facilities and all data includes our interests and the interests of other joint interest owners and producers of gas volumes dedicated to the facility. Unless otherwise indicated, all facilities shown in the table are gathering and processing facilities. (2) Gas gathering system miles, interconnect and transmission miles and pipeline capacity are as of September 30, 2000. (3) Gas throughput capacity is as of September 30, 2000 and represents capacity in accordance with design specifications unless other constraints exist, including permitting or field compression limits. (4) Aggregate wellhead natural gas volumes collected by a gathering system or volumes transported by a pipeline. (5) Volumes of gas and NGLs are allocated to a facility when a well is connected to that facility; volumes exclude NGLs fractionated for third parties. (6) Sour gas facility (capable of processing or treating gas containing hydrogen sulfide and/or carbon dioxide). (7) Fractionation facility (capable of fractionating raw NGLs into end-use products). (8) Straddle plant, or a plant located near a transmission pipeline that processes gas dedicated to or gathered by a pipeline company or another third party. (9) NGL production includes conversion of third-party feedstock to iso-butane. (10) We and our joint venture partner at the Lincoln Road facility have agreed to process all gas at our Granger facility so long as there is available capacity at the Granger facility. Accordingly, operations at the Lincoln Road facility have been temporarily suspended since January 1999. (11) MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission. (12) MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission. (13) Pipeline capacity represents capacity at the Powder River junction only and does not include northern delivery points. (14) We acquired the remaining 50% interest in Westana Gathering Company in February 2000. (15) A portion of the Gas Throughput and Gas Production for this gathering system is also included in the volumes reported under Coal Bed Methane Gathering. (16) This facility was sold in August 2000. 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Western Gas Resources, Inc., Mountain Gas Resources, Inc., v. R.I.S. Resources International Corporation, a British Columbia , Canada corporation; RIS Resources (USA) Inc., a Texas Corporation, United States District Court, Colorado, Civil Action No. 00-S-599 As previously disclosed, our subsidiary Mountain Gas was a defendant in prior litigation, styled as McMurry Oil Company, et al. v. TBI Exploration, Inc., Mountain Gas Resources, Inc. and Wildhorse Energy Partners, LLC, District Court, Ninth Judicial District, Sublette County, Wyoming, Civil Action No. 5882, which was settled on all issues for substantially less than the amount claimed. Western and Mountain Gas are seeking reimbursement from RIS Resources, (USA), Inc., Mountain Gas' joint venture partner, for 50% of the settlement amount which was paid in full by Mountain Gas. The parties are proceeding with discovery. Western Gas Resources, Inc., v. Amerada Hess Corporation, District Court, Denver County, Colorado, Civil Action No. 00-CV-1433. As previously disclosed, we were a defendant in prior litigation, styled as Berco Resources, Inc. v. Amerada Hess Corporation and Western Gas Resources, Inc., United States District Court, District of Colorado, Civil Action No. 97- WM-1332, which has been settled for an amount which did not have a material impact on our results of operations or financial position. We are seeking reimbursement from Amerada Hess under a contractual indemnity. Amerada Hess sought a motion to dismiss, which was denied. We have amended our original complaint and requested a jury trial in this case. The parties are proceeding with discovery. Other We are involved in various other litigation and administrative proceedings arising in the normal course of our business. In the opinion of management, any liabilities that may result from these claims will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations. 24 Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 10.24 Limited Waiver, Consent, Release and Amendment No. 4 to the Second Amended and Restated Master Shelf Agreement effective January 31, 1996 by and among Western Gas Resources, Inc. and The Prudential Insurance Company of America and Pruco Life Insurance Company. 10.25 Fourth Amendment to Loan Agreement by and among Western Gas Resources, Inc. and NationsBank, as Agent, and the Lenders thereto dated April 29, 1999. 27 Financial Data Schedule. (b) Reports on Form 8-K: None 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTERN GAS RESOURCES, INC. --------------------------- (Registrant) Date: November 13, 2000 By: /s/LANNY F. OUTLAW -------------------------------------- Lanny F. Outlaw Chief Executive Officer and President Date: November 13, 2000 By: /s/WILLIAM J. KRYSIAK -------------------------------------- William J. Krysiak Vice President - Finance (Principal Financial and Accounting Officer) 26 EX-10.24 2 0002.txt LIMITED WAIVER, CONSENT, RELEASE AND AMENDMENT [Execution Copy] Exhibit 10.24 LIMITED WAIVER, CONSENT, RELEASE AND AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED MASTER SHELF AGREEMENT (Western Gas Resources, Inc.) This LIMITED WAIVER, CONSENT, RELEASE AND AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED MASTER SHELF AGREEMENT (this "Amendment") is entered into as of August 25, 2000, by and among Western Gas Resources, Inc., a Delaware corporation (the "Company"), and The Prudential Insurance Company of America and Pruco Life Insurance Company (together, "Prudential"). PRELIMINARY STATEMENTS 1. The Company and Prudential entered into a Second Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (effective January 31, 1996), as amended by Letter Amendment No. 1 dated November 21, 1997, Letter Amendment No. 2 dated March 31, 1999 and Limited Waiver, Consent, Release and Amendment No. 3 dated June 1, 1999 (as amended, the "Agreement"). Capitalized terms not otherwise defined herein shall have the meanings specified in the Agreement, as amended hereby. 2. The Company is the sole shareholder of Western Gas Resources - Oklahoma, Inc. ("WGRO"). 3. WGRO has recently acquired all of the partnership interests in Westana Gathering Company, a general partnership ("Westana"), the primary assets of which are the Avard/Waynoka gathering system (the "System") and the Chester gas processing plant (the "Plant"). 4. Concurrently with the repayment of the notes issued under the 1995 Note Purchase Agreement (the "American General Notes"), the Company desires to undertake the following transactions with respect to WGRO and Westana (collectively, the "Westana Transactions"): (a) all of Westana's assets shall be liquidated into WGRO; (b) WGRO shall concurrently therewith create a new subsidiary ("Newco"), which shall be capitalized with the System; and (c) subsequent to the creation Newco, WGRO will be merged with and into Newco with Newco being the surviving entity, and, as a result of such merger, the Company shall become the owner of the Plant. 5. In order to secure the Obligations (as defined in the hereinafter defined WGRO Guaranty), including the obligations of the Company under the Notes and the Agreement, the Company caused Western Gas Resources - Oklahoma, Inc., a Delaware corporation ("WGR Oklahoma"), to execute and deliver to Prudential a Guaranty in favor of Prudential together with all subsequent holders of the Obligations (the "WGRO Guaranty"). 6. In order to secure the Secured Obligations (as defined in the Pledge Agreement), including the obligations of the Company under the Notes and the Agreement, the Company executed and delivered the Pledge Agreement pursuant to which the Company pledged and granted a security interest to Prudential in, among other things, the common stock of WGRO (the "WGRO Pledged Stock"). 7. The Company and WGRO have requested that Prudential (i) terminate the WGRO Guaranty and otherwise grant a general release of WGRO under the WGRO Guaranty and any other obligations and liabilities arising under all documents and agreements delivered pursuant to the WGRO Guaranty or in connection therewith and (ii) release Prudential's security interest in the shares of capital stock of WGRO under the Pledge Agreement (the "Release"). 8. The Company and Prudential desire to amend the Agreement for the purposes described herein and to consent to the consummation of the Westana Transactions in connection with the repayment of the American General Notes. 9. Prudential is willing to grant the Release, subject to the condition that the lenders parties to the NCNB Agreement grant a similar release of the guaranty provided by WGRO to such lenders parties to the NCNB Agreement and NCNB and the respective security interests of such lenders parties to the NCNB Agreement and NCNB in shares of common stock of WGRO (the "Corresponding Release"). 10. Prudential is the holder of 100% of the outstanding principal amount of the Notes issued under the Agreement. In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Consents, Waivers and Releases. (a) Consent to Westana Transactions; Waiver. Prudential hereby consents to the Westana Transactions. 2 (b) Release of WGRO. Prudential hereby terminates, releases and discharges the shares of common stock of WGRO from the liens and security interests granted by the Company pursuant to the Pledge Agreement, in each case on or after the Westana Effective Date and the satisfaction in full of all conditions precedent set forth in Section 3 of this Amendment. The Company hereby agrees to deliver to Prudential, within 30 days after the Westana Effective Date, an amendment to the Intercreditor Agreement duly executed by the parties thereto confirming the matters described in Section 3(h) hereto and the removal of American General Life Insurance Company as a party thereto due to payment in full of the American General Notes. SECTION 2. Amendments. (a) Amendment to Paragraph 6C(4). Sale of Stock and Debt of Subsidiaries. Paragraph 6C(4) is hereby amended in its entirety to read as follows: "6C(4). Sale of Stock and Debt of Subsidiaries. Sell or otherwise dispose of, or part with control of, any shares of stock or Debt of any Subsidiary, except to the Company or another Wholly Owned Subsidiary, and except that all shares of stock and Debt of any Subsidiary at the time owned by or owed to the Company and all Subsidiaries may be sold as an entirety for a cash consideration which represents the fair value (as determined in good faith by the Board of Directors of the Company) at the time of sale of the shares of stock and Debt so sold, provided that (i) the assets of such Subsidiary together with (ii) the assets of all other Subsidiaries the stock or Debt of which was sold or otherwise disposed of in the preceding 12-month period and (iii) the assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of pursuant to clause (v) of paragraph 6C(5) in the preceding 12-month period (in each transaction measured by the greater of book value or Fair Market Value), do not represent more than 15% of Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet, and provided further that, at the time of such sale, such Subsidiary shall not own, directly or indirectly, any shares of stock or Debt of, or any other continuing investment in any other Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary owned, directly or indirectly, by the Company and all Subsidiaries are simultaneously being sold as permitted by this paragraph 6C(4)), or any shares of stock or Debt of the Company." (b) Amendment to Paragraph 6C(5). Merger and Sale of Assets. Clause (v) of paragraph 6C(5) is amended in its entirety to read as follows: "(v) the Company or any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to any Person, provided, that (a) such assets together with (b) all other assets of the Company and its Subsidiaries sold, leased, transferred or otherwise disposed of during the preceding 12-month period, and (c) the assets of all 3 Subsidiaries the stock or Debt of which has been sold or otherwise disposed of during the preceding 12-month period pursuant to the first proviso of paragraph 6C(4) (in each transaction measured by the greater of book value or Fair Market Value), do not represent more that 15% of Consolidated Net Tangible Assets as reflected on the most recent annual or quarterly consolidated balance sheet," (c) Amendment to Paragraph 6. Negative Covenants. Paragraph 6 is amended by adding to end thereof a new paragraph 6F to read as follows: "6F. Restrictions on Hedging Transactions. The Company will not and will not permit any Subsidiary to enter into Hedging Transactions with respect to crude oil, natural gas or liquid hydrocarbons other than Hedging Transactions (i) that apply to not more than the Adjusted Equity Gas Volume in any calendar year and (ii) for the succeeding three calendar years; provided, however, that this paragraph 6F shall not prevent the Company and its Subsidiaries from entering into Hedging Transactions with respect to 100% of the natural gas of the Company or its Subsidiaries (a) held in storage facilities owned by the Company or its Subsidiaries or (b) purchased from third parties and sold to third parties in connection with the marketing operations of the Company and its Subsidiaries. 'Adjusted Equity Gas Volume' for any calendar year, shall mean the volumes of natural gas and liquid hydrocarbons owned by the Company and its Subsidiaries either through ownership of interests in oil and gas properties ('ownership interests') or pursuant to contractual gathering and processing agreements ('contractual arrangements') that, (x) in the case of ownership interests, do not exceed 75% of proved developed producing reserves to be produced in such calendar year and 50% of proved undeveloped reserves projected to be producing during such calendar year and, (y) in the case of contractual arrangements, do not exceed 75% of the Company's and its Subsidiaries' pro rata share of minimum contracted volumes of gas to be collected and/or processed in such calendar year. 'Hedging Transactions' shall mean, with respect to the Company and its Subsidiaries, any commodity basis swap, forward commodity transaction, commodity swap, commodity option, commodity index swap, commodity cap transaction, commodity floor transaction, commodity collar transaction, any other similar transaction that relates to commodities (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. The Company will deliver to the holder of each Note a statement detailing its hedge position in a form satisfactory to the Required Holders of the Notes of each Series at the same time it delivers the financial statements contemplated by paragraphs 5A (i) and 5A(ii)." (d) Amendment to Paragraph 10B. Other Terms. Paragraph 10B of the Agreement is amended by amending the definition of "Consolidated Net Earnings" in its entirety to read as follows: "Consolidated Net Earnings' shall mean consolidated gross revenues of the Company and its Subsidiaries excluding gains resulting from the sale, conversion or other disposition of capital assets (including capital stock of Subsidiaries and other 4 assets not constituting current assets) and other non-cash gains, less all operating and non-operating expenses of the Company and its Subsidiaries (other than losses resulting from the sale, conversion or other disposition of capital assets, including capital stock of Subsidiaries and other assets not constituting current assets and other non-cash losses) and all charges of a proper character (including current and deferred taxes on income, provision for taxes on unremitted foreign earnings that are included in gross revenues, and current additions to reserves), but not including in gross revenues any gains resulting from the write-up of assets, any equity of the Company or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary, any earnings of any Person acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise for any period prior to the time of acquisition, or any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary, all determined in accordance with generally accepted accounting principles." (e) Amendment to Pledge Agreement. Exhibit B of the Pledge Agreement is hereby deleted and replaced with Exhibit B attached hereto. SECTION 3. Conditions of Effectiveness. Except for the Westana Amendments, this Amendment shall become effective as of the date first above written (the "Amendment No. 4 Effective Date") when, and only when, Prudential shall have received all of the following and the Westana Amendments shall become effective as the Westana Effective Date when and only when, Prudential shall have received all of the following: (a) duly executed counterparts of this Amendment; (b) copies of an amendment in similar form and substance to this Amendment to the NCNB Agreement certified as true and correct copies by the Company; (c) copies of the Corresponding Release; (d) the Consent attached hereto, duly executed by each Guarantor except WGRO; (e) a certificate of a duly authorized officer of the Company dated the date of this Amendment certifying: (i) that all of the representations and warranties set forth in Section 4 hereof are true and correct at and as of the time of such effectiveness; and (ii) as to such other corporate matters as Prudential shall deem necessary; (f) a written legal opinion of in-house counsel for the Company, dated as of the date of this Amendment, addressed to Prudential, to the effect that this Amendment 5 has been duly authorized, executed and delivered by the Company and that the Agreement and each other document, as affected hereby, to which any Related Person is a party constitutes the legal, valid and binding obligation of each such Related Person, enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws and to general principles of equity) and such other matters as Prudential may require; (g) payment of $2,700.00 to compensate Prudential for its allocable overhead for in-house legal support; and (h) The Westana Amendments shall become effective as of the date on which the American General Notes are repaid in full (the "Westana Effective Date") when and only when, Prudential shall have received evidence satisfactory to Prudential, in its sole and absolute discretion, that each other Person then a party to the Intercreditor Agreement has released its guaranty from WGRO and lien and security interest in the common stock of WGRO. SECTION 4. Representations and Warranties of Company. As an inducement to Prudential to enter into this Amendment, the Company represents and warrants as follows: (a) Representations. The representations and warranties contained in paragraph 8 of the Agreement are true and correct at and as of the time of the effectiveness hereof (except as such representations and warranties have been modified by the transactions contemplated herein). (b) Organization. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware. (c) Power and Authority. The Company has all requisite corporate power to execute, deliver and perform its obligations under this Amendment. The execution, delivery and performance by the Company of this Amendment have been duly authorized by all requisite corporate action on the part of the Company. The Company has duly executed and delivered this Amendment and this Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (d) No Conflicts. Neither the execution and delivery of this Amendment by the Company, nor the consummation of the transactions contemplated hereby, nor fulfillment of nor compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any security interest, lien or other encumbrance upon any of the properties or assets of the Company pursuant to, its charter or by-laws, any award of any arbitrator or any agreement 6 (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company is subject. (e) Consents. Neither the nature of the business conducted by the Company, nor any of its properties, nor any relationship between the Company and any other Person, nor any circumstance in connection with the transactions contemplated by this Amendment is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body or any other Person in connection with the execution and delivery of this Amendment or fulfillment of or compliance with the terms and provisions hereof. (f) Additional Documentation. No documents or instruments, including consents, authorizations and filings, are required under the certificate of incorporation and bylaws of the Company, or any applicable law with respect to the Company or any of its property or to which the Company or any of its property is subject, or by any material provision of any security issued by the Company or of any agreement, instrument or undertaking under which the Company is obligated or by which it or any of the property owned by it is bound, in connection with the execution, delivery, performance, validity and enforceability of this Amendment and the other documents to be executed and delivered hereunder. (g) No Material Adverse Change. Except as previously disclosed to Prudential in writing, there has been no material adverse change in the business, property or assets, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole since December 31, 1999. (h) No Event of Default or Default. As of the date of this Amendment, no Event of Default or Default exists. (i) Newco Guaranty Not Required. Upon the Westana Effective Date, Newco shall not be required to execute and deliver to Agent under the NCNB Agreement a guaranty of the obligations under Section 7.3 of the NCNB Agreement. SECTION 5. Miscellaneous. (a) Upon and after the Amendment No. 4 Effective Date, each reference to the Agreement or "this Agreement" in the Agreement and each Note shall mean and be a reference to the Agreement as amended by this Amendment. (b) Except as specifically amended herein, the Agreement shall remain in full force and effect, and is hereby ratified and confirmed. (c) Other than as expressly set forth herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or 7 remedy of Prudential, nor constitute a waiver of any provision of the Agreement, the Notes, the Guaranties, the Pledge Agreement or any other document, instrument or agreement executed and delivered in connection with the Agreement. (d) The Company confirms its agreement, pursuant to paragraph 11B of the Agreement, to pay promptly all expenses of Prudential related to this Amendment and all matters contemplated hereby. (e) GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. (f) This Amendment may be executed in counterparts (including those transmitted by facsimile), each of which shall be deemed an original and all of which taken together shall constitute one and the same document. Delivery of this Amendment may be made by telecopy of a duly executed counterpart copy hereof. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute this Amendment as of the day and year first above written. WESTERN GAS RESOURCES, INC. By: __________________________________ Vice President-Finance THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: __________________________________ Vice President PRUCO LIFE INSURANCE COMPANY By: __________________________________ Vice President 8 CONSENT TO AMENDMENT Each of the undersigned is a Guarantor ("Guarantor" and, collectively, "Guarantors") under separate guaranties (each being a "Guaranty") in favor of The Prudential Insurance Company of America and Pruco Life Insurance Company (together, "Prudential") with respect to the obligations of Western Gas Resources, Inc. (the "Company") under that certain Second Amended and Restated Master Shelf Agreement dated as of December 19, 1991 (effective as of January 31, 1996) as amended by Letter Amendment No. 1 dated November 21, 1997, Letter Amendment No. 2 dated March 31, 1999 and Limited Waiver, Consent, Release and Amendment No. 3 dated June 1, 1999 (as amended, the "Agreement"). Prudential and the Company are entering into that certain Limited Waiver, Consent, Release and Amendment No. 4 to Second Amended and Restated Master Shelf Agreement, dated as of August 25, 2000 (the "Amendment"). Each of the undersigned hereby consents to the Amendment and each hereby confirms and agrees that its Guaranty is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects except that, upon the effectiveness of, and on and after the date of this consent, all references in the Guaranty of the undersigned to the "Agreement," "thereunder," "thereof," or words of like import referring to the Agreement shall mean the Agreement as amended by the Amendment, as the same may be further amended or modified from time to time. Dated as of August 25, 2000. LANCE OIL & GAS COMPANY, INC. MGTC, INC. MIGC, INC. MOUNTAIN GAS RESOURCES, INC. PINNACLE GAS TREATING, INC. WESTERN GAS RESOURCES - TEXAS, INC. WESTERN GAS WYOMING, L.L.C. By: _____________________________________________ William J. Krysiak, as Vice President- Finance of each of the above-named companies. EXHIBIT B Issuers -------
Corporations Issuer Certificate No. No. of Shares Class - ------ --------------- ------------- -------- MIGC, Inc. 3 100,000 common Western Gas Resources - Texas, Inc. 3 990 common Western Gas Resources - Texas, Inc. 4 10 common Mountain Gas Resources, Inc. A-3 1,000,834 common Western Power Services, Inc. 1 1,000 common Pinnacle Gas Treating, Inc. 1 1,000 common Lance Oil & Gas Company, Inc. 1 1,000 common
Limited Liability Companies Issuer Membership Interest ------ ------------------- Western Gas Wyoming, L.L.C. 100% EX-10.25 3 0003.txt FOURTH AMENDMENT TO LOAN AGREEMENT Exhibit 10.25 FOURTH AMENDMENT TO LOAN AGREEMENT ---------------------------------- THIS FOURTH AMENDMENT TO LOAN AGREEMENT (herein called this "Amendment") is made as of the 25th day of August, 2000 by and among Western Gas Resources, Inc. ("Borrower"), and Bank of America, N.A. ("Agent"), and the Lenders under the Loan Agreement referred to below. W I T N E S S E T H: WHEREAS, Borrower, Agent, and Lenders have entered into that certain Loan Agreement dated as of April 29, 1999 (as amended, restated, or supplemented to the date hereof, the "Original Agreement"), for the purposes and consideration therein expressed, pursuant to which Lenders made and became obligated to make loans to Borrower as therein provided; WHEREAS, Borrower is the sole shareholder of Western Gas Resources - Oklahoma, Inc. ("WGRO"); WHEREAS, WGRO has recently acquired all of the partnership interests in Westana Gathering Company, a general partnership ("Westana"), the primary assets of which are the Avard/Waynoka gathering system (the "System") and the Chester gas processing plant (the "Plant"); WHEREAS, concurrently with the repayment of the AG Debt (as defined below), Borrower desires to undertake the following transactions with respect to WGRO and Westana (collectively, the "Westana Transactions"): (a) all of Westana's assets shall be liquidated into WGRO; (b) WGRO shall concurrently therewith create a new subsidiary ("Newco"), which shall be capitalized with the System; and (c) subsequent to the creation of Newco, WGRO will be merged with and into the Company with the Company being the surviving entity, and, as a result of such merger, Borrower shall become the owner of the Plant; WHEREAS, Borrower, Agent, and Lenders desire to amend the Original Agreement for the purposes described herein, including, but limited to, consenting to Borrower's incurrence of indebtedness under a commercial paper program in an aggregate face amount not to exceed $50,000,000 at any time outstanding, and to the consummation of the Westana Transactions in connection with the repayment of the AG Debt; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, in consideration of the loans which may hereafter be made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. Definitions and References -------------------------- (S) 1.I. Defined Terms. Unless the context otherwise requires or unless ------------- otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. As used herein, the following terms shall have the following meanings: "AG Debt" means all of the Debt owing by Borrower and the other Related ------- Persons to the American General Group under the Debt Securities described in part (ii) of the definition of Debt Securities contained in Section 1.1 of the Original Agreement. "Amendment" means this Fourth Amendment to Loan Agreement. --------- "Current Amendments" means the amendments described in Section 2.1 of this ------------------ Amendment. "Effective Date" has the meaning give it in Section 3.1 of this Agreement. -------------- "Intercreditor Agreement" means the Intercreditor Agreement dated as of ----------------------- April 29, 1999, by and among the Lenders named therein, as amended, supplemented, or restated to the date hereof. "Loan Agreement" means the Original Agreement as amended by this Amendment. -------------- "Pledge Agreement" means the Pledge Agreement dated as of April 29, 1999 by ---------------- Borrower in favor of Agent for the benefit of Lenders, as amended, supplemented, or restated to the date hereof. "Westana Amendments" means the amendments described in Section 2.2 and the ------------------ waivers and consents described in Section 2.3. "Westana Effective Date" has the meaning given it in Section 3.2 of this ---------------------- Agreement. 2 ARTICLE II. Amendments, Waivers, and Other Agreements ----------------------------------------- (S) 2.I. Current Amendments. Effective as of the Effective Date (as ------------------ defined in Article III), the Original Agreement is hereby amended as follows: (a) Definitions. ----------- (i) The definition of "EBITDA" in Section 1.1 of the Original Agreement is hereby amended in its entirety to read as follows: "EBITDA" means with respect to any Person, for any period, the ------ amount equal to (i) such Person's net income (or net loss), plus (ii) such Person's Consolidated taxes, interest, depreciation, amortization and depletion expenses taken into account in determining such net income (or net loss) for such period, plus (iii) other non-cash items deducted in determining such net income (or net loss), minus (iv) other non-cash items ----- added in determining such net income (or net loss), determined without duplication on a Consolidated basis and in accordance with GAAP. (ii) The following definitions are hereby added to Section 1.1 of the Original Agreement in proper alphabetical order: "CP Debt" means unsecured Debt in the form of commercial paper ------- issued by Borrower which meets the following requirements: (i) such Debt has a maturity of not more than 270 days after the date of issuance thereof, (ii) the offering of such Debt is not required to be registered under the Securities Act of 1933, as amended, (iii) such Debt is not the subject of a Guarantee of any Related Person, (iv) at the time Borrower incurs such Debt, no Default or Event of Default shall have occurred and be continuing hereunder, and (v) the documentation evidencing such Debt shall contain no terms, conditions or defaults (other than pricing and back-up availability under this Agreement) which are more favorable to the third party creditor than those contained in this Agreement are to Lenders, as determined by Majority Lenders in their discretion (provided that Majority Lenders shall make any such determination at the time the initial documentation covering the issuance of CP Debt is executed and delivered and each time such documentation is modified, taking into consideration any amendments or modifications to this Agreement then in effect), and shall not contain any provision which attempts to modify, amend or restrict any of the rights or remedies of Agent or Lenders hereunder or under any of the other Loan Documents. "Guarantee" means as applied to any Debt, (i) a guarantee (other --------- than by enforcement of negotiable instruments of collection in the ordinary course of business), direct or indirect, in any manner all or any part of such Debt and (ii) any obligation to purchase or acquire or to otherwise protect or insure a creditor against 3 loss in respect of such Debt (such as obligations under working capital maintenance agreements, agreements to keep-well, or agreements to purchase such Debt, assets, goods, securities or services, or payment of amounts drawn under letters of credit). (b) Use of Proceeds. The first sentence of Section 2.5 of the --------------- Original Agreement is hereby amended in its entirety to read as follows: "Borrower shall use all funds from the Borrowings under the Loans to make capital expenditures and provide working capital for its operations, to meet its reimbursement obligations under LCs, and for other general business purposes (including but not limited to the repayment from time to time of CP Debt)." (c) Debt. Section 6.2(a) of the Original Agreement is hereby amended ---- by amending subsection (x) thereof to read as follows and by adding thereto the following subsection (xi): "(x) CP Debt, the aggregate face amount of which shall not exceed $50,000,000 at any one time outstanding; and (xi) miscellaneous items of Debt not described in subsections (i) through (x) of thus subsection (a) which do not in the aggregate (taking into account all Debt of all Related Persons) exceed $5,000,000 at any one time outstanding." (d) Limitation on Sales of Property. Subsection (iv) of Section ------------------------------- 6.2(d) of the Original Agreement is hereby amended in its entirety to read as follows: "(iv) so long as no Default or Event of Default has occurred, other assets or property which are sold in arm's length transactions to third parties that are not Affiliates of Borrower and are sold for fair consideration not in the aggregate in excess of $35,000,000 during any Fiscal Year." (e) Events of Default. The parenthetical clause in Section 8.1(f)(i) ----------------- of the Original Agreement is hereby amended in its entirety to read as follows: "(including, but not limited to, the Debt under the Debt Securities or the Subordinated Debt, or the CP Debt)" (S) 2.2. Westana Amendments. On and as of the Westana Effective Date, the ------------------ definitions of "Westana" and "WGRO" in Section 1.1 of the Original Agreement and all references to "Westana" and "WGRO" in the Original Agreement shall be deleted from the Original Agreement with no further action needed on behalf of Agent, Lenders, Borrower, or the other Related Persons. Borrower shall not be required to pledge any capital stock of Newco to Agent and Lenders. 4 (S) 2.3. Consents and Waiver. Agent and each Lender hereby consent to the ------------------- Westana Transactions and waive any Default or Event of Default arising therefrom under Section 8.1 of the Original Agreement. In addition, each Lender hereby consents to (a) the termination of the Guaranty dated as of April 29, 1999 executed by WGRO in favor of Agent (in this section called the "WGRO Guaranty") and (b) the release of Agent's lien and security interest in Borrower's common stock of WGRO arising under the Pledge Agreement (in this section called the "Lien Release"), in each case on or after the Westana Effective Date and the satisfaction in full of all conditions precedent set forth in Article III of this Amendment. Thereafter Agent shall execute and deliver to Borrower (i) a document evidencing the termination of the WGRO Guaranty and the Lien Release and (ii) return to Borrower all stock certificates issued by WGRO which it possesses under the Pledge Agreement. Borrower hereby agrees to deliver to Agent, within 30 days after the Westana Effective Date, an amendment to the Intercreditor Agreement duly executed by the parties thereto confirming the matters described in Section 3.2(a) hereto and the removal of American General as a party thereto due to payment in full of the AG Debt. ARTICLE III. Conditions of Effectiveness --------------------------- (S) 3.I. Effective Date. Except for the Westana Amendments, this -------------- Amendment shall become effective as of the date first above written (the "Effective Date") when, and only when, Agent shall have received all of the ------------------- following and the Westana Amendments shall become effective as the Westana Effective Date when and only when, Agent shall have received all of the ------------------- following and the documents described in Section 3.2: (1) This Amendment, duly authorized, executed and delivered by Borrower, Agent, and each Lender, and in form and substance satisfactory to Agent. (2) A certificate of a duly authorized officer of Borrower dated the date of this Amendment certifying: (i) that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the time of such effectiveness; and (ii) as to such other corporate matters as Agent shall deem necessary. (c) A written legal opinion of in-house counsel for Borrower, dated as of the date of this Amendment, addressed to Agent, to the effect that this Amendment has been duly authorized, executed and delivered by Borrower and that the Loan Agreement and each other Loan Document, as affected hereby, to which any Related Person is a party constitutes the legal, valid and binding obligation of each such Related Person, enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws and to general principles of equity) and such other matters of Agent may require. 5 (d) Payment of fees and disbursements of Thompson & Knight L.L.P. relating to this Amendment and the Loan Agreement as provided in the Loan Agreement. (e) Agent shall have additionally received such other documents as Agent may reasonably request. (S) 3.II. Westana Effective Date. The Westana Amendments shall become ---------------------- effective as of the date on which the AG Debt is repaid in full (the "Westana Effective Date") when and only when, Agent shall have received evidence ------------------- satisfactory to Agent, in its sole and absolute discretion, that each other Person then a party to the Intercreditor Agreement has released its guaranty from WGRO and lien and security interest in the common stock of WGRO. ARTICLE IV. Representations and Warranties ------------------------------ (S) 4.I. Representations and Warranties of Borrower. In order to induce ------------------------------------------ each Lender to enter into this Amendment, Borrower represents and warrants on the date hereof and as of the Effective Date to each Lender that: (1) The representations and warranties contained in Article V of the Original Agreement are true and correct at and as of the time of the effectiveness hereof (except as such representations and warranties have been modified by the transactions contemplated herein). (2) Borrower is duly authorized to execute and deliver this Amendment and Borrower is and will continue to be duly authorized to borrow monies and to perform its obligations under the Loan Agreement. Borrower has duly taken all corporate action necessary to authorize the execution and delivery of this Amendment. (3) The execution and delivery by Borrower of this Amendment, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the certificate of incorporation and bylaws of Borrower or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower of this Amendment. (4) When duly executed and delivered, this Amendment, the Loan Agreement, and each other Loan Document, as affected hereby, will be a legal and binding obligation of each Related Person that is a party hereto and thereto enforceable against such Related Person in accordance with its terms, except as limited by bankruptcy, insolvency or 6 similar laws of general application relating to the enforcement of creditors' rights and by equitable principles of general application. (5) The audited Consolidated financial statements of Borrower dated as of December 31, 1999 and the unaudited Consolidated financial statements of Borrower dated as of June 30, 2000 fairly present the Consolidated financial position at such dates of Borrower and the Consolidated statement of operations and the changes in Consolidated financial position for the periods ending on such dates for Borrower. Copies of such financial statements have heretofore been delivered to Agent. Since June 30, 2000, no material adverse change has occurred in the financial condition or business or in the Consolidated financial condition or business of Borrower. (f) Upon the Westana Effective Date, Newco shall not be required to execute and deliver to Agent a guaranty of the Obligations under Section 7.3 of the Original Agreement. ARTICLE V. Miscellaneous ------------- (S) 5.I. Ratification of Agreements. The Original Agreement as hereby -------------------------- amended is hereby ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The Loan Documents, as they may be amended or affected by this Amendment, are hereby ratified and confirmed in all respects. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lenders under the Loan Agreement, the Notes, or any other Loan Document nor constitute a waiver of any provision of the Loan Agreement, the Notes, or any other Loan Document. (S) 5.II. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of Borrower herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loans, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower hereunder or under the Loan Agreement to any Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower under this Amendment and under the Loan Agreement. (S) 5.III. Loan Documents. This Amendment is a Loan Document, and all -------------- provisions in the Loan Agreement pertaining to Loan Documents apply hereto. 7 (S) 5.IV. Governing Law. This Amendment shall be governed by and ------------- construed in accordance the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. (S) 5.V. Counterparts. This Amendment may be separately executed in ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. 8 IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. WESTERN GAS RESOURCES, INC. By:_________________________________ Name: Title: BANK OF AMERICA, N.A., as Agent and Lender By:__________________________________ Name: Title: SOCIETE GENERALE SOUTHWEST AGENCY, a Lender By:__________________________________ Name: Title: ABN AMRO BANK N.V., a Lender By:____________________________________ Name: Title: By:____________________________________ Name: Title: CREDIT LYONNAIS, a Lender By:_________________________________ Name: Title: FLEET NATIONAL BANK, a Lender By:__________________________________ Name: Title: UNION BANK OF CALIFORNIA, N.A., a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: BANK ONE, NA, a Lender By:________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION, a Lender By:____________________________________ Name: Title: CONSENT AND AGREEMENT --------------------- Each of the undersigned hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, and (ii) ratifies and confirms its respective Guaranty dated as of April 29, 1999 made by it in favor of Agent for the benefit of each Lender, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Date: August 25, 2000 MIGC, INC. By:____________________________________ Name: Title: WESTERN GAS RESOURCES TEXAS, INC. By:____________________________________ Name: Title: MOUNTAIN GAS RESOURCES, INC. By:____________________________________ Name: Title: WESTERN GAS RESOURCES - OKLAHOMA, INC. By:____________________________________ Name: Title: LANCE OIL & GAS COMPANY, INC. By:____________________________________ Name: Title: PINNACLE GAS TREATING, INC. By:____________________________________ Name: Title: WESTERN GAS WYOMING, L.L.C. By:____________________________________ Name: Title: CONSENT AND AGREEMENT --------------------- The undersigned hereby (i) consents to the provisions of this Amendment and the transactions contemplated herein, and (ii) ratifies and confirms its Guaranty dated as of October 14, 1999 made by it in favor of Agent for the benefit of each Lender, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Date: August 25, 2000 MGTC, INC. By:____________________________________ Name: Title: EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 10,872 0 335,538 0 41,261 390,167 1,031,997 (285,119) 1,187,731 370,915 155,000 416 0 3,255 361,417 1,187,731 1,208,989 1,213,664 1,077,870 1,077,870 82,382 0 16,027 37,385 13,645 23,586 0 0 0 23,586 .57 .56
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