-----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, U6+Q56h6/Qn5NOl98NSWD1kc1nqpGOKrzwQ/4mbhiT3MCvmHxMow5a7CnYCej4a/ 5l25tK5/l2vm7tSjFdesnQ== 0000927356-97-001359.txt : 19971115 0000927356-97-001359.hdr.sgml : 19971115 ACCESSION NUMBER: 0000927356-97-001359 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-10389 FILM NUMBER: 97717479 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 SEPTEMBER 30, 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 November 3, 1997, there were 32,146,437 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 (Unaudited) Consolidated Balance Sheet - September 30, 1997 and December 31, 1996...................................... 3 Consolidated Statement of Cash Flows - Nine months ended September 30, 1997 and 1996................... 4 Consolidated Statement of Operations - Three and Nine months ended September 30, 1997 and 1996.......... 5 Consolidated Statement of Changes in Stockholders' Equity - Nine months ended September 30, 1997......................................... 6 Notes to Consolidated Financial Statements................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 9 PART II - Other Information - --------------------------- Item 1. Legal Proceedings........................................ 16 Item 6. Exhibits and Reports on Form 8-K......................... 17 Signatures......................................................... 18
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET (000s, except share and per share amounts)
September 30, December 31, 1997 1996 -------------- ------------- ASSETS (Unaudited) ------ Current assets: Cash and cash equivalents.................................................... $ 18,468 $ 39,504 Trade accounts receivable, net............................................... 231,753 338,708 Product inventory............................................................ 45,364 25,972 Parts inventory.............................................................. 2,192 2,599 Other........................................................................ 2,212 1,477 ---------- ---------- Total current assets........................................................ 299,989 408,260 ---------- ---------- Property and equipment: Gas gathering, processing, storage and transmission.......................... 1,003,778 938,902 Oil and gas properties and equipment......................................... 168,249 144,732 Construction in progress..................................................... 105,596 35,250 ---------- ---------- 1,277,623 1,118,884 Less: Accumulated depreciation, depletion and amortization.................. (292,366) (252,571) ---------- ---------- Total property and equipment, net........................................... 985,257 866,313 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $26,948 and $24,552, respectively)...................................................... 44,293 46,689 Other........................................................................ 42,455 40,369 ---------- ---------- Total other assets.......................................................... 86,748 87,058 ---------- ---------- Total assets.................................................................. $1,371,994 $1,361,631 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable............................................................. $ 280,218 $ 386,268 Accrued expenses............................................................. 32,000 28,670 Dividends payable............................................................ 4,217 4,215 ---------- ---------- Total current liabilities.................................................. 316,435 419,153 Long-term debt................................................................ 480,857 379,500 Deferred income taxes payable................................................. 87,529 82,511 ---------- ---------- Total liabilities........................................................... 884,821 881,164 ---------- ---------- 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; 32,168,439 and 32,134,151 shares issued, respectively...................................... 3,217 3,213 Treasury stock, at cost, 25,016 shares....................................... (788) (788) Additional paid-in capital................................................... 399,490 397,061 Retained earnings............................................................ 86,212 82,378 Notes receivable from key employees secured by common stock.................. (1,374) (1,813) ---------- ---------- Total stockholders' equity.................................................. 487,173 480,467 ---------- ---------- Total liabilities and stockholders' equity.................................... $1,371,994 $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)
Nine Months Ended September 30, ----------------------------- 1997 1996 ----------- ------------ Reconciliation of net income to net cash provided by operating activities: Net income................................................................... $ 16,483 $ 18,546 Add income items that do not affect working capital: Depreciation, depletion and amortization.................................... 44,956 47,134 Deferred income taxes....................................................... 7,872 8,389 Distributions in excess of equity income, net............................... 25 4,360 Loss (gain) on the sale of property and equipment........................... 73 (2,165) Other non-cash items, net................................................... 2,063 76 ----------- ------------ 71,472 76,340 ----------- ------------ Adjustments to working capital to arrive at net cash provided by operating activities: Decrease in trade accounts receivable....................................... 106,286 6,498 Increase in product inventory............................................... (20,356) (2,360) Decrease in parts inventory................................................. 407 460 Increase in other current assets............................................ (735) (583) Decrease in other assets.................................................... (393) (21) (Decrease) increase in accounts payable..................................... (106,050) 31,086 (Decrease) increase in accrued expenses..................................... (4,425) 7,828 ----------- ------------ Total adjustments.......................................................... (25,266) 42,908 ----------- ------------ Net cash provided by operating activities.................................... 46,206 119,248 ----------- ------------ Cash flows from investing activities: Purchase of property and equipment.......................................... (155,129) (38,468) Proceeds from the dispositions of property and equipment.................... 2,178 3,953 Distribution from unconsolidated affiliate.................................. 278 - Contributions to unconsolidated affiliates.................................. (2,743) (335) ----------- ------------ Net cash used in investing activities........................................ (155,416) (34,850) ----------- ------------ Cash flows from financing activities: Net proceeds from exercise of common stock options.......................... 175 50 Debt issue costs paid....................................................... (711) (503) Payments on revolving credit facility....................................... (955,150) (786,350) Borrowings under revolving credit facility.................................. 1,151,150 724,850 Payments on long-term debt.................................................. (94,643) (12,500) Dividends paid.............................................................. (12,647) (11,697) ----------- ------------ Net cash provided by (used in) financing activities.......................... 88,174 (86,150) ----------- ------------ Net decrease in cash and cash equivalents.................................... (21,036) (1,752) Cash and cash equivalents at beginning of period............................. 39,504 5,795 ----------- ------------ Cash and cash equivalents at end of period................................... $ 18,468 $ 4,043 =========== ============
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 Nine Months Ended September 30, September 30, -------------------------- ------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ----------- Revenues: Sale of residue gas................................. $ 384,181 $ 316,104 $ 1,120,382 $ 979,771 Sale of natural gas liquids......................... 141,574 127,996 442,316 361,571 Sale of electric power.............................. 16,695 10,339 54,111 11,584 Processing, transportation and storage revenue...... 10,320 10,647 30,192 32,421 Other, net.......................................... 3,118 2,635 8,000 9,311 ----------- ----------- ----------- ----------- Total revenues.................................... 555,888 467,721 1,655,001 1,394,658 ----------- ----------- ----------- ----------- Costs and expenses: Product purchases................................... 499,884 413,260 1,482,401 1,213,955 Plant operating expense............................. 19,100 18,367 55,607 53,402 Oil and gas exploration and production expense...... 1,761 1,110 4,925 3,640 Depreciation, depletion and amortization............ 14,386 15,709 44,956 47,134 Selling and administrative expense.................. 6,453 6,415 22,131 21,552 Interest expense.................................... 6,454 8,497 19,183 26,646 ----------- ----------- ----------- ----------- Total costs and expenses.......................... 548,038 463,358 1,629,203 1,366,329 ----------- ----------- ----------- ----------- Income before taxes.................................. 7,850 4,363 25,798 28,329 Provision for income taxes: Current............................................. 102 416 1,443 1,394 Deferred............................................ 2,751 1,066 7,872 8,389 ----------- ----------- ----------- ----------- Total provision for income taxes.................. 2,853 1,482 9,315 9,783 ----------- ----------- ----------- ----------- Net income........................................... 4,997 2,881 16,483 18,546 Preferred stock requirements......................... (2,610) (2,610) (7,829) (7,829) ----------- ----------- ----------- ----------- Income attributable to common stock.................. $ 2,387 $ 271 $ 8,654 $ 10,717 =========== =========== =========== =========== Income per share of common stock..................... $.07 $.01 $.27 $.42 =========== =========== =========== =========== Weighted average shares of common stock outstanding.. 32,142,427 25,776,871 32,130,038 25,774,446 =========== =========== =========== ===========
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.... - - 34,288 - - - 4 - 196 Tax benefit related to stock options............. - - - - - - - - 2,233 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 September 30, 1997...................... 1,400,000 2,760,000 32,143,423 25,016 $140 $276 $3,217 $(788) $399,490 =========== ========= ========== ========== =========== ====== ========== ======= ========== Notes Total Receivable Stock- Retained from Key holders' Earnings Employees Equity ---------- ---------- --------- Balance at December 31, 1996...................... $ 82,378 $ (1,813) $ 480,467 Net income................. 16,483 - 16,483 Stock options exercised.... - (25) 175 Tax benefit related to stock options............. - - 2,233 Loans forgiven............. - 464 464 Dividends declared on common stock.............. (4,820) - (4,820) Dividends declared on $2.28 cumulative preferred stock........... (2,395) - (2,395) Dividends declared on $2.625 cumulative convertible preferred stock.................... (5,434) - (5,434) ----------- --------- ---------- Balance at September 30, 1997...................... $ 86,212 $ (1,374) $ 487,173 =========== ========= ==========
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 September 30, 1997 and for the three and nine month periods ended September 30, 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. Certain prior year 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 requirements. The Company declared preferred stock dividends of $2.6 million and $7.8 million, respectively, for both of the three and nine month periods ended September 30, 1997 and 1996. The computation of fully diluted earnings per share of common stock for the three and nine months ended September 30, 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 No. 128 will result in a material change in calculated earnings per share. In February 1997, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure," ("SFAS No. 129") with an effective date for fiscal years ending after December 15, 1997. The Company will comply with the disclosure requirements of SFAS 129 as required under the pronouncement. ADDITIONAL PAID-IN CAPITAL The Company realizes an income tax benefit from the exercise of non-qualified stock options related to the difference between the market price at the date of exercise and the option price. Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," requires that this difference be credited to additional paid-in capital. In September 1997, the Company recorded an adjustment of $2.2 million to Additional Paid-In Capital to reflect such difference associated with the Company's $5.40 Stock Option Plan. The adjustment also resulted in a deferred tax asset which the Company expects to realize. SUPPLEMENTARY CASH FLOW INFORMATION Interest paid was $23.1 million and $26.7 million, respectively, for the nine months ended September 30, 1997 and 1996. Income taxes paid were $2.6 million and $4.2 million, respectively, for the nine months ended September 30, 1997 and 1996. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No. 130") with an effective date for fiscal years beginning after December 15, 1997. The Company will comply with the display requirements of SFAS 130 as required under the pronouncement. SEGMENT REPORTING In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information," ("SFAS No. 131") with an effective date for fiscal years 7 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (CONTINUED) beginning after December 15, 1997. The Company will comply with the disclosure requirements of SFAS 131 as required under the pronouncement. SUBSEQUENT EVENT On October 30, 1997, the Company sold a 50% undivided interest in its Powder River Basin coal bed methane gas operations. The sale involves gathering assets, producing properties, production equipment and certain undeveloped acreage in this area. Included in the sale are an interest in the operating wells and undeveloped acreage purchased by the Company in March 1997. Currently, the Company is calculating the final, adjusted purchase price and is anticipating a pre-tax gain between $4.0 and $5.0 million which will be recognized in the fourth quarter of 1997. LEGAL PROCEEDINGS Reference is made to "Part II - Other Information - Item 1. Legal Proceedings," of this Form 10-Q. 8 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 and nine month periods ended September 30, 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. 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 markets for residue gas and NGLs in which the Company operates could cause actual results to differ materially from those in such forward-looking statements. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- Percent ----------------------------- Percent 1997 1996 Change 1997 1996 Change ------------- -------- ------- ---------- ----------------- ------- FINANCIAL RESULTS: Revenues.......................... $555,888 $467,721 19 $1,655,001 $1,394,658 19 Gross profit...................... 20,757 19,275 8 67,112 76,527 (12) Net income........................ 4,997 2,881 73 16,483 18,546 (11) Income per share of common stock.. .07 .01 600 .27 .42 (36) Net cash provided by operating activities...................... $ 2,837 $ 6,996 (59) $ 46,206 $ 119,248 (61) OPERATING DATA: Average gas sales (MMcf/D)........ 2,010 1,711 17 1,870 1,755 7 Average NGL sales (MGal/D)........ 4,545 3,595 26 4,420 3,562 24 Average gas prices ($/Mcf)........ $ 2.08 $ 2.01 3 $ 2.19 $ 2.04 7 Average NGL prices ($/Gal)........ $ .34 $ .39 (13) $ .36 $ .37 (3)
Revenues from the sale of residue gas increased approximately $68.1 million to $384.2 million for the quarter ended September 30, 1997 compared to the same period in 1996. Average gas sales volumes increased 299 MMcf per day to 2,010 MMcf per day for the quarter ended September 30, 1997 compared to the same period in 1996, primarily as a result of an increase in the sale of residue gas purchased from third parties. Average gas prices increased $.07 per Mcf to $2.08 per Mcf for the quarter ended September 30, 1997 compared to the same period in 1996. Revenues from the sale of residue gas increased approximately $140.6 million to $1,120.4 million for the nine months ended September 30, 1997 compared to the same period in 1996. Average gas sales volumes increased 115 MMcf per day to 1,870 MMcf per day for the nine months ended September 30, 1997 compared to the same period in 1996, due to an increase in the sale of residue gas purchased from third parties. Average gas prices increased $.15 per Mcf to $2.19 per Mcf for the nine months ended September 30, 1997 compared to the same period in 1996. Included in the average gas price was approximately $650,000 and $1.5 million, respectively, of loss recognized for the three and nine months ended September 30, 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 and for 1998, primarily the first quarter. See further discussion in "Liquidity and Capital Resources - Risk Management Activities." Revenues from the sale of NGLs increased approximately $13.6 million to $141.6 million for the quarter ended September 30, 1997 compared to 1996. Average NGL sales volumes increased 950 MGal per day to 4,545 MGal per day, primarily due to an approximate 750 MGal per day increase in the sale of NGLs purchased from third parties. Average NGL prices decreased $.05 per gallon to $.34 per gallon for the quarter ended September 30, 1997 compared to 1996. Revenues from the sale of NGLs increased approximately $80.7 million to $442.3 million for the nine months ended September 30, 1997 compared to 1996. 9 Average NGL sales volumes increased 858 MGal per day to 4,420 MGal per day, primarily due to an approximate 800 MGal per day increase in the sale of NGLs purchased from third parties for this same period. Average NGL prices remained relatively constant for the nine months ended September 30, 1997 compared to 1996. Included in the average NGL price was approximately $800,000 and $4.7 million, respectively, of gain recognized for the three and nine months ended September 30, 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 and for 1998, primarily the first quarter. See further discussion in "Liquidity and Capital Resources - Risk Management Activities." Revenue associated with electric power marketing increased $6.4 million and $42.5 million, respectively, for the three and nine months ended September 30, 1997 compared to the same periods in 1996, primarily because the Company had minimal transactions in this market during these periods in 1996. Going forward, the Company elected to focus greater attention on the analysis of potential participation in power generation assets and less emphasis on trading activities. The increase in product purchases of $86.6 million to $499.9 million for the three months ended September 30, 1997 is primarily a result of an increase in the sale of residue gas and NGLs purchased from third parties. The increase in product purchases of $268.4 million to $1,482.4 million for the nine months ended September 30, 1997 is due primarily to a combination of higher residue gas prices and increased sales of NGLs purchased from third parties. Contributing to the increase in product purchases for the nine months ended September 30, 1997 were higher payments to producers related to the Company's "keepwhole" contracts at its Granger facility. Under a "keepwhole" contract, the Company's margin is reduced when the value of NGLs declines relative to the value of residue gas. Also contributing to the increases in product purchases for the nine months ended September 30, 1997, were lower of cost or market write-downs of NGL inventories of $963,000. Interest expense decreased $2.0 million and $7.5 million, respectively, for the three and nine months ended September 30, 1997 compared to the same periods in 1996. The decrease in interest expense for three months ended September 30, 1997 was primarily due to more interest being capitalized related to the construction of the Bethel facility. The decrease in the nine month period was also due to lower average outstanding debt balances 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. However, the Company's borrowings under its long-term debt agreements, as of September 30, 1997, are consistent with prior year balances, primarily due to costs associated with the construction of the Bethel facility. The Bethel facility is expected to be substantially completed during the first quarter of 1998, at which time interest will no longer be capitalized. See further discussion in "Liquidity and Capital Resources - Capital Investment Program." Overall profitability for the nine months ended September 30, 1997 was less than anticipated due to several factors. Combined product purchases as a percentage of residue gas, NGL and electric power sales increased from 91% to 92% and from 90% to 92% for the three and nine months ended September 30, 1997 compared to the same periods in 1996. Over the past several years, the Company has experienced narrowing margins related to the increasing competitiveness of the natural gas marketing industry. During the nine months ended September 30, 1997, the Company's marketing margins were reduced by approximately 50% compared to the same period in 1996. Included in the sale of residue gas and gas purchases for the three months ended September 30, 1997 is the sale of approximately 3.3 Bcf of gas previously stored in the Katy Facility at a margin of approximately $.30 per Mcf. Results of operations in the fourth quarter of 1997 will be adversely affected by additional costs associated with the Bethel facility. As a result of start-up costs associated with opening the facility and depreciation, the Bethel facility is not expected to contribute positively to earnings in 1997. 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 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 for the next one year period. However, the Company can give no assurance that the historical sources of liquidity and capital resources will be available for future development and acquisition projects in excess of budgeted amounts, and it may be required to investigate alternative financing sources. Net cash provided by operating activities is primarily affected by product 10 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's sources and uses of funds for the nine months ended September 30, 1997 are summarized as follows (000s):
SOURCES OF FUNDS: Borrowings on revolving credit facility........ $1,151,150 Net cash provided by operating activities...... 46,206 Other.......................................... 2,631 ---------- Total sources of funds....................... $1,199,987 ========== USES OF FUNDS: Payments related to long-term debt agreements.. $1,050,504 Capital expenditures........................... 157,872 Dividends paid................................. 12,647 ---------- Total uses of funds.......................... $1,221,023 ==========
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 and held imbalances for such purposes of approximately 16.9 Bcf at an average cost of $1.88 per Mcf at September 30, 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 September 30, 1997, the Company had hedging contracts in place for anticipated sales at a weighted average price of $2.15 per Mcf for substantially all of the residue gas in inventory. The Company also held NGLs in storage of approximately 39,985 MGal, consisting primarily of propane and normal butane, at an average cost of $.34 per gallon and approximately 16,100 MGal at an average cost of $.42 per gallon at September 30, 1997 and December 31, 1996, respectively, at various third-party storage facilities. At September 30, 1997, the Company had hedging contracts in place for anticipated sales, consisting primarily of propane and ethane, at a weighted average price of $.31 per gallon for approximately 11,380 MGal of the stored NGLs in inventory. Risk Management Activities The Company enters into futures transactions on the New York Mercantile Exchange ("NYMEX") and the Kansas City Board of Trade and OTC swaps and options with creditworthy counterparties consisting primarily of financial institutions and other natural gas companies. Using these tools, as well as physical forward transactions, 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 1997 hedging strategy established a minimum and maximum price to the Company while allowing market participation between these levels. As of November 3, 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 $2.11 per Mcf. Additionally, the Company has hedged approximately 50% of its equity NGLs for the remainder of 1997 at a weighted average composite Mont Belvieu and West Texas Intermediate Crude-equivalent minimum price of $.36 per gallon. The Company has also begun to implement its hedging strategy for 1998 at pricing levels equal to or in excess of its anticipated operating budget. The Company's 1998 hedging strategy includes the significant use of option structures which provide the Company with a minimum floor price while allowing it to participate in higher market prices. As of November 3, 1997, the Company has hedged approximately 55% of its equity residue gas and approximately 50% of its equity NGLs for the first quarter of 1998. Capital Investment Program Capital expenditures related to existing operations are expected to be approximately $190.8 million during 1997, consisting of the following: capital expenditures related to gathering, processing and pipeline assets are expected to be $135.2 million, of which $121.3 million will be used for new connects, system expansions, the Bethel facility and asset consolidations and $13.9 million for maintaining existing facilities. The Company expects capital expenditures for exploration and production activities and acquisitions, the Katy Facility and miscellaneous items to be $49.6 million, $4.0 million and $2.0 million, respectively. As of September 30, 1997, the Company had expended, including a $7.6 million note payable related to the purchase of certain assets in the Powder River Basin, $165.5 million consisting of the following: (i) $116.5 million for new connects, system expansions, the Bethel facility and asset consolidations; (ii) $8.4 million for maintaining existing facilities; (iii) $36.7 for exploration and production activities and acquisitions; (iv) $2.7 million related to the Katy Facility; and (v) $1.2 million of miscellaneous expenditures. 11 Bethel Facility. The Company is currently constructing the Bethel facility in East Texas that will gather and treat gas containing hydrogen sulfide ("Sour Gas") from the Cotton Valley Pinnacle Reef Trend. The Company has completed the initial portion of the Bethel facility, which is capable of treating approximately 350 MMcf per day, assuming 500 parts per million of hydrogen sulfide in the gas stream. The Company has designed the Bethel facility to accommodate incremental expansions, depending upon the success of continued development in the trend. Long-term gathering and treating agreements have been signed with several producers, including Sonat Exploration Company, UMC Petroleum Corporation, Broughton Associates Joint Venture and Union Pacific Resources Company, relating to their interests in the Cotton Valley Pinnacle Reef trend. The agreements cover specified areas of dedication aggregating approximately 650,000 acres of previously undedicated interests and other individual wellsites. Previously, a group of local citizens had been granted party status at hearings to be held by the Texas Natural Resource Conservation Commission ("TNRCC"), which issues construction permits for facilities that will emit air pollutants, and by the Railroad Commission of Texas ("TRC"), which issues permits for the operation of facilities that treat Sour Gas (the "H-9"). The Company has reached a settlement with all adverse parties. As a result of the settlement, on August 12, 1997, the TNRCC issued an air permit to the Company, which will allow it to commence construction of one or more expansions to the existing 350 MMcf per day facility to increase throughput capacity in phases up to approximately 1.4 Bcf per day, assuming 5,000 parts per million of hydrogen sulfide in the gas stream. Also on August 12, 1997, the TRC remanded the consideration of the H-9 back to the administrative process and issued an interim H-9 to permit the Company to treat Sour Gas containing low concentrations of hydrogen sulfide. The Company received the H-9 for 700 MMcf per day, assuming 5,000 parts per million of hydrogen sulfide in the gas stream, of throughput capacity in early September 1997. To accommodate wells which may contain greater concentrations of hydrogen sulfide than originally anticipated, the Company began construction of a 60-ton sulfur recovery plant which is expected to be completed during the first quarter of 1998. The Bethel facility, including the sulfur recovery plant, is expected to cost approximately $91.0 million, of which approximately $85.9 million has been expended since inception through September 30, 1997. As of November 3, 1997, the Bethel facility was treating approximately 80 MMcf per day and volumes are expected to reach 125 MMcf per day by December 31, 1997. However, due to uncertainties related to construction costs, possible delays in pipeline permitting and other conditions outside the Company's control, there can be no assurance that this project will develop as rapidly as currently anticipated. 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. In addition, the carbon dioxide and hydrogen sulfide content of the gas that can be produced from these wells is unknown and affects the ultimate capacity of the Bethel facility. See further discussion in "Results of Operations." Coal Bed Methane. On October 30, 1997, the Company sold a 50% undivided interest in its Powder River Basin coal bed methane gas operations to Barrett Resources Corporation ("Barrett"). The sale involves gathering assets, producing properties, production equipment and certain undeveloped acreage in this area. Included in the sale are an interest in the operating wells and undeveloped acreage purchased by the Company in March 1997. Currently, the Company is calculating the final, adjusted purchase price and is anticipating a pre-tax gain between $4.0 and $5.0 million which will be recognized in the fourth quarter of 1997. An area of mutual interest ("AMI") has been created under the agreement which encompasses approximately 2.1 million acres in the coal bed methane play. Both parties will develop certain specified areas within the AMI with Barrett becoming the principal operator over the next 20 months. Production from the Powder River coal bed methane play has been expanding rapidly over the last two years with approximately 50 MMcf per day of gas volumes currently being produced from several operators in the area, including the Company's interest. Most of the coal bed methane gas is being transported by MIGC, the Company's interstate pipeline, with connections to both the Colorado Interstate Gas pipeline and the Pony Express Pipeline for transportation to gas markets in the Rocky Mountains and Midwest. The Company has committed to purchase all gas produced from the jointly-owned properties within the AMI under a long-term gas purchase agreement. Under the agreement, MIGC agreed to install additional compression and transmission facilities as needed to handle the anticipated increase in gas volumes. Midkiff/Benedum. The Company has expanded the capacity at its Midkiff/Benedum processing plant to approximately 185 MMcf per day, however, the plant capacity is approximately 165 MMcf per day due to gathering and compression limitations. The expansion was to accommodate increased drilling activity by Pioneer Natural Resources Company and other producers which supply natural gas to this facility. The Company's share of the expansion cost was approximately $4.3 million. 12 Other. 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. Due to weaknesses in the price of ethane, the Company's ability to recover ethane profitably is limited at certain of its facilities. Additionally, the Company is experiencing narrowing margins in converting normal butane into iso-butane at the Company's Reno Junction isomerization facility. As a result, the Company anticipates producing less ethane and iso-butane in the fourth quarter of 1997. 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 its banks, seek waivers from its 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 unsecured variable rate Revolving Credit Facility, was restated and amended on May 30, 1997. The Revolving Credit Facility is with a syndicate of nine banks and provides for a maximum borrowing base of $300 million, $196 million of which was outstanding at September 30, 1997. The Revolving Credit Facility's commitment period will terminate on March 31, 2002. At that time, any amounts outstanding on the Revolving Credit Facility will become due and payable. 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 Company also pays a facility fee on the commitment. The interest rate spreads and facility fee are adjusted based on the Company's debt to capitalization ratio. At September 30, 1997, the spread was .35% over the Eurodollar rate and the facility fee was .175%. The rate payable, including the facility fee, on the Revolving Credit Facility at September 30, 1997 was 6.0%. The Company incurred approximately $425,000 of fees in association with the restatement and amendment, such amounts were capitalized and will be amortized over the term of the agreement. Pursuant to the Revolving Credit Facility, the Company is required to maintain a debt to capitalization ratio (as defined therein) of not more than 60%, and a ratio of EBITDA (as defined therein) to interest and dividends on preferred stock of not less than 2.75 to 1.0 through December 31, 1998, 3.0 to 1.0 from January 1, 1999 through December 31, 1999 and 3.25 to 1.0 thereafter. The Company generally utilizes excess daily funds to reduce any outstanding balances on the Revolving Credit Facility and associated interest expense and it intends to continue such practice. At September 30, 1997, the Company had a cash balance of $18.5 million. 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 unsecured promissory notes (the "Master Notes"). 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 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 ========
Pursuant to the Master Shelf Agreement, 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 earnings earned from June 13 30, 1995 plus 75% of the net proceeds of any equity offerings after June 30, 1995, a debt to capitalization ratio (as defined therein) of no more than 55%, and an EBITDA (as defined therein) to interest ratio of not less than 3.25 to 1.0 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 June 30, 1995, that in the aggregate exceed the sum of $50 million plus 50% of consolidated net earnings earned after June 30, 1995, plus the cumulative net proceeds received by the Company after June 30, 1995 from the sale of any equity securities. At September 30, 1997, $130 million was available under this limitation. Term Loan Facility. The Company also had a Term Loan Facility with four banks which bore interest at 9.87%. In September 1997 the Company made the final payment on the Term Loan Facility with amounts available under the Revolving Credit Facility. 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 were and 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 presently intends to finance the $7.1 million payment due on April 30, 1998 with amounts available under the Revolving Credit Facility. The 1993 Senior Notes are unsecured and 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 are unsecured and contain certain financial covenants that conform with those contained in the Master Shelf Agreement, as restated and amended. Covenant Compliance. At September 30, 1997, the Company was in compliance with all covenants in its loan agreements. Taking into account all the covenants contained in the Company's financing facilities and expected maturities of long-term debt during 1997, the Company had approximately $100 million of available borrowing capacity at September 30, 1997. 14 PRINCIPAL FACILITIES The following table provides information concerning the Company's principal facilities. The Company also owns and operates several smaller treating and processing facilities located in the same areas as its other facilities.
Average for the Nine Months Ended September 30, 1997 Gas Gas --------------------------------------------- Gathering Throughput Gas Gas NGL Year Placed Systems Capacity Throughput Production Production Plant Facilities (1) In Service Miles(2) (MMcf/D)(3) (MMcf/D)(4) (MMcf/D)(5) (MGal/D)(5) - --------------------------------- ----------- --------------------- -------------- ---------------- -------------- ----------- SOUTHERN REGION: Texas Midkiff /Benedum............... 1955 2,123 165 153 99 940 Giddings Gathering............. 1979 655 80 61 52 86 Edgewood (6)(7)................ 1964 89 65 26 8 63 Perkins........................ 1975 2,573 40 22 13 136 MiVida (6)..................... 1972 287 150 63 59 - Gomez.......................... 1971 307 280 158 154 - Mitchell Puckett Gathering..... 1972 86 85 81 80 - Rosita Treating................ 1973 - 60 38 38 - Bethel Treating................ 1997 70 350 13 11 - Louisiana Black Lake..................... 1966 56 75 24 15 65 Toca (7)(8).................... 1958 - 160 114 110 78 NORTHERN REGION: Oklahoma Chaney Dell/Lamont............. 1966 2,039 180 79 62 242 Arkoma......................... 1985 63 8 5 5 - Westana (9).................... 1986 723 45 60 52 95 Wyoming Granger (7)(10)................ 1987 330 235 141 123 306 Red Desert (7)................. 1979 111 42 23 21 37 Lincoln Road (11).............. 1988 148 50 32 31 29 Hilight Complex (7)............ 1969 621 80 38 31 90 Kitty/Amos Draw (7)............ 1969 307 17 11 7 45 Newcastle (7).................. 1981 145 5 2 1 16 Reno Junction (10)............. 1991 - - - - 65 Coal Bed Methane Gathering (15)................ 1990 103 55 33 30 - New Mexico San Juan River (6)............. 1955 130 60 31 28 1 Utah Four Corners................... 1988 104 15 4 3 2 ------ ----- ----- ----- ----- Total......................... 11,070 2,302 1,212 1,033 2,296 ====== ===== ===== ===== =====
Average for the Nine Months Ended September 30, 1997 Interconnect ------------------ and 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)(4) - --------------------------------- ----------- ------------------ ---------- ------------ ---------- Katy Facility (12)............... 1994 17 19 - 250 MIGC (13)........................ 1970 234 - 45 52 MGTC (14)........................ 1963 250 - 18 8 ------ ----- ----- ----- Total.......................... 501 19 63 310 ====== ===== ===== =====
- ---------------------------- Footnotes on following page. 15 (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, interconnect and transmission miles, gas storage capacity and pipeline capacity are as of September 30, 1997. (3) Gas throughput capacity is as of September 30, 1997 and represents capacity in accordance with design specifications unless other physical constraints exist, including permitting or field compression limits. Actual plant throughput capacities at Midkiff/Benedum and Mitchell Puckett Gathering are approximately 185 MMcf per day and 140 MMcf per day, respectively, as of September 30, 1997. (4) 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"). (5) 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. (6) Sour gas facility (capable of processing gas containing hydrogen sulfide and/or carbon dioxide). (7) Fractionation facility (capable of fractionating raw NGLs into end-use products). (8) Straddle plant (a plant located near a transmission pipeline that processes gas dedicated to or gathered by a pipeline company or another third party). (9) Gas throughput and gas production in excess of plant throughput capacity is unprocessed gas delivered to the Company's Chaney Dell facility for processing. These processed volumes are included in Westana's NGL production volumes. (10) NGL production includes conversion of third-party feedstock to iso-butane. (11) 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. Beginning in April 1997, the Lincoln Road plant was restarted as volumes increased beyond Granger's capacity. (12) Hub and gas storage facility. (13) MIGC is an interstate pipeline located in Wyoming and is regulated by the Federal Energy Regulatory Commission. (14) MGTC is a public utility located in Wyoming and is regulated by the Wyoming Public Service Commission. (15) On October 30, 1997, the Company sold a 50% undivided interest in its Powder River Basin coal bed methane gas operations. The sale involves gathering assets, producing properties, production equipment and certain undeveloped acreage in this area. 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 were 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. 16 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. Coal Bed Methane Rights A decision entered by the United States Court of Appeals, Tenth Circuit, in a case entitled Southern Ute Indian Tribe v. Amoco Production Company, No. 94- ------------------------------------------------------ 1579, determined that coal rights previously transferred to a Native American tribe included the right to any coal bed methane rights and ruled against the claim to the coal bed methane of a purchaser of natural gas rights from a seller that owned natural gas rights but no coal rights. The Company produces coal bed methane gas in the Powder River Basin pursuant to oil and gas leases. Owners of previously transferred coal rights, if any, in this region may be able to assert similar claims against the Company. The Company believes that there exists facts and circumstances which would provide it with a valid defense to such claims. However, there is no assurance that the Company would prevail in any such lawsuit. 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: None. (b) Reports on Form 8-K: None. 17 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, 1997 By: /s/ LANNY F. OUTLAW ------------------- Lanny F. Outlaw President and Chief Operating Officer Date: November 13, 1997 By: /s/WILLIAM J. KRYSIAK --------------------- William J. Krysiak Vice President - Finance (Principal Financial and Accounting Officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 18,468 0 231,753 0 47,556 299,989 1,277,623 (292,366) 1,371,994 316,435 480,857 0 416 3,217 483,540 1,371,994 1,647,001 1,655,001 1,487,326 1,487,326 122,694 0 19,183 25,798 9,315 16,483 0 0 0 16,483 .27 .27
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