-----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, NqfR/tFAhkNtLtKbG9Cvpc/kqsjE4nwGZ2D7yC/737Eev9r4qK3TZGqSXYeFpOr8 Ak5LcAzxC08T2CVN53LTFw== 0000927356-97-000621.txt : 19970520 0000927356-97-000621.hdr.sgml : 19970520 ACCESSION NUMBER: 0000927356-97-000621 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN GAS RESOURCES INC CENTRAL INDEX KEY: 0000856716 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 841127613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10389 FILM NUMBER: 97605921 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 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 MARCH 31, 1997 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 May 1, 1997, there were 32,138,388 shares of the registrant's Common Stock outstanding. ================================================================================ WESTERN GAS RESOURCES, INC. FORM 10-Q TABLE OF CONTENTS PART I - Financial Information Page - ------------------------------ ----
Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1997 and December 31, 1996.................................. 3 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1997 and 1996............... 4 Consolidated Statement of Operations - Three Months Ended March 31, 1997 and 1996............... 5 Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended March 31, 1997......... 6 Notes to Consolidated Financial Statements.......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 8 PART II - Other Information - --------------------------- Item 1. Legal Proceedings................................. 14 Item 6. Exhibits and Reports on Form 8-K.................. 15 Signatures.................................................. 16
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (000s, except share and per share amounts)
March 31, December 31, 1997 1996 ----------- ------------- ASSETS (unaudited) ------ Current assets: Cash and cash equivalents.................................................... $ 42,823 $ 39,504 Trade accounts receivable, net............................................... 183,933 338,708 Product inventory............................................................ 14,490 25,972 Parts inventory.............................................................. 2,161 2,599 Other........................................................................ 3,955 1,477 ---------- ---------- Total current assets........................................................ 247,362 408,260 ---------- ---------- Property and equipment: Gas gathering, processing, storage and transmission.......................... 948,430 938,902 Oil and gas properties and equipment......................................... 165,329 144,732 Construction in progress..................................................... 69,008 35,250 ---------- ---------- 1,182,767 1,118,884 Accumulated depreciation, depletion and amortization.................. (265,850) (252,571) ---------- ---------- Total property and equipment, net........................................... 916,917 866,313 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $25,500 and $24,552, respectively)...................................................... 45,741 46,689 Other........................................................................ 40,453 40,369 ---------- ---------- Total other assets.......................................................... 86,194 87,058 ---------- ---------- Total assets.................................................................. $1,250,473 $1,361,631 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable............................................................. $ 261,615 $ 386,268 Accrued expenses............................................................. 31,035 28,670 Dividends payable............................................................ 4,215 4,215 ---------- ---------- Total current liabilities................................................... 296,865 419,153 Long-term debt................................................................ 379,500 379,500 Deferred income taxes payable................................................. 87,169 82,511 ---------- ---------- Total liabilities........................................................... 763,534 881,164 ---------- ---------- Commitments and contingent liabilities........................................ - - 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 aggregate liquidation preference)................................. 140 140 $2.625 cumulative convertible preferred stock; 2,760,000 shares issued and outstanding ($138,000 aggregate liquidation preference).................... 276 276 Common stock, par value $.10; 100,000,000 shares authorized; 32,139,501 and 32,134,151 shares issued, respectively...................................... 3,214 3,213 Treasury stock, at cost, 25,016 shares in treasury........................... (788) (788) Additional paid-in capital................................................... 397,090 397,061 Retained earnings............................................................ 88,771 82,378 Notes receivable from key employees secured by common stock.................. (1,764) (1,813) ---------- ---------- Total stockholders' equity.................................................. 486,939 480,467 ---------- ---------- Total liabilities and stockholders' equity.................................... $1,250,473 $1,361,631 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (000s)
Three Months Ended March 31, ---------------------- 1997 1996 ---------- ---------- Reconciliation of net income to net cash provided by operating activities: Net income.................................................................. $ 10,608 $ 10,233 Add income items that do not affect cash: Depreciation, depletion and amortization................................... 15,174 15,662 Deferred income taxes...................................................... 4,658 4,680 Distributions in excess of equity income, net.............................. 276 2,798 Other non-cash items, net.................................................. 896 (26) --------- --------- 31,612 33,347 --------- --------- Adjustments to working capital to arrive at net cash provided by operating activities: Decrease (increase) in trade accounts receivable........................... 154,652 (2,286) Decrease in product inventory.............................................. 10,983 20,809 Decrease (increase) in parts inventory..................................... 438 (585) Increase in other current assets........................................... (2,478) (1,267) Decrease in other assets and liabilities, net.............................. (233) (82) (Decrease) increase in accounts payable.................................... (124,651) 19,705 (Decrease) increase in accrued expenses.................................... (5,313) 4,209 --------- --------- Total adjustments......................................................... 33,398 40,503 --------- --------- Net cash provided by operating activities................................... 65,010 73,850 --------- --------- Cash flows from investing activities: Purchases of property and equipment....................................... (57,963) (9,893) Proceeds from the dispositions of property and equipment................... 1,134 353 Contributions to equity investees.......................................... (668) (165) --------- --------- Net cash used in investing activities....................................... (57,497) (9,705) --------- --------- Cash flows from financing activities: Proceeds from exercise of common stock options............................. 22 16 Debt issue costs paid...................................................... - (357) Payments on revolving credit facility...................................... (79,950) (339,800) Borrowings under revolving credit facility................................. 79,950 289,300 Dividends paid............................................................. (4,216) (3,899) --------- --------- Net cash used in financing activities....................................... (4,194) (54,740) --------- --------- Net increase in cash and cash equivalents................................... 3,319 9,405 Cash and cash equivalents at beginning of period............................ 39,504 5,795 --------- --------- Cash and cash equivalents at end of period.................................. $ 42,823 $ 15,200 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (000s, except share and per share amounts)
Three Months Ended March 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Sale of residue gas................................. $ 429,182 $ 347,507 Sale of natural gas liquids......................... 169,099 119,678 Sale of electric power.............................. 24,106 60 Processing, transportation and storage revenue...... 10,269 11,214 Other, net.......................................... 2,882 2,255 ----------- ----------- Total revenues..................................... 635,538 480,714 ----------- ----------- Costs and expenses: Product purchases................................... 570,365 412,123 Plant operating expense............................. 17,985 18,597 Oil and gas exploration and production expense...... 1,167 1,109 Depreciation, depletion and amortization............ 15,174 15,662 Selling and administrative expense.................. 7,734 7,725 Interest expense.................................... 6,427 9,454 ----------- ----------- Total costs and expenses........................... 618,852 464,670 ----------- ----------- Income before taxes.................................. 16,686 16,044 Provision for income taxes: Current............................................. 1,420 1,131 Deferred............................................ 4,658 4,680 ----------- ----------- 6,078 5,811 ----------- ----------- Net income........................................... 10,608 10,233 Preferred stock requirements......................... (2,610) (2,610) ----------- ----------- Income attributable to common stock.................. $ 7,998 $ 7,623 =========== =========== Income per share of common stock..................... $ .25 $ .30 =========== =========== Weighted average shares of common stock outstanding.. 32,111,695 25,771,928 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (000s, 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 Additional Preferred Preferred of Common Stock Preferred Preferred Common Treasury Paid-In Stock Stock Stock in Treasury Stock Stock Stock Stock Capital --------- ----------- ---------- ----------- ---------- ------ -------- -------- --------- Balance at December 31, 1996...................... 1,400,000 2,760,000 32,109,135 25,016 $ 140 $276 $3,213 $(788) $397,061 Net income................. - - - - - - - - - Stock options exercised.... - - 5,350 - - - 1 - 29 Loans forgiven............. - - - - - - - - - Dividends declared on common stock.............. - - - - - - - - - Dividends declared on $2.28 cumulative preferred stock........... - - - - - - - - - Dividends declared on $2.625 cumulative convertible preferred stock..................... - - - - - - - - - --------- ----------- ---------- ------ ---------- ----------- ------ -------- -------- Balance at March 31, 1997 1,400,000 2,760,000 32,114,485 25,016 $ 140 $276 $3,214 $(788) $397,090 ========= =========== ========== ====== ========== =========== ====== ======== ======== Notes Total Receivable Stock- Retained from Key holders' Earnings Employees Equity ----------- ----------- ----------- Balance at December 31, 1996...................... $82,378 $(1,813) $480,467 Net income................. 10,608 - 10,608 Stock options exercised.... - (8) 22 Loans forgiven............. - 57 57 Dividends declared on common stock.............. (1,606) - (1,606) Dividends declared on $2.28 cumulative preferred stock........... (798) - (798) Dividends declared on $2.625 cumulative convertible preferred stock..................... (1,811) - (1,811) ------- ------- -------- Balance at March 31, 1997 $88,771 $(1,764) $486,939 ======= ======= ========
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 the Company's Form 10-K for the year ended December 31, 1996. The interim consolidated financial statements as of March 31, 1997 and for the three month periods ended March 31, 1997 and 1996 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 months ended March 31, 1997 are not necessarily indicative of the results of operations expected for the year ended December 31, 1997. Certain prior years' amounts in the Consolidated Financial Statements and Notes have been reclassified to conform to the presentation used in 1997. EARNINGS PER SHARE OF COMMON STOCK Earnings per share of common stock is computed by dividing income attributable to shares of common stock by the weighted average number of shares of common stock outstanding. Income attributable to common stock is income less preferred stock dividends. The Company declared preferred stock dividends of $2.6 million for both of the three month periods ended March 31, 1997 and 1996. The computation of fully diluted earnings per share of common stock for the three months ended March 31, 1997 and 1996 was not dilutive; therefore, only primary earnings per share of common stock is presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") with an effective date for fiscal years ending after December 15, 1997. The Company does not believe that the implementation of SFAS 128 will result in a material change in calculated earnings per share. SUPPLEMENTARY CASH FLOW INFORMATION Interest paid was $6.3 million and $9.2 million, respectively, for the three months ended March 31, 1997 and 1996. No income taxes were paid during the three months ended March 31, 1997 nor for the three months ended March 31, 1996. LEGAL PROCEEDINGS Reference is made to "Item 1. Legal Proceedings-Part II-Other Information," of this Form 10-Q. 7 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 the consolidated financial condition and results of operations of the Company for the three months ended March 31, 1997 and 1996. Certain prior year amounts have been reclassified to conform to the presentation used in 1997. Reference should also be made to the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this document. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
Three Months Ended March 31, ------------------- Percent 1997 1996 Change --------- -------- ------- FINANCIAL RESULTS: Revenues................................... $635,538 $480,714 32 Gross profit............................... 30,847 33,223 (7) Net income................................. 10,608 10,233 4 Income per share of common stock.... .25 .30 (17) Net cash provided by operating activities.. $ 65,010 $ 73,850 (12) OPERATING DATA: Average gas sales (MMcf/D)................. 1,820 1,858 (2) Average NGL sales (MGal/D)................. 4,275 3,670 16 Average gas prices ($/Mcf)................. $ 2.61 $ 2.07 26 Average NGL prices ($/Gal)................. $ .44 $ .35 26
Revenues from the sale of residue gas increased approximately $81.7 million for the three months ended March 31, 1997 compared to the same period in 1996. Average gas sales volumes decreased 38 MMcf per day to 1,820 MMcf per day for the three months ended March 31, 1997 compared to the same period in 1996, largely due to a decrease in the sale of residue gas purchased from third parties. Average gas prices realized by the Company increased $.54 per Mcf to $2.61 per Mcf for the three months ended March 31, 1997 compared to the same period in 1996. Included in the realized residue gas price was approximately $500,000 of loss recognized for the three months ended March 31, 1997 related to futures positions on equity volumes. The Company has entered into futures positions for a portion of its equity gas for the remainder of 1997. See further discussion in "Liquidity and Capital Resources - Risk Management Activities." Revenues from the sale of NGLs increased approximately $49.4 million for the three months ended March 31, 1997 compared to the same period in 1996. Average NGL sales volumes increased 605 MGal per day to 4,275 MGal per day for the three months ended March 31, 1997 compared to the same period in 1996, largely due to an increase in the sale of NGLs purchased from third parties. Average NGL prices realized by the Company increased $.09 per gallon to $.44 per gallon for the three months ended March 31, 1997 compared to the same period in 1996. Included in the realized NGL price was approximately $2.6 million of gain recognized for the three months ended March 31, 1997 related to futures positions on equity volumes. The Company has entered into futures positions for a portion of its equity production for the remainder of 1997. See further discussion in "Liquidity and Capital Resources - Risk Management Activities." Revenue associated with electric power marketing increased $24.0 million for the three months ended March 31, 1997 compared to the same period in 1996 as the Company had minimal transactions in this market during the first quarter of 1996. The increase of $158.2 million in product purchases is primarily due to the increase in commodity prices. Combined product purchases as a percentage of residue gas, NGL and electric power sales increased from 88% to 92% for the three months ended March 31, 1997 compared to the same period in 1996. The benefit of the increase in residue gas prices compared to the first quarter of 1996, was partially offset by the Company's "keepwhole" contracts at its Granger facility. Under a "keepwhole" contract, the Company's margin is reduced when the value of NGLs decline relative to the value of residue gas. Rocky Mountain residue gas prices have now declined to a level that allows more profitable NGL recovery. Additionally, due to the volatility in the NGL market, the Company recognized trading losses associated with liquid inventory held at Mont Belvieu and Conway storage facilities and by narrowing margins in converting normal butane into iso-butane at the Company's Reno Junction isomerization facility. Overall, the increased 8 product purchase percentage is a continuing trend based upon the growth of third-party sales, which typically have lower margins than sales of the Company's equity production. Over the past several years, the Company has experienced narrowing margins related to third-party sales due to the increasing availability of pricing information in the natural gas industry. The Company believes, by targeting end-use markets and utilizing risk management techniques, these margins will continue to stabilize. However, there is no assurance that the Company will be able to expand its current end-use business. Interest expense decreased $3.0 million for the three months ended March 31, 1997 compared to the same period in 1996. The decrease was primarily due to the use of the Company's net proceeds from the November 1996 public offering of 6,325,000 shares of Common Stock to reduce indebtedness under the Revolving Credit Facility. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under its financing facilities and proceeds from offerings of equity securities. In the past, these sources have been sufficient to meet the needs and finance the growth of the Company's business. The Company can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects, and it may be required to investigate alternative financing sources. Net cash provided by operating activities is primarily affected by product prices and sales of inventory, the Company's success in increasing the number and efficiency of its facilities and the volumes of natural gas processed by such facilities, as well as the margin on third-party product purchased for resale. The Company's continued growth will be dependent upon success in the areas of marketing, additions to dedicated plant reserves, acquisitions and new project development. The Company believes that the amounts available to be borrowed under the Revolving Credit Facility, together with cash provided by operating activities, will provide it with sufficient funds to connect new reserves, maintain its existing facilities and complete its current capital projects. The Company also believes that cash provided by operating activities will be sufficient to meet its debt service and preferred stock dividend requirements in 1997. The Company's sources and uses of funds for the three months ended March 31, 1997 are summarized as follows (000s):
SOURCES OF FUNDS: Borrowings under revolving credit facility.. $ 79,950 Net cash provided by operating activities... 65,010 Other....................................... 1,156 -------- Total sources of funds...................... $146,116 ======== USES OF FUNDS: Payments on revolving credit facility....... $ 79,950 Capital expenditures........................ 58,631 Dividends paid.............................. 4,216 -------- Total uses of funds......................... $142,797 ========
Additional sources of liquidity available to the Company are volumes of residue gas and NGLs in storage facilities. The Company stores residue gas and NGLs primarily to ensure an adequate supply for long-term sales contracts and for resale during periods when prices are favorable. The Company held residue gas in storage for such purposes of approximately 4.7 Bcf at an average cost of $1.80 per Mcf at March 31, 1997 as compared to approximately 10.4 Bcf at an average cost of $1.84 per Mcf at December 31, 1996, primarily at the Katy Facility. At March 31, 1997, the Company had hedging contracts in place for anticipated sales at a weighted average price of $2.08 per Mcf for all of the stored residue gas in inventory. The Company also held NGLs in storage of approximately 16,000 MGal at an average cost of $.37 per gallon and approximately 16,100 MGal at an average cost of $.42 per gallon at March 31, 1997 and December 31, 1996, respectively, at various third-party storage facilities. At March 31, 1997, the Company did not have any hedging contracts in place associated with NGLs in storage. Risk Management Activities The Company enters into futures transactions on the New York Mercantile Exchange ("NYMEX") and the Kansas City Board of Trade and through OTC swaps and options with creditworthy counterparties consisting primarily of financial institutions and 9 other natural gas companies. Using these tools, the Company has hedged a portion of its equity volumes of residue gas and NGLs in 1997 at pricing levels in excess of its 1997 operating budget. The Company's hedging strategy establishes a minimum and maximum price to the Company while allowing market participation between these levels. As of May 13, 1997, the Company had hedged approximately 60% of its residue equity gas for the remainder of 1997 at a weighted average NYMEX-equivalent minimum price of $2.09 per Mcf. Additionally, the Company has hedged approximately 45% of its equity NGLs for 1997 at a weighted average composite Mont Belvieu and West Texas Intermediate Crude- equivalent minimum price of $.38 per gallon. Capital Investment Program Capital expenditures related to existing operations are expected to be approximately $166.4 million during 1997, consisting of the following: capital expenditures related to gathering, processing and pipeline assets are expected to be $124.8 million, of which $111.9 million will be used for new connects, system expansions and asset consolidations and $12.9 million for maintaining existing facilities. The Company expects capital expenditures on exploration and production activities, the Katy Facility and miscellaneous items to be $36.4 million, $3.3 million and $1.9 million, respectively. As of March 31, 1997, the Company had expended, including a $7.6 million note payable related to the purchase of certain assets in the Powder River Basin, $66.2 million consisting of the following: (i) $35.7 million for new connects, system expansions and asset consolidations; (ii) $1.6 million for maintaining existing facilities; (iii) $26.1 for exploration and production activities; (iv) $2.4 million related to the Katy Facility; and (v) $400,000 of miscellaneous expenditures. The Company is currently constructing the Bethel facility in East Texas that will gather gas from the Cotton Valley Pinnacle Reef trend. Based upon currently anticipated gas compositions, this facility could treat up to approximately 350 MMcf per day. The Bethel facility has been designed to accommodate incremental expansions, depending upon the success of continued development in the trend. Construction of the Bethel facility began in September 1996. The facility is expected to commence operations at a throughput capacity of approximately 180 MMcf per day in July 1997. The initial phase is expected to be completed to reach the 350 MMcf per day of throughput capacity during the first quarter of 1998, approximately 75 days after the receipt of a pending air quality permit. The initial phase of construction is expected to cost approximately $80 million, approximately $37.5 million has been expended since inception through March 31, 1997. Long-term gathering and treating agreements have been signed with several producers, including Sonat Exploration Company, UMC Petroleum Corporation and Broughton Associates Joint Venture, relating to their interests in the Cotton Valley Pinnacle Reef trend. The agreements cover specified areas of dedication aggregating approximately 500,000 acres of previously undedicated interests. However, due to uncertainties related to construction costs, possible delays in permitting and other conditions outside the Company's control, there can be no assurance that this project will develop as rapidly as currently anticipated. In addition, a portion of the production that is anticipated to be gathered and treated at the Bethel facility is expected to be produced from prospects that have not yet been drilled and completed, and there can be no assurance of successful completion of wells in these prospects. The Company is currently expanding the capacity at its Midkiff/Benedum facility from 150 MMcf per day to 180 MMcf per day. The expansion is in anticipation of increased drilling activity by Parker & Parsley and other producers which supply natural gas to this facility. The expansion is expected to be completed during the second quarter of 1997 and the Company's share of the expansion is expected to cost $4.3 million. The Company continually monitors the economic performance of each of its operating facilities to ensure that a desired cash flow objective is achieved. If an operating facility is not generating desired cash flows or does not fit in with the Company's strategic plans, the Company will explore various options, such as consolidation with other Company-owned facilities, dismantlement, asset swap or outright sale. Depending on the timing of the Company's future projects, it may be required to seek additional sources of capital. The Company's ability to secure such capital is restricted by its credit facilities, although it may request additional borrowing capacity from the banks, seek waivers from the banks to permit it to borrow funds from third-parties, seek replacement credit facilities from other lenders or issue additional equity securities. While the Company believes that it would be able to secure additional financing, if required, no assurance can be given that it will be able to do so or as to the terms of any such financing. Financing Facilities Revolving Credit Facility. The Company's variable rate Revolving Credit Facility, as restated on September 2, 1994 and subsequently amended, with a syndicate of eight banks, provides for a maximum borrowing base of $300 million, none of which was outstanding at March 31, 1997. The facility's commitment period will terminate on April 1, 1998. If the facility 10 is not renewed, any outstanding balance thereunder at such time will convert to a three-year term loan, which will be payable in 10 equal quarterly installments, commencing July 1, 1998. The Revolving Credit Facility bears interest, at the Company's option, at certain spreads over the Eurodollar rate, at the Federal Funds rate plus .50%, or at the agent bank's prime rate. The interest rate spreads are adjusted based on the Company's debt to capitalization ratio. At March 31, 1997, the spread was .875% over the Eurodollar rate, resulting in an interest rate of 6.5%. The Company pays a commitment fee on the unused commitment ranging from .15% to .375% based on the debt to capitalization ratio. At March 31, 1997, the Company's debt to capitalization ratio was .46 to 1 resulting in a commitment fee rate of .30%. The Company is currently negotiating with its bank syndicate for a new revolving credit facility. The new agreement is expected to be in place within the second quarter of 1997. Term Loan Facility. The Company also has a Term Loan Facility with four banks with aggregate principal outstanding as of March 31, 1997 of $12.5 million bearing interest at 9.87%. The final payment on the Term Loan Facility of $12.5 million is due in September 1997 and the Company intends to finance this payment with amounts available under the Revolving Credit Facility. The agreements governing the Company's Revolving Credit and Term Loan Facilities (the "Credit Facilities Agreements") contain certain mandatory prepayment terms. If funded debt (as defined in the agreement) of the Company, which has a final maturity on or before October 1, 2000, exceeds four times (4.0 to 1.0) the sum of the Company's last four quarters' cash flow (as defined in the agreement) less preferred stock dividends projected to be paid during the next four quarters, the overage must be repaid in no more than six monthly payments, commencing 90 days from notification. This mandatory prepayment threshold will be reduced to 3.5 to 1.0 at September 1, 1998. At March 31, 1997, taking into account all the covenants contained in the Credit Facilities Agreements and expected maturities of long-term debt during 1997, the Company had approximately $170 million of available borrowing capacity. The Credit Facilities Agreements are unsecured. Pursuant to the Credit Facilities Agreements, the Company is required to maintain a current ratio (as defined therein) of at least 1.0 to 1.0, a minimum tangible net worth equal to the sum of $345 million plus 50% of consolidated net income earned after June 30, 1995 plus 75% of the net proceeds received after June 30, 1995 from the sale of any equity securities, a debt to capitalization ratio (as defined therein) of no more than 60% through December 31, 1996 and 55% thereafter, and an EBITDA (as defined therein) to interest ratio of not less than 3.00 to 1.0 through October 31, 1996, 3.25 to 1.0 from November 1, 1996 through October 31, 1997 and 3.75 to 1.0 thereafter. The Company is prohibited from declaring or paying dividends on any capital stock on or after December 31, 1995, that in the aggregate exceed the sum of $10 million plus 50% of consolidated net income earned after December 31, 1995 plus 50% of the cumulative net proceeds received by the Company after December 31, 1995 from the sale of any equity securities. The dividends declared in the fourth quarter of 1995 and paid in 1996 were excluded, per the agreement, from this calculation. At March 31, 1997, $9.2 million was available under this limitation, which is sufficient to pay required preferred stock dividends in 1997. The Company generally utilizes excess daily funds to reduce any outstanding revolving credit balances and associated interest expense and it intends to continue such practice. Net proceeds from the November 1996 offering of 6,325,000 shares of Common Stock were used to reduce indebtedness under the Revolving Credit Facility. At March 31, 1997, the Company had a cash balance of $42.8 million. The cash balance is considered temporary as the cash will be used as the Company continues its 1997 capital expenditure program. Master Shelf Agreement. In December 1991, the Company entered into a Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of America ("Prudential") pursuant to which Prudential agreed to quote, from time-to-time, an interest rate at which Prudential or its nominee would be willing to purchase up to $100 million of the Company's senior promissory notes (the "Master Notes"). Any such Master Notes will mature in no more than 12 years, with an average life not in excess of 10 years, and are unsecured. The Master Shelf contains certain financial covenants which substantially conform with those contained in the Credit Facilities Agreements, as restated and amended. In July 1993 and July 1995, Prudential and the Company amended the Master Shelf to provide for additional borrowing capacity (for a total borrowing capacity of $200 11 million) and to extend the term of the Master Shelf to October 31, 1995. The Master Shelf Agreement, as further restated and amended, is fully utilized, as indicated in the following table (000s):
Interest Final Issue Date Amount Rate Maturity Principal Payments Due - ------------------ -------- ----- ------------------ ----------------------------------------------- October 27, 1992 $ 25,000 7.51% October 27, 2000 $8,333 on each of October 27, 1998 through 2000 October 27, 1992 25,000 7.99% October 27, 2003 $8,333 on each of October 27, 2001 through 2003 September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity 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 -------- $200,000 ========
1993 Senior Notes. On April 28, 1993, the Company sold $50 million of 7.65% Senior Notes ("1993 Senior Notes") due 2003 to a group of insurance companies. Annual principal payments of $7.1 million on the 1993 Senior Notes are due on April 30 of each year from 1997 through 2002, with any remaining principal and interest outstanding due on April 30, 2003. The Company financed the $7.1 million payment paid on April 30, 1997 with amounts available under the Revolving Credit Facility. The Company intends to finance the $7.1 million payment due in 1998 also with amounts available under the Revolving Credit Facility. The 1993 Senior Notes contain certain financial covenants that substantially conform with those contained in the Master Shelf Agreement, as restated and amended. 1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a group of insurance companies in the fourth quarter of 1995, with an interest rate of 8.16% per annum and principal due in a single payment in December 2005. The 1995 Senior Notes contain certain financial covenants that conform with those contained in the Master Shelf Agreement, as restated and amended. Receivables Facility. In April 1995, the Company entered into an agreement with Receivables Capital Corporation ("RCC"), as purchaser, and Bank of America National Trust and Savings Association, as agent, pursuant to which the Company will sell to RCC at face value on a revolving basis an undivided interest in certain of the Company's trade receivables. As part of the sale, the Company granted to RCC a security interest in such receivables. The Company may sell up to $75 million of trade receivables under the Receivables Facility, at a rate equal to RCC's commercial paper rate plus .375%, of which $75 million was funded at a rate of 6.106% as of March 31, 1997. The Receivables Facility has a 364- day term and contains financial covenants similar to those in the Credit Facilities Agreements, as restated and amended, along with certain covenants regarding the quality of the trade receivables pool. The parties have renewed the facility through May 29, 1997. The Company anticipates that it repay the facility with amounts available under the Revolving Credit Facility. Covenant Compliance. At March 31, 1997, the Company was in compliance with all covenants in its loan agreements. 12 PRINCIPAL FACILITIES The following tables provide information concerning the Company's principal facilities at March 31, 1997. The Company also owns and operates several smaller treating, processing and transmission facilities located in the same areas as its other facilities.
Average for the Three Months Ended March 31, 1997 ------------------------------------------------ Gas Gas Gathering Throughput Gas Gas NGL Year Placed Systems Capacity Throughput Production Production Plant Facilities (1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4) - --------------------------------- ----------- -------- ----------- ----------- ----------- ----------- SOUTHERN REGION: Texas Midkiff /Benedum............... 1955 2,086 150 147 99 888 Giddings Gathering............. 1979 655 80 63 54 93 Edgewood (5)(6)................ 1964 93 65 29 10 74 Perkins........................ 1975 2,572 40 22 12 133 MiVida (5)..................... 1972 287 150 62 57 - Gomez.......................... 1971 302 280 165 161 - Mitchell Puckett Gathering..... 1972 86 140 87 86 - Rosita Treating................ 1973 - 60 36 36 - Louisiana Black Lake..................... 1966 56 75 26 16 72 Toca (6)(7).................... 1958 - 160 123 120 79 NORTHERN REGION: Oklahoma Chaney Dell/Lamont............. 1966 2,026 180 80 61 248 Arkoma......................... 1985 63 8 5 5 - Westana (8).................... 1986 281 45 61 54 65 Wyoming Granger (6)(9)................. 1987 291 210 118 101 311 Red Desert (6)................. 1979 111 42 23 21 40 Lincoln Road (10).............. 1988 147 50 30 29 30 Hilight Complex (6)............ 1969 650 80 35 29 88 Kitty/Amos Draw (6)............ 1969 304 17 10 7 40 Newcastle (6).................. 1981 145 5 2 1 15 Reno Junction (9).............. 1991 - - - - 65 Coal Seam Gathering............ 1990 66 45 29 26 - New Mexico San Juan River (5)............. 1955 129 60 31 28 1 Utah Four Corners................... 1988 104 15 4 3 1 ------ ----- ----- ----- ----- Total......................... 10,454 1,957 1,188 1,016 2,243 ====== ===== ===== ===== ===== Average for the Three Months Ended March 31, 1997 -------------- Gas Storage Pipeline Gas Storage and Year Placed Transmission Capacity Capacity Throughput Transmission Facilities (1) In Service Miles(2) (Bcf) (2) (MMcf/D) (2) (MMcf/D) (3) - --------------------------------- ----------- -------------- ---------- -------------- ----------- Katy Facility (11)............... 1994 17 19 - 252 MIGC (12)........................ 1970 214 - 45 55 MGTC (13)........................ 1963 250 - 18 11 ------ ----- ----- ----- Total.......................... 481 19 63 318 ====== ===== ===== =====
____________________________ Footnotes on following page. 13 (1) The Company's interest in all facilities is 100% except for Midkiff/Benedum (73%); Black Lake (69%); Lincoln Road (72%); Westana Gathering Company ("Westana") (50%) and Newcastle (50%). All facilities are operated by the Company and all data include interests of the Company, other joint interest owners and producers of gas volumes dedicated to the facility. (2) Gas gathering systems miles, transmission miles, gas throughput capacity, gas storage capacity and pipeline capacity are as of March 31, 1997. (3) Aggregate wellhead natural gas volumes collected by a gathering system or aggregate volumes delivered over the header at the Katy Hub and Gas Storage Facility ("Katy Facility"). (4) Volumes of residue gas and NGLs are allocated to a facility when a well is dedicated to that facility; volumes exclude NGLs fractionated for third parties. (5) Sour gas facility (capable of processing gas containing hydrogen sulfide). (6) Fractionation facility (capable of fractionating raw NGLs into end-use products). (7) Straddle plant (a plant located near a transmission pipeline that processes gas dedicated to or gathered by a pipeline company or another third party). (8) Gas throughput and gas production in excess of gas throughput capacity is unprocessed gas delivered directly to an unaffiliated pipeline. (9) NGL production represents conversion of third-party feedstock to iso-butane. (10)Commencing in March 1996, the Company and its joint venture partner at the Lincoln Road plant temporarily suspended processing operations at the Lincoln Road plant and began processing the related gas at the Company's Granger facility. This consolidation has resulted in lower overall plant operating expenses for the combined systems. Beginning in April 1997, the Lincoln Road plant was restarted as volumes increased beyond Granger's capacity. (11)Hub and gas storage facility. (12)MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission. (13)MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission. PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- JN Exploration and Production Litigation JN Exploration and Production ("JN") is a producer of oil and natural gas that sold unprocessed natural gas to the Company on a percentage-of-proceeds basis. The Company processed the natural gas at its Teddy Roosevelt Plant, which is no longer in operation. In JN Exploration and Production v. Western Gas Resources, ------------------------------------------------------- Inc. United States District Court for the District of North Dakota, - ---- Southwestern Division, Civil Action Nos. A1-93-53 and 903-CV-60, JN sued the Company, alleging that JN was entitled to a portion of a $15 million amendment fee the Company received in the years 1987 through 1989 from Williston Basin Interstate Pipeline Company ("WBI"), which had an agreement with the Company to purchase natural gas. On April 15, 1996, the Court issued a Memorandum and Order granting JN's summary judgment motion on the issue of liability. On July 11, 1996, the Court issued a Memorandum and Order setting forth the manner in which damages are to be calculated. On September 17, 1996, the Court entered a final judgment against the Company in the amount of $421,000 (including pre- judgment interest). The Company has appealed the decision and believes that there are meritorious grounds to reverse the trial court's decision. One other producer has filed a similar claim. If JN were to prevail on appeal, other producers who sold natural gas which was processed at the Teddy Roosevelt Plant during the time period in question may be able to assert similar claims. The Company believes that it has meritorious defenses to such claims and, if sued, the Company would defend vigorously against any such claims. At the present time, it is not possible to predict the outcome of this litigation or any other producer litigation that might raise similar issues or to estimate the amount of potential damages. Kennedy Litigation M. John Kennedy ("Kennedy") is a producer of oil and natural gas who sells unprocessed natural gas to the Company on a percentage-of-proceeds basis. The Company processes the gas at two of the Company's plants located in the Powder River Basin, Wyoming. In M. John Kennedy v. Western Gas Resources, Inc., Civil ---------------------------------------------- No. 96-CV-0142-B, United States District Court, District of Wyoming, (Originally filed as Civil Action No. 20522, in the District Court, Sixth Judicial District, State of Wyoming and removed to the United States District Court by notice filed by the Company), Kennedy alleges that he is entitled to higher compensation for residue gas purchased by the Company because the Company allegedly understated the proceeds attributable to his gas. Kennedy also has claimed that the Company reduced his revenues by processing gas that had a lower liquid content 14 than did Kennedy's gas. Kennedy is seeking unspecified damages and prejudgment interest. If Kennedy were to prevail in this matter, other producers who sold residue gas that was processed by the two plants during the time period in question may be able to assert similar claims. The Company believes that it has meritorious defenses to Kennedy's claims and other similar potential claims. The Company intends to defend this matter vigorously. At the present time, it is not possible to predict the outcome of this litigation or any other producer litigation that might raise similar issues or to estimate the amount of potential damages. Internal Revenue Service The Internal Revenue Service ("IRS") has completed its examination of the Company's returns for the years 1990 and 1991 and has proposed adjustments to taxable income reflected in such returns that would shift the recognition of certain items of income and expense from one year to another ("Timing Adjustments"). To the extent taxable income in a prior year is increased by proposed Timing Adjustments, taxable income may be reduced by a corresponding amount in other years. However, the Company would incur an interest charge as a result of such adjustment. The Company currently is protesting certain of these proposed adjustments. In the opinion of management, adequate provision has been made for the additional income taxes and interest that may result from the proposed adjustments. However, it is reasonably possible that the ultimate resolution could result in an amount which differs materially from amounts provided. Katy Condemnation Commencing in March 1993 and continuing through July 1993, Western Gas Resources Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company, filed a total of 165 condemnation actions in County Court at Law No. 1 and No. 2 of Fort Bend County, Texas, to obtain certain storage rights and rights-of-way relating to its Katy Facility and the related underground reservoir. In February 1996 a global settlement was entered into in 148 of the 151 condemnation cases requiring Storage to pay approximately $2.5 million in exchange for receiving all the property rights it sought to condemn, along with related releases, assignments and indemnifications. Final judgments have been entered in the 148 cases and the $2.5 million has been released from escrow. The Company considers the $2.5 million payment as a cost of building the Katy Facility and has capitalized such costs. The remaining three cases not involved in the global settlement are not expected to have any material impact on the Company and are expected to be resolved through the normal course of litigation. Other The Company is involved in various other litigation and administrative proceedings arising in the normal course of 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 the Company's financial position or results of operations. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 3.7 Amendment of the Bylaws of Western Gas Resources, Inc. adopted by the Board of Directors on March 21, 1997. (b) Reports on Form 8-K: None. 15 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: May 14, 1997 By: /s/ LANNY F. OUTLAW -------------------------------------- Lanny F. Outlaw President and Chief Operating Officer Date: May 14, 1997 By: /s/WILLIAM J. KRYSIAK -------------------------------------- William J. Krysiak Vice President - Finance (Principal Financial and Accounting Officer) 16 EX-3.7 2 AMENDMENT OF THE BYLAWS OF WGR ADOPTED 3/21/97 EXHIBIT 3.7 WESTERN GAS RESOURCES, INC. Resolutions Amending the Company's By-Laws ------------------------------------------ RESOLVED, that Section 11 of Article III of the Company's By-Laws is hereby deleted in its entirety and replaced, in lieu thereof, with the following: "Section 11. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if one hundred percent of the members of the Board or one hundred percent of the members of the committee, as the case may be, consent thereto in writing and such writing is filed with the minutes of the proceedings of the Board or committee, as the case may be." RESOLVED, that Section 1 of ARTICLE VII of the Company's By-Laws is hereby amended by deleting all references to "any person" and replacing such phrase with "any officer or director" and by deleting all references to "a director, officer, employee or agent" and replacing such phrase with " a director or officer." ADOPTED ON MARCH 21, 1997 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 42,823 0 183,933 0 16,651 247,362 1,182,767 (265,850) 1,250,473 296,865 379,500 0 416 3,214 483,309 1,250,473 632,656 635,831 570,365 570,365 42,060 0 6,427 16,686 6,078 10,608 0 0 0 10,608 .25 .25
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