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, 1994
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 1-9433
VALERO NATURAL GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 74-2448118
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 McCullough Avenue
San Antonio, Texas
(Address of principal executive offices)
78215
(Zip Code)
(210) 246-2000
(Registrant's telephone number, including area code)
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
Indicated below is the number of units outstanding of the
registrant's only class of limited partner interests, as of
April 22, 1994.
Number of
Units
Title of Class Outstanding
Common Units of Limited Partner Interests 18,486,538
<PAGE>
VALERO NATURAL GAS PARTNERS, L.P.
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - March 31, 1994 and
December 31, 1993. . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income - For the Three
Months Ended March 31, 1994 and 1993 . . . . . . . . .
Consolidated Statements of Partners' Capital -
For the Three Months Ended March 31, 1994 and 1993 . .
Consolidated Statements of Cash Flows - For the
Three Months Ended March 31, 1994 and 1993 . . . . . .
Notes to Consolidated Financial Statements . . . . . . .
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . .
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PART I - FINANCIAL INFORMATION
VALERO NATURAL GAS PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31,
1994 December 31,
(Unaudited) 1993
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments. . . . . . . . . $ 9,703 $ 5,523
Cash held in debt service escrow . . . . . . . . . . - 34,186
Receivables, less allowance for doubtful accounts of
$2,102 (1994 and 1993) . . . . . . . . . . . . . . 167,900 154,503
Inventories. . . . . . . . . . . . . . . . . . . . . 18,280 25,434
Prepaid expenses and other . . . . . . . . . . . . . 8,058 5,321
203,941 224,967
PROPERTY, PLANT AND EQUIPMENT-including
construction in progress of $5,435 (1994)
and $16,728 (1993), at cost. . . . . . . . . . . . . 943,434 939,565
Less: Accumulated depreciation. . . . . . . . . . 208,143 199,763
735,291 739,802
DEFERRED CHARGES AND OTHER ASSETS. . . . . . . . . . . 79,297 80,313
$1,018,529 $1,045,082
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt and capital
lease obligations. . . . . . . . . . . . . . . . . $ 31,438 $ 28,908
Notes payable. . . . . . . . . . . . . . . . . . . . 21,000 -
Accounts payable . . . . . . . . . . . . . . . . . . 233,019 216,953
Accrued interest . . . . . . . . . . . . . . . . . . 5,269 18,692
Other accrued expenses . . . . . . . . . . . . . . . 2,987 8,719
293,713 273,272
LONG-TERM DEBT, less current maturities. . . . . . . . 476,072 506,429
CAPITAL LEASE OBLIGATIONS, less current maturities . . 103,741 103,787
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . 2,006 1,548
LIMITED PARTNERS' CAPITAL. . . . . . . . . . . . . . . 141,933 158,448
GENERAL PARTNERS' CAPITAL. . . . . . . . . . . . . . . 1,064 1,598
$1,018,529 $1,045,082
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
VALERO NATURAL GAS PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except Per Unit Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . $379,664 $367,310
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . . . . 335,331 307,483
Operating expenses . . . . . . . . . . . . . . . . . 33,347 29,061
Depreciation expense . . . . . . . . . . . . . . . . 9,234 9,019
Total. . . . . . . . . . . . . . . . . . . . . . . 377,912 345,563
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 1,752 21,747
OTHER INCOME, NET. . . . . . . . . . . . . . . . . . . 501 348
INTEREST AND DEBT EXPENSE:
Incurred . . . . . . . . . . . . . . . . . . . . . . (16,836) (17,279)
Capitalized. . . . . . . . . . . . . . . . . . . . . 136 317
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . (14,447) 5,133
Less: General Partners' interest. . . . . . . . . . (243) 359
NET INCOME (LOSS) ALLOCABLE TO LIMITED
PARTNERS . . . . . . . . . . . . . . . . . . . . . . $(14,204) $ 4,774
NET INCOME (LOSS) PER LIMITED PARTNER UNIT . . . . . . $ (.77) $ .26
WEIGHTED AVERAGE LIMITED PARTNER UNITS
OUTSTANDING (in thousands) . . . . . . . . . . . . . 18,487 18,487
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
VALERO NATURAL GAS PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners' Capital General
Common Common Partners'
Units Unitholders Capital
<S> <C> <C> <C>
BALANCE - December 31, 1993. . . . . . 18,486,538 $158,448 $1,598
Net loss . . . . . . . . . . . . . . - (14,204) (243)
Distributions. . . . . . . . . . . . - (2,311) (291)
BALANCE - March 31, 1994 . . . . . . . 18,486,538 $141,933 $1,064
BALANCE - December 31, 1992. . . . . . 18,486,538 $154,461 $1,558
Net income . . . . . . . . . . . . . - 4,774 359
Distributions. . . . . . . . . . . . - (2,311) (262)
BALANCE - March 31, 1993 . . . . . . . 18,486,538 $156,924 $1,655
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
VALERO NATURAL GAS PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,447) $ 5,133
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . 9,234 9,019
Amortization of deferred charges and other, net. . . . . . . . . 484 910
Changes in current assets and current liabilities. . . . . . . . 1,224 506
Changes in deferred items and other, net . . . . . . . . . . . . 1,225 2,445
Net cash provided by (used in) operating activities. . . . . (2,280) 18,013
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions. . . . . . . . . . . . . . . . . . . . . . . . . . (4,641) (10,787)
Dispositions of property, plant and equipment. . . . . . . . . . . . 180 1,906
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (262) 268
Net cash used in investing activities. . . . . . . . . . . . . . . (4,723) (8,613)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt and capital lease obligations. . . . . . (28,108) (25,400)
Increase in notes payable. . . . . . . . . . . . . . . . . . . . . . 21,000 -
Decrease in cash held in debt service escrow for principal . . . . . 20,893 19,018
Partnership distributions. . . . . . . . . . . . . . . . . . . . . . (2,602) (2,573)
Net cash provided by (used in) financing activities. . . . . . . . 11,183 (8,955)
NET INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 4,180 445
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . 5,523 6,598
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,703 $ 7,043
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
VALERO NATURAL GAS PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The consolidated financial statements included herein
have been prepared by the general partner of Valero Natural Gas
Partners, L.P. ("VNGP, L.P.", and together with its consolidated
subsidiaries, the "Partnership") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
However, all adjustments have been made to the accompanying
financial statements which are, in the opinion of the general
partner, necessary for a fair presentation of the results of
operations for the periods covered. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the general partner believes that the
disclosures are adequate to make the information presented herein
not misleading. These consolidated financial statements should
be read in conjunction with the consolidated financial statements
and the notes thereto included in VNGP, L.P.'s latest Annual
Report on Form 10-K. Certain prior period amounts have been
reclassified for comparative purposes.
Note 2
Statements of Cash Flows
In order to determine net cash provided by (used in)
operating activities, net income (loss) has been adjusted by,
among other things, changes in current assets and current
liabilities, excluding changes in cash and temporary cash
investments, cash held in debt service escrow for principal,
current maturities of long-term debt and capital lease
obligations, and notes payable. Those changes, shown as an
(increase)/decrease in current assets and an increase/(decrease)
in current liabilities, are provided in the following table.
Temporary cash investments are highly liquid low-risk debt
instruments which have a maturity of three months or
less when acquired and whose carrying amount approximates
fair value. (Dollars in thousands.)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Cash held in debt service escrow for interest . . $ 13,293 $ 13,846
Receivables, net. . . . . . . . . . . . . . . . . (13,397) (34,363)
Inventories . . . . . . . . . . . . . . . . . . . 7,154 23,422
Prepaid expenses and other. . . . . . . . . . . . (2,737) 2,260
Accounts payable. . . . . . . . . . . . . . . . . 16,066 11,746
Accrued interest. . . . . . . . . . . . . . . . . (13,423) (11,576)
Other accrued expenses. . . . . . . . . . . . . . (5,732) (4,829)
Total . . . . . . . . . . . . . . . . . . . . . $ 1,224 $ 506
</TABLE>
Cash interest paid by the Partnership (net of amounts
capitalized) for the three months ended March 31, 1994 and 1993
was $29.8 million and $27.9 million, respectively. No cash
payments for income taxes were made during these periods. The
Partnership is not subject to federal income taxes.
Note 3
Valero Energy Corporation
VNGP, L.P., Valero Management Partnership, L.P. (the
"Management Partnership") and various subsidiary operating
partnerships (the "Subsidiary Operating Partnerships"), all
Delaware limited partnerships, are the successors to
substantially all of the natural gas pipeline and natural gas
liquids businesses, assets and liabilities of substantially all
of the subsidiaries of Valero Natural Gas Company ("VNGC") and
the transmission division of Rio Grande Valley Gas Company
("Rio"). VNGC is, and Rio at the time of such succession was, a
wholly owned subsidiary of Valero Energy Corporation. (Unless
otherwise required by the context, the term "Energy" as used
herein refers to Valero Energy Corporation and its consolidated
subsidiaries, both individually and collectively). VNGC is the
general partner of VNGP, L.P. and the Management Partnership (in
such capacity, the "General Partner"), while subsidiaries of VNGC
are general partners (the "Subsidiary General Partners") of the
respective Subsidiary Operating Partnerships. As of March 31,
1994, Energy's total effective equity interest in the Partnership
was approximately 49%.
The Partnership enters into various types of
transactions with Energy in the normal course of business on
market-related terms and conditions. As of March 31, 1994 and
December 31, 1993, the Partnership had recorded approximately
$24.2 million and $31.8 million, respectively, in accounts
payable and accrued expenses, net of accounts receivable, due to
Energy. The following table summarizes transactions between the
Partnership and Energy for the three months ended March 31, 1994
and 1993 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Natural gas liquid ("NGL") sales to and services for Energy . $21,513 $19,790
Natural gas sales to Energy . . . . . . . . . . . . . . . . . 6,069 14,216
Purchases of NGLs and natural gas, and
transportation and other charges from Energy. . . . . . . . 6,524 10,298
Interest expense from capital lease transactions with
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,193 3,195
Management fees for direct and indirect costs billed
by the General Partner and affiliated companies . . . . . . 20,702 20,072
</TABLE>
In October 1993, Energy publicly announced its
proposal to acquire the 9.7 million issued and outstanding common
units of limited partner interests ("Common Units") in VNGP, L.P.
held by persons other than Energy (the "Public Unitholders")
pursuant to a merger of VNGP, L.P. with a wholly owned subsidiary
of Energy. Effective December 20, 1993, Energy, VNGP, L.P. and
VNGC entered into an agreement of merger (the "Merger
Agreement"). In the merger, the Common Units held by the Public
Unitholders will be converted into the right to receive cash in
the amount of $12.10 per Common Unit. As a result of the merger,
VNGP, L.P. would become a wholly owned subsidiary of Energy. A
proposal to approve the merger will be submitted to the holders
of Common Units at a special meeting of Unitholders scheduled to
be held May 31, 1994. Consummation of the merger is subject to,
among other things, approval of the merger by the holders of a
majority of the issued and outstanding Common Units and by a
majority of the Common Units held by the Public Unitholders voted
at the special meeting. Energy owns approximately 47.5% of the
outstanding Common Units and intends to vote its Common Units in
favor of the merger. There can be no assurance that the merger
will be completed.
In order to provide for the proposed merger, during
the first quarter of 1994, Energy completed an underwritten
public offering of convertible preferred stock and obtained
satisfactory waivers, consents or amendments to certain of its
financial agreements. Energy also completed a $250 million bank
credit agreement, which will become effective only if the merger
is completed, to replace its current principal bank credit
agreement and the short-term bank lines of the Management
Partnership. It is also a condition precedent to the
effectiveness of Energy's new bank credit agreement that the
litigation seeking to prevent the proposed merger and described
in Note 6 under "Other Litigation" is settled.
Note 4
Deferred Gas Costs
Payments made or agreed to be made to date in
connection with the settlement of certain disputed contractual
issues with gas suppliers of Transmission are initially deferred.
(References to Transmission prior to March 25, 1987 refer to
Valero Transmission Company, a wholly owned subsidiary of VNGC,
and after that date to its successor in interest, Valero
Transmission, L.P., a Subsidiary Operating Partnership). The
balance of such payments is subsequently reduced as recoveries
are made through Transmission's rates. The balance of deferred
gas costs of $67 million at December 31, 1993 is included in
noncurrent other assets. The balance of deferred gas costs of
$71 million at March 31, 1994 is included in noncurrent other
assets and current receivables and is expected to be recovered
over future periods. The recovery of any additional payments
made in connection with any future settlements, however, would be
limited.
Note 5
Price Risk Management Activities
The Partnership, through its Market Center Services
Program established in 1992, enters into exchange-traded futures
and options contracts, forward contracts, swaps and other
financial instruments with third parties to hedge the prices for
purchases and sales of natural gas inventories and certain
anticipated purchases of natural gas to be consumed in NGL
operations, in order to reduce the risk of market fluctuations.
Changes in the market value of these contracts are deferred until
the gain or loss is recognized on the hedged transaction. Natural
gas volumes in storage totalled approximately 4.7 billion cubic
feet ("Bcf") and 10.3 Bcf at March 31, 1994 and December 31, 1993,
respectively. The Partnership also utilizes price risk management
techniques to provide services to gas producers and end users for a
fee. As of March 31, 1994, the Partnership had outstanding contracts
for natural gas with notional or contract volumes totalling
approximately 48.6 Bcf for which the Partnership is the fixed
price payor and 20.6 Bcf for which the Partnership is the fixed
price receiver. Such contracts run for a period of one to nine
months. The General Partner believes that there will not be a
significant effect on financial position or results of operations
of the Partnership related to such contracts as a result of market
fluctuations. As of December 31, 1993, the notional or contract
volumes of outstanding natural gas contracts for which the
Partnership was the fixed price payor and receiver totalled
approximately 18.5 Bcf and 30.6 Bcf, respectively. During the
first quarter of 1994 and 1993, the Partnership recognized
approximately $.8 million and $4.2 million, respectively, in gas
cost reductions and other benefits from this program.
Note 6
Litigation and Contingencies
Take-or-Pay and Related Claims
As a result of past market conditions and contracting
practices in the natural gas industry, numerous producers and
other suppliers brought claims against Transmission asserting
that it was in breach of contractual provisions requiring that it
take, or pay for if not taken, certain specified volumes of
natural gas. The Partnership has settled substantially all of
the significant take-or-pay claims, pricing differences and
contractual disputes heretofore brought against it. Although
additional claims may arise under older contracts until their
expiration or renegotiation, the General Partner believes that
the Partnership has resolved substantially all of the significant
take-or-pay claims that are likely to be made. As described
below, Energy and/or the Partnership have agreed to bear a
portion of certain potential liabilities that may be incurred by
certain Partnership suppliers. However, any liability of Energy
with respect to these claims or any take-or-pay claims involving
Transmission's intrastate pipeline operations has been assumed by
the Partnership. Although the General Partner is currently
unable to predict the total amount Transmission or the
Partnership ultimately may pay or be required to pay in
connection with the resolution of existing and potential take-or-
pay claims, the General Partner believes that any remaining
claims can be resolved on terms satisfactory to the Partnership
and that the resolution of such claims and any potential claims
has not had and will not have a material adverse effect on the
Partnership's financial position or results of operations.
In 1987, Transmission and a producer from whom
Transmission has purchased natural gas entered into an agreement
resolving certain take-or-pay issues between the parties in which
Transmission agreed to pay one-half of certain excess royalty
claims arising after the date of the agreement. The royalty
owners of the producer recently completed an audit of the
producer and have presented to the producer a claim for
additional royalty payments in the amount of approximately $17.3
million, and accrued interest thereon of approximately $19.8
million. Approximately $8 million of the royalty owners' claim
accrued after the effective date of the agreement between the
producer and Transmission. The producer and Transmission are
reviewing the royalty owners' claims. No lawsuit has been filed
by the royalty owners. The General Partner believes that various
defenses may reduce or eliminate any liability of Transmission to
the producer in this matter.
Valero Transmission Company and one of its gas
suppliers are parties to various gas purchase contracts assigned
to and assumed by Valero Transmission, L.P. upon formation of the
Partnership in 1987. The supplier is also a party to a series of
gas purchase contracts between the supplier, as buyer, and
certain trusts, as seller. In 1989, the trusts brought suit
against the supplier, alleging breach of various minimum take,
take-or-pay and other contractual provisions, and asserting a
statutory nonratability claim. In the trusts' claims against the
supplier, the trusts seek alleged actual damages, including
interest, of approximately $30 million. Neither Valero
Transmission Company nor Valero Transmission, L.P. was originally
a party to this lawsuit. However, because of the relationship
between Transmission's contracts with the supplier and the
supplier's contracts with the trusts, and in order to resolve
existing and potential disputes, the supplier, Valero
Transmission Company and Valero Transmission, L.P. agreed in
March 1991 to cooperate in the conduct of the litigation, and
agreed that Valero Transmission Company and Valero Transmission,
L.P. will bear a substantial portion of the costs of any appeal
and any nonappealable final judgment rendered against the
supplier. In January 1993, the District Court ruled on the
trusts' motion for summary judgment, finding that as a matter of
law the three gas purchase contracts at issue were fully binding
and enforceable, the supplier breached the minimum take
obligations under one of the contracts, the supplier is not
entitled to claimed offsets for gas purchased by third parties
and the "availability" of gas for take-or-pay purposes is
established solely by the delivery capacity testing procedures in
the contracts. Damages, if any, were not determined. On
April 15, 1994, the trusts named Valero Transmission Company and
Valero Transmission, L.P. as additional defendants (the "Valero
Defendants") to the lawsuit, alleging that the Valero Defendants
maliciously interfered with the trusts' contracts with the
supplier. In the trusts' claim against the Valero Defendants,
the trusts seek unspecified actual and punitive damages. The
General Partner believes that the claims brought by the trusts
have been significantly overstated, and that the supplier and the
Valero Defendants have a number of meritorious defenses to the
claims. This litigation is not currently set for trial.
Payments that Transmission has made or agreed to make
in connection with settlements to date are included in its
deferred gas costs. The General Partner believes that the rate
order under which Transmission currently operates (the "Rate
Order"), issued in 1979 by the Railroad Commission of Texas (the
"Railroad Commission," which regulates the sale and
transportation of natural gas by intrastate pipeline systems in
Texas), allows for the recovery of such costs. See Note 4.
Certain take-or-pay and other claims have been resolved through
the Partnership agreeing to provide discounted transportation
services. These agreements do not involve a cash outlay by the
Partnership but in certain cases have the effect of reducing
transportation margins over an extended period of time.
Other Litigation
Seven lawsuits were filed in Chancery Court in
Delaware against VNGP, L.P., VNGC and Energy and certain officers
and directors of VNGC and/or Energy in response to the
announcement by Energy on October 14, 1993 of its proposal to
acquire the publicly traded Common Units of VNGP, L.P. pursuant
to a proposed merger of VNGP, L.P. with a wholly owned subsidiary
of Energy. See Note 3. The suits were consolidated into a
single proceeding by the Chancery Court on November 23, 1993.
The plaintiffs sought to enjoin or rescind the proposed merger,
alleging that the corporate defendants and the individual
defendants, as officers or directors of the corporate defendants,
engaged in actions in breach of the defendants' fiduciary duties
to the Public Unitholders by proposing the merger. The
plaintiffs alternatively sought an increase in the proposed
merger consideration, unspecified compensatory damages and
attorneys' fees. In December 1993, the attorneys representing
the plaintiffs entered into a memorandum of understanding with
Energy and VNGP, L.P. pursuant to which the attorneys have agreed
to recommend that the Chancery Court approve a settlement of the
litigation. The proposed settlement will not require a material
payment by Energy or the Partnership. On April 29, 1994, notice
of the proposed settlement, including a description of the terms
of the settlement, was mailed to the Public Unitholders by order
of the Chancery Court. A hearing to consider approval of the
settlement has been scheduled in the Chancery Court for May 31,
1994. There can be no assurance that the settlement will be
approved by the Chancery Court.
Energy, VNGP, L.P., and certain of their respective
subsidiaries are defendants in a lawsuit originally filed in
January 1993. The lawsuit is based upon construction work
performed by the plaintiff at certain of the Partnership's gas
processing plants in 1991 and 1992. The plaintiff alleges that
it performed work for the defendants for which it was not
compensated. The plaintiff's second amended petition, filed
April 30, 1994, asserts claims for breach of contract, quantum
meruit, wrongful failure to pay retainage, fraudulent
misrepresentation, conspiracy, breach of the implied covenant of
good faith and fair dealing, and other commercial tort claims.
The plaintiff alleges actual damages of approximately
$9.7 million and punitive damages of $45.5 million. The
defendants have filed a motion for summary judgment and a motion
to transfer venue to Bexar County.
The Partnership was a party to a lawsuit originally
filed in 1988 in which Energy, Valero Transmission Company, VNGP,
L.P., the Management Partnership and Valero Transmission, L.P.
(the "Valero Defendants") and a subsidiary of The Coastal
Corporation ("Coastal") were alleged to be liable for failure to
take minimum quantities of gas, failure to make take-or-pay
payments and other breach of contract and breach of fiduciary
duty claims. The plaintiffs sought declaratory relief, actual
damages in excess of $37 million and unspecified punitive
damages. During the third quarter of 1992, the plaintiffs,
Coastal and the Valero Defendants settled this lawsuit on terms
which were not material to the Valero Defendants and on July 19,
1993, this lawsuit was dismissed. On November 16, 1992, prior to
entry of the order of dismissal, NationsBank of Texas, N.A., as
trustee for certain trusts (the "Intervenors"), filed a plea in
intervention to intervene in the lawsuit. The Intervenors
asserted that they held a non-participating mineral interest in
the lands subject to the litigation and that their rights were
not protected by the plaintiffs in the settlement. On
February 4, 1993, the Court struck the Intervenors' plea in
intervention. However, on February 2, 1993, the Intervenors had
filed a separate suit in the 160th State District Court, Dallas
County, Texas, against all prior defendants and an additional
defendant, substantially adopting in form and substance the
allegations and claims in the original litigation. In
February 1994, the parties reached a tentative settlement of
the lawsuit on terms immaterial to the Partnership.
City of Houston Franchise Fee Audit
In a letter dated September 1, 1993 from the City of
Houston (the "City") to Valero Transmission Company ("VTC"), the
City stated its intent to bring suit against VTC for certain
claims asserted by the City under the franchise agreement between
the City and VTC. VTC is the general partner of Valero
Transmission, L.P. The franchise agreement was assigned to and
assumed by Valero Transmission, L.P. upon formation of the
Partnership in 1987. In the letter, the City declared a
conditional forfeiture of the franchise rights based on the
City's claims. In a letter dated October 27, 1993, the City
claimed that VTC owes to the City franchise fees and accrued
interest thereon aggregating approximately $13.5 million. In a
letter dated November 9, 1993, the City claimed an additional
$18 million in damages related to the City's allegations that VTC
engaged in unauthorized activities under the franchise agreement
by transmitting gas for resale and by transporting gas for third
parties on the franchised premises. The City has not filed a
lawsuit. The General Partner believes that the City's claims are
overstated and that VTC has a number of defenses to the claims.
Energy and the City have engaged in formal discussions regarding
the possible settlement of the City's claims, but no agreement
has been concluded. Any liability of VTC with respect to the
City's claims has been assumed by the Partnership.
The Partnership is also a party to additional claims
and legal proceedings arising in the ordinary course of business.
The General Partner believes it is unlikely that the final
outcome of any of the claims or proceedings to which the
Partnership is a party, including those described above, would
have a material adverse effect on the Partnership's financial
position or results of operations; however, due to the inherent
uncertainties of litigation, the range of possible loss, if any,
cannot be estimated with a reasonable degree of precision and
there can be no assurance that the resolution of any particular
claim or proceeding would not have an adverse effect on the
Partnership's results of operations for the fiscal period in
which such resolution occurred.
<PAGE>
VALERO NATURAL GAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROPOSED MERGER WITH ENERGY
As described in Note 3 of Notes to Consolidated
Financial Statements, in October 1993, Energy publicly announced
its proposal to acquire the issued and outstanding Common Units
in VNGP, L.P. held by the Public Unitholders and effective
December 20, 1993, Energy, VNGP, L.P. and VNGC entered into the
Merger Agreement providing for the merger of VNGP, L.P. with a
wholly owned subsidiary of Energy subject to various conditions.
Energy has proposed the merger because it believes that the
Partnership, in its present form, has insufficient financial
flexibility to participate fully in opportunities that are
expected to arise in the natural gas and NGL businesses, that the
ability of the Partnership to compete effectively in these
businesses will be enhanced through the merger and that the
Partnership could lose its competitive position if it does not
pursue such opportunities when and if they become available.
Energy also believes that potential conflict of interest
situations between the Partnership and Energy can be eliminated
through the merger. Based upon the analysis and recommendation
of the Special Committee, the General Partner and Energy believe
that the merger is fair to and in the best interests of the
Partnership and the Public Unitholders.
Pursuant to the Merger Agreement, but subject to the
effect of subsequent developments upon the ability of VNGP, L.P.
to declare and pay cash distributions, the General Partner and
Energy expect that regular quarterly cash distributions will
continue to be declared and paid on the Common Units at the
established quarterly intervals and rate through the effective
date of the merger. In addition, if the closing of the merger
occurs more than 30 days after the last record date for a regular
quarterly distribution, VNGP, L.P. stated in the Merger Agreement
that it intends and expects to declare and pay a one-time special
pro rata distribution to holders of record of the Common Units on
the effective date of the merger based upon the number of days
elapsed between such record date and the effective date. See
"Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
The following are the Partnership's financial and
operating highlights for the three months ended March 31, 1994
and 1993 (in thousands of dollars, except as otherwise noted).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES:
Natural gas:
Sales. . . . . . . . . . . . . . . . . . . . . . . $276,488 $229,817
Transportation . . . . . . . . . . . . . . . . . . 15,746 13,110
Natural gas liquids. . . . . . . . . . . . . . . . . 91,652 127,909
Intersegment eliminations. . . . . . . . . . . . . . (4,222) (3,526)
Total. . . . . . . . . . . . . . . . . . . . . . . $379,664 $367,310
OPERATING INCOME (LOSS):
Natural gas. . . . . . . . . . . . . . . . . . . . . $ 2,989 $ 7,951
Natural gas liquids. . . . . . . . . . . . . . . . . (1,237) 13,796
Total. . . . . . . . . . . . . . . . . . . . . . . $ 1,752 $ 21,747
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . $(14,447) $ 5,133
NET INCOME (LOSS) PER LIMITED PARTNER UNIT . . . . . . $ (.77) $ .26
OPERATING STATISTICS:
Natural gas:
Gas volumes ( MMcf per day):
Sales. . . . . . . . . . . . . . . . . . . . . . 1,290 1,157
Transportation . . . . . . . . . . . . . . . . . 1,525 1,488
Total gas volumes. . . . . . . . . . . . . . . 2,815 2,645
Average gas sales price per Mcf. . . . . . . . . . $ 2.38 $ 2.20
Average gas transportation fee per Mcf . . . . . . $ .110 $ .099
Natural gas liquids:
Plant production (MBbls per day) . . . . . . . . . 68.1 66.5
Average market price per gallon <F1> . . . . . . . $ .254 $ .320
Average gas cost per MMBtu . . . . . . . . . . . . $ 2.05 $ 1.77
<FN>
<F1>
(1) Represents the average Houston area market prices for individual NGL products weighted by relative
volumes of each product produced.
</FN>
</TABLE>
General
The Partnership incurred a net loss of $14.4 million
for the first quarter of 1994 compared to net income of $5.1
million for the first quarter of 1993 due primarily to a $20
million, or 92%, decrease in operating income. As explained
below, operating income decreased for the Partnership's natural
gas operations. Natural gas liquids ("NGL") operations incurred
an operating loss in the 1994 period compared to operating income
in the 1993 period due to depressed product prices and increased
natural gas costs, which more than offset increased production
from its NGL facilities. The conditions which resulted in the
decreases in Partnership operating income in the first quarter of
1994 compared to the first quarter of 1993 have generally
continued to date in the second quarter of 1994.
Natural Gas
Operating revenues from the Partnership's natural gas
operations increased $49.3 million, or 20%, during the first
quarter of 1994 compared to the same period in 1993 due primarily
to an 11% increase in average daily natural gas sales volumes, an
8% increase in average natural gas sales prices and a 20%
increase in transportation revenues. The increases in average
daily natural gas sales volumes and average gas sales prices were
due to continued strong demand for natural gas resulting from
prolonged cold weather in the U.S. during the 1994 first quarter,
new term sales business generated during the latter part of 1993
as a result of the implementation of FERC Order 636, and the
continued shutdown of both units of the South Texas Project
nuclear plant ("STP") during the 1994 first quarter. However,
the return to commercial service of Unit No. 1 of the STP on
April 8, 1994 and the expected return to service of Unit No. 2
later in 1994 are expected to displace a portion of the
Partnership's gas sales and transportation volumes for the
customers served by the STP.
The increase in transportation revenues for the first
quarter of 1994 compared to the same period in 1993 was due to an
11% increase in average transportation fees and a 2% increase in
average daily transportation volumes. The increase in average
transportation fees was due primarily to higher fees received on
new transportation business.
Operating income from the Partnership's natural gas
operations decreased $5 million, or 62%, during the first quarter
of 1994 compared to the same period in 1993. Operating expenses
increased due to a one-time charge related to the final
resolution of certain contractual disputes and an increase in
pipeline transportation and other expenses. Other reductions in
natural gas operating income resulting from a decrease in income
generated by the Partnership's Market Center Services Program, a
decrease in the recovery of Transmission's fixed costs resulting
from the settlement of a customer audit of Transmission's
weighted average cost of gas effective in the third quarter of
1993, and an increase in fuel costs were offset by the increases
in gas sales volumes and transportation revenues noted above. As
a result primarily of increased stability in natural gas prices,
income generated by the Market Center Services Program is
expected to be significantly lower in 1994 than in 1993.
Natural Gas Liquids
Operating revenues from the Partnership's NGL
operations decreased $36.3 million, or 28%, during the first
quarter of 1994 compared to the same period in 1993 due primarily
to a 21% decrease in the average NGL market price, a decrease in
NGL volumes transported and fractionated for third parties and a
decrease in product trading volumes, partially offset by a modest
increase in average daily production volumes. The average NGL
market price decreased due to continued weak crude oil and
refined product prices. Although NGL market prices improved in
the first quarter of 1994 compared to late 1993 prices, they
still remained substantially below first quarter 1993 levels.
The Partnership's NGL operations incurred an operating
loss of $1.2 million during the first quarter of 1994 compared to
operating income of $13.8 million during the first quarter of
1993 due primarily to the decrease in NGL market prices, an
increase in fuel and shrinkage costs resulting from a 16%
increase in the cost of natural gas, and the decrease in third
party transportation and fractionation volumes. The negative
effect on operating income as a result of these factors was
partially offset by the increase in NGL production volumes.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1994, the Partnership had
a net cash outflow from operations resulting from the decrease in
income described above under "Results of Operations." These
conditions are expected to continue further into 1994 resulting
in a cash requirement to fund operations. In addition, as
described in Note 6 of Notes to Consolidated Financial
Statements, the Partnership is currently involved, directly or
indirectly, in various lawsuits and claims, which, if ultimately
resolved in a manner adverse to the Partnership, could further
increase the Partnership's cash needs.
The Partnership historically has not required
significant amounts of working capital because cash receipts on
billings for sales and cash payments for purchases occur
principally in the same month. As detailed in Note 2 of Notes to
Consolidated Financial Statements, reduced working capital
requirements during the first quarter of 1994 resulted in a
generation of cash which helped reduce the cash outflow from
operating activities. However, the General Partner believes that
not only is a further reduction in the Partnership's working
capital requirements unlikely to be realized, but that working
capital requirements are likely to significantly increase in the
future due to, among other things, increasing gas storage
inventories resulting from the Partnership's efforts to compete
for interstate sales under FERC Order 636.
Cash used in financing activities during the first
quarter of 1994 included approximately $7.2 million in principal
payments under the Partnership's First Mortgage Notes and capital
lease obligations to Energy. Debt service on the First Mortgage
Notes, including payments into escrow for both principal and
interest, will be $81 million, $80.9 million, $80.4 million,
$79.6 million and $75.9 million for the years 1994 through 1998,
respectively. Total minimum lease payments under the
Partnership's capital leases with Energy for these same years
will be $12.9 million, $12.9 million, $13.9 million, $15.1
million and $15.4 million, respectively. The issuance of any
additional long-term debt by the Partnership is unlikely due to
restrictions under the Mortgage Note Indenture. At the same
time, the Partnership and Energy do not intend to enter into any
further significant leasing transactions prior to completion of
the merger due to potential conflict of interest situations and
other factors.
Net cash used in investing activities during the first
quarter of 1994 consisted primarily of $4.6 million in capital
expenditures. The General Partner believes that, due to the
Partnership's lack of financial flexibility, the Partnership in
its present form would not be able to continue making capital
expenditures at historical levels and, therefore, would likely be
unable to participate fully in opportunities to improve and
expand its operations that may arise in the natural gas and NGL
businesses over the next several years. At the same time, the
General Partner believes that the Partnership must continue to
make substantial capital investments in facilities needed to
access gas supplies and markets and expand its NGL processing and
transportation capabilities in order for it to maintain its
capacity to compete in the current industry environment. Subject
to consummation of the proposed merger with Energy described
above, Partnership capital expenditures are expected to be
approximately $35 million in 1994.
The Partnership paid cash distributions to partners of
$2.6 million during the first quarter of 1994. Quarterly cash
distributions can be declared by the Partnership only after
working capital and other operating requirements, capital
expenditures, debt service and capital lease obligations are
funded. On April 27, 1994, the VNGC Board of Directors declared
a cash distribution of $.125 per limited partner unit for the
first quarter of 1994 that is payable May 31, 1994. At the
current quarterly rate, cash distributions would total
approximately $10.5 million for the year ending December 31,
1994; however, future cash distributions to unitholders will
depend upon the level of cash from operations and other factors,
and there is no assurance that cash distributions will continue
into the future at the current level.
During the first quarter of 1994, the General Partner
funded its cash required by operating activities, capital
expenditures, debt service and capital lease obligations and cash
distributions to partners through borrowings under its short-term
bank lines. See Note 3 of Notes to Consolidated Financial
Statements for a discussion of net amounts payable by the
Partnership to Energy pursuant to various transactions which
constitute a type of working capital funding provided by Energy
to the Partnership. The Partnership, through the Management
Partnership, currently has five short-term bank lines totalling
$80 million. The Mortgage Note Indenture requires that at least
$20 million of revolving credit agreements be maintained at all
times; however, no more than $50 million of borrowings are
permitted to be outstanding at any time. All of the bank lines
mature at various times during 1994. If the proposed merger with
Energy does not occur, the General Partner believes that these
bank lines could be renewed or replaced with other short-term
lines during 1994. If the proposed merger with Energy is
completed, the Partnership's existing short-term bank lines will
be cancelled as a new Energy bank credit agreement, which was
completed March 31, 1994, becomes effective at the time of the
merger. In order to comply with the Mortgage Note Indenture
requirement described above, it is anticipated that Energy would
provide a revolving credit agreement directly with the Management
Partnership in the amount of $50 million. The Partnership had
borrowings of as much as $46 million under its short-term bank
lines during the first quarter of 1994, and $21 million was
outstanding at March 31, 1994. The Partnership's short-term bank
lines are subject to a requirement, pursuant to the Mortgage Note
Indenture, to have no balances outstanding for a period of 45
consecutive days during each 16 calendar months (referred to
herein as a "clean-up period"). The Partnership will be required
to complete another clean-up period by September 1994.
The General Partner expects that additional borrowings
under the Partnership's short-term bank lines will be necessary
during the remainder of 1994 to fund operating requirements, debt
service, lease obligations and minimum capital expenditure
requirements. Net amounts payable by the Partnership to Energy
may also increase. Cash requirements in excess of such amounts,
such as cash distributions on the Common Units, any increases in
working capital requirements and capital expenditures necessary
to pursue possible industry opportunities, as described above,
are expected to require supplemental funding. If the proposed
merger with Energy does not occur, the General Partner believes
that the above described clean-up requirement in 1994 can be
achieved, but would require significant capital expenditure and
working capital reductions, the elimination of cash distributions
on the Common Units, the sale of core assets, or other measures
likely to have adverse effects on the Partnership and the
Unitholders. When and if the proposed merger with Energy is
completed, the General Partner anticipates that distributions to
Energy from the Partnership would be significantly reduced or
eliminated, with such funds utilized for debt service, working
capital, capital expenditures or other Partnership purposes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Coastal Oil and Gas Corporation v. TransAmerican
Natural Gas Corporation ("TANG"), 49th State District Court, Webb
County, Texas (filed October 30, 1991). In March 1993, Valero
Transmission Company and Valero Industrial Gas Company were
served as third party defendants in this lawsuit. In August
1993, Energy, VNGP, L.P., and certain of their respective
subsidiaries were named as additional third-party defendants
(collectively, including the original defendant subsidiaries, the
"Valero Defendants"). In TANG's counterclaims against Coastal
and third-party claims against the Valero Defendants, TANG
alleged that it contracted to sell natural gas to Coastal at the
posted field price of Valero Industrial Gas Company and that the
Valero Defendants and Coastal conspired to set such price at an
artificially low level. TANG also alleged that the Valero
Defendants and Coastal conspired to cause TANG to deliver
unprocessed or "wet" gas thus precluding TANG from extracting
NGLs from its gas prior to delivery. TANG sought actual and
punitive damages and attorneys' fees. On March 14, 1994, the
Valero Defendants and TANG executed a settlement agreement with
respect to this lawsuit on terms immaterial to the Partnership.
In re Valero Natural Gas Partners, L.P. Litigation,
Consolidated Civil Action No. 13194, Court of Chancery, New
Castle County, Delaware (first suit filed October 15, 1993; all
suits consolidated November 23, 1993). Seven lawsuits were filed
in the Delaware Court of Chancery for New Castle County (the
"Chancery Court") in response to the announcement of Energy's
proposal to acquire the publicly traded Common Units of
VNGP, L.P. pursuant to a proposed merger of VNGP, L.P. with a
wholly owned subsidiary of Energy. The plaintiffs sought to
enjoin or rescind the proposed merger, alleging that the
corporate defendants and the individual defendants, as officers
or directors of the corporate defendants, engaged in actions in
breach of the defendants' fiduciary duties to the holders of the
Common Units by proposing the merger. The plaintiffs
alternatively sought an increase in the proposed merger
consideration, unspecified compensatory damages and attorneys' fees.
In December 1993, attorneys representing the plaintiffs entered into
a Memorandum of Understanding with Energy and VNGP, L.P. pursuant
to which the attorneys have agreed to recommend that the Chancery
Court approve a settlement of the litigation. The proposed
settlement will not require a material payment by Energy or the
Partnership. On April 29, 1994, notice of the proposed
settlement, including a description of the terms of the
settlement, was mailed to the Public Unitholders by order of the
Chancery Court. A hearing to consider approval of the settlement
has been scheduled in the Chancery Court for May 31, 1994.
J.M. Davidson, Inc. v. Valero Energy Corporation,
Valero Hydrocarbons, L.P., et al., 229th State District Court,
Duval County, Texas (filed January 21, 1993). Energy and Valero
Hydrocarbons, L.P. were named as original defendants in the
lawsuit filed in January 1993. Through the plaintiff's amended
petitions, the lawsuit now includes as additional defendants
Valero Natural Gas Company; Valero Natural Gas Partners, L.P.;
Valero Management Partnership, L.P.; Valero Transmission Company;
Valero Transmission, L.P.; Valero Hydrocarbons Company; and
Valero Management Company. The lawsuit is based upon
construction work performed by the plaintiff at certain of the
Partnership's gas processing plants in 1991 and 1992. The
plaintiff alleges that it performed work for the defendants for
which it was not compensated. The plaintiff's second amended
petition, filed April 30, 1994, asserts claims for breach of
contract, quantum meruit, wrongful failure to pay retainage,
fraudulent misrepresentation, conspiracy, breach of the implied
covenant of good faith and fair dealing, and other commercial
tort claims. The plaintiff alleges actual damages of
approximately $9.7 million and punitive damages of $45.5 million.
The defendants have filed a motion for summary judgment and a
motion to transfer venue to Bexar County.
The Long Trusts v. Tejas Gas Corporation, Valero
Transmission Company, and Valero Transmission, L.P., 123rd
Judicial District Court, Panola County, Texas (filed March 1,
1989). VTC, as buyer, and Tejas Gas Corporation ("Tejas"), as
seller, are parties to various gas purchase contracts assigned to
and assumed by Valero Transmission, L.P. ("VT, L.P.") upon
formation of the Partnership in 1987 (the "Valero Contracts").
In turn, Tejas has entered into a series of gas purchase
contracts between Tejas, as buyer, and certain trusts (the "Long
Trusts"), as seller (the "Long Trusts Contracts"). The
litigation originated in 1989 as a lawsuit by the Long Trusts
against Tejas. In the Long Trusts' claims against Tejas, the
Long Trusts claim that Tejas breached various minimum take, take-
or-pay and other contractual provisions in connection with the
Long Trusts Contracts, and seek alleged actual damages, including
interest, of approximately $30 million. Neither VTC nor VT, L.P.
was originally a party to the lawsuit. However, because of the
relationship between the Valero Contracts and the Long Trusts
Contracts, and in order to resolve existing and potential
disputes, Tejas, VTC and VT, L.P. agreed in March 1991 to
cooperate in the conduct of the litigation, and agreed that VTC
and VT, L.P. will bear a substantial portion of the costs of any
appeal and any nonappealable final judgment rendered against
Tejas. In January 1993, the District Court ruled on the Long
Trusts' motion for summary judgment, finding that as a matter of
law the Long Trusts Contracts were fully binding and enforceable,
that Tejas breached the minimum take obligations under one of the
contracts, that Tejas is not entitled to claimed offsets for gas
purchased by third parties and that the "availability" of gas for
take-or-pay purposes is established solely by the delivery
capacity testing procedures in the contracts. Damages, if any,
were not determined. On April 15, 1994, the Long Trusts named
VTC and VT, L.P. as additional defendants (the "Valero
Defendants") to the lawsuit, alleging that the Valero Defendants
maliciously interfered with the Long Trusts Contracts. In the
Long Trusts' claim against the Valero Defendants, the Long Trusts
seek unspecified actual and punitive damages. The General
Partner believes that the claims brought by the Long Trusts have
been significantly overstated, and that Tejas and the Valero
Defendants have a number of meritorious defenses to the claims.
This litigation is not currently set for trial.
Valero Transmission, L.P. v. J. L. Davis, et al., 81st
District Court, Frio County, Texas (filed September 20, 1991).
This lawsuit was commenced by Transmission as a suit for breach
of contract against defendant. On January 11, 1993, defendant
filed a cross action against Valero Transmission, L.P., Valero
Industrial Gas, L.P., and Reata Industrial Gas, L.P., asserting
claims for actual damages for failure to pay for goods and
services delivered and various other cross-claims. On March 24,
1994, the parties executed a settlement agreement with respect to
this lawsuit on terms immaterial to the Partnership.
Item 5. Other Information
PROPOSED MERGER WITH ENERGY
In connection with the proposed merger of VNGP, L.P.
with a wholly owned subsidiary of Energy, a special meeting of
the holders of Common Units has been scheduled for May 31, 1994.
A definitive proxy statement fully describing the proposed merger
and explaining the manner in which holders of Common Units may
cast their votes was filed with the Securities and Exchange
Commission and mailed to all unitholders on May 2, 1994.
Unitholders of record as of the close of business on April 28,
1994, will be entitled to vote at the special meeting. Also
scheduled for May 31, 1994, is a hearing in the Delaware Chancery
Court to consider the approval of a proposed settlement of
litigation filed in response to Energy's proposal to acquire the
outstanding Common Units held by the Public Unitholders pursuant
to the proposed merger. Notice of the proposed settlement was
mailed to the Public Unitholders on April 29, 1994. Subject to
approval of the settlement by the Chancery Court and to the
satisfaction of all other preconditions to the proposed merger
(see Note 3 of Notes to Consolidated Financial Statements), the
merger is expected to become effective on or about May 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 $250,000,000 Credit Agreement, dated March 31,
1994, among Valero Energy Corporation, Bankers
Trust Company and Bank of Montreal as Managing
Agents, and the banks and co-agents party thereto
-- incorporated by reference from Exhibit 10.1 to
the Valero Energy Corporation Quarterly Report on
Form 10-Q (Commission File No. 1-4718, filed
May 12, 1994).
Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation
S-K, the registrant has omitted from the foregoing listing of
exhibits, and hereby agrees to furnish to the Commission upon its
request, copies of certain instruments, each relating to
long-term debt not exceeding 10 percent of the total assets of
the registrant and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
three-month period ended March 31, 1994.
<PAGE>
SIGNATURE
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.
VALERO NATURAL GAS PARTNERS, L.P.
(Registrant)
By Valero Natural Gas Company,
its General Partner
By: /s/ Don M. Heep
Don M. Heep
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Date: May 12, 1994
