<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1993 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_________________ to _________________
Commission file number 1-10389
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WESTERN GAS RESOURCES, INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303)452-5603
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
----------------------------- ---------------------------------------
Common Stock, $0.10 par value New York Stock Exchange
$2.28 Cumulative Preferred New York Stock Exchange
Stock, $0.10 par value
Securities registered pursuant to Section 12(g) of the Act: None
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
--- ---
The aggregate market value of voting common stock held by non-affiliates of
the registrant on March 1, 1994, was $370,727,222.
On March 1, 1994, there were 25,703,829 shares of the Registrant's Common
Stock Outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report (Items 10, 11, 12 and
13) is incorporated by reference from the Registrant's proxy statement to
be filed pursuant to Regulation 14A with respect to the annual meeting of
stockholders to be held on May 11, 1994.
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Reference is made to listing beginning on page 67 of all exhibits filed as a
part of this report.
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Western Gas Resources, Inc.
Form 10-K
Table of Contents
<TABLE>
<CAPTION>
Part Item(s) Page
----
<C> <C> <S> <C>
I. 1 and 2. Business and Properties.................................. 3
General Development of the Business.................... 3
Growth, Acquisitions and Dispositions.................. 4
Description of Operations.............................. 6
Gas Gathering and Processing........................... 6
Principal Facilities................................... 9
Marketing.............................................. 11
Producing Properties................................... 13
Competition............................................ 13
Environmental Matters.................................. 14
Regulation............................................. 15
Employees.............................................. 17
3. Legal Proceedings........................................ 18
4. Submission of Matters to a Vote of Security
Holders................................................ 21
II. 5. Market for Registrant's Common Stock and
Related Stockholder Matters............................ 22
6. Selected Consolidated Financial and
Operating Data......................................... 23
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 24
8. Consolidated Financial Statements and
Supplementary Data..................................... 34
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 66
III. 10. Directors and Executive Officers of the
Registrant............................................. 66
11. Executive Compensation................................... 66
12. Security Ownership of Certain Beneficial
Owners and Management.................................. 66
13. Certain Relationships and Related Transactions........... 66
IV. 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 67
</TABLE>
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General Development of the Business
Western Gas Resources, Inc. (the "Company") is an independent gas gatherer and
processor with operations located in major oil and gas-producing basins in the
Rocky Mountain, Gulf Coast and Southwestern regions of the United States. The
Company owns and operates natural gas gathering, processing and storage
facilities and markets and transports natural gas and natural gas liquids
("NGLs"). The Company provides necessary services to the producers of natural
gas and NGLs by connecting producers' wells to the Company's gathering system
for delivery to its processing plants, processing the gas to remove NGLs and
by-products and marketing the gas and NGLs throughout the United States. Most
of the natural gas processed by the Company is associated gas from oil wells.
The Company also owns certain producing properties primarily in Louisiana and
Texas.
The Company, a Delaware corporation, was formed in October 1989 to serve as
general partner of Western Gas Processors, Ltd. (the "Partnership"). The
Company's initial public offering occurred in December 1989 when the Company
sold 3,527,500 shares of common stock and used the net proceeds along with
other assets to acquire a 52% interest in the Partnership. Substantially all
business activities were conducted through the Partnership. In order to create
a more efficient operating structure and a more liquid publicly-held security,
the Company and the Partnership were merged in May 1991 (the "Restructuring").
In the Restructuring, the Company acquired all the limited partner units it
did not already own in exchange for 10.2 million shares of newly issued Common
Stock of the Company, all of the Partnership's assets were transferred to the
Company's direct ownership by operation of law and the Partnership ceased to
exist. The Restructuring was a reorganization of entities under common control
and has been accounted for at historical cost in a manner similar to a pooling
of interests. The Company has restated all historical financial information to
reflect the Restructuring.
In October 1991, the Company issued 400,000 shares of 7.25% cumulative
perpetual convertible preferred stock ("7.25% Convertible Preferred Stock")
with a liquidation preference of $100 per share to an institutional investor.
In November 1991, the Company issued 4,115,000 shares of common stock at a
public offering price of $18.375 per share.
In November 1992, the Company issued 1,400,000 shares of $2.28 cumulative
preferred stock ("$2.28 Cumulative Preferred Stock"), with a liquidation
preference of $25 per share, at a public offering price of $25 per share.
On November 12, 1993, the Company's registration statement filed with the
Securities and Exchange Commission (the "Registration") on
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Form S-3 (Registration No. 33-66516) was declared effective. The Registration
provides for the sale of up to $200 million of debt securities and preferred
stock and up to 4 million shares of common stock. On February 28, 1994, the
Company sold, pursuant to the Registration, 2,760,000 shares of $2.625
Cumulative Convertible Preferred Stock ("$2.625 Convertible Preferred Stock")
for net proceeds of $133.5 million, which have been used to repay a portion of
the debt incurred under the Company's Revolving Credit facility to acquire
Mountain Gas Resources, Inc. ("Mountain Gas") and the Black Lake gas
processing plant and related reserves ("Black Lake").
The Company's principal offices are located at 12200 N. Pecos Street, Denver,
Colorado 80234-3439, and its telephone number is (303) 452-5603.
Growth, Acquisitions and Dispositions
Since the Company's formation in 1977, its strategy has been to expand through
acquisitions and internal project development. During 1993, the Company
continued this expansion by completing a series of acquisitions, forming a
joint venture and completing the development of the Katy Gas Storage Facility.
These activities have strengthened the Company's position in several major
producing basins and expanded its access to multiple natural gas markets,
including East Coast markets which the Company had not previously serviced.
The table below describes the Company's growth from December 31, 1992 to
December 31, 1993:
<TABLE>
<CAPTION>
Average for the Year Ended
December 31, 1993 and 1992
Gas Gas ----------------------------------------
Gathering Throughput Gas Gas NGL
Systems Capacity Throughput Production Production
Plants (Miles) (MMcf/D) (MMcf/D) (MMcf/D) (MGal/D)
------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992............ 30 9,788 1,117 625 331 1,874
December 31, 1993............ 32 10,295 1,526 895 (1) 575 (1) 2,239 (1)
% change..................... 7 5 37 43 74 19
</TABLE>
(1) Pro Forma to give effect only to the Mountain Gas and Black Lake
acquisitions described below as if such acquisitions had been completed on
January 1, 1993.
The Company's major projects, acquisitions and dispositions since January 1,
1991 are:
Mountain Gas
On July 29, 1993, effective January 1, 1993, the Company acquired the stock of
Mountain Gas from Morgan Stanley Leveraged Equity Fund II, L.P. for total
consideration of approximately $168.2 million, including the payment of certain
transaction costs and the assumption and repayment of $35 million of long-term
debt of Mountain Gas.
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Mountain Gas owns the Red Desert and Granger facilities, both located near the
Company's Lincoln Road gas processing plant and gathering system. The 22%
interest in the Granger facility previously not owned by Mountain Gas was
purchased by the Company in two separate transactions in November and December
1993 for an aggregate of $27.7 million. At the date of acquisition, the Red
Desert facility consisted of a cryogenic plant and the Granger plant consisted
of a refrigeration unit and a cryogenic unit. In December 1993, the Company
completed construction of an additional cryogenic processing plant at Granger,
at a total cost of $15.2 million.
In December 1993, a fire at the Granger facility's NGL tank farm required the
facility to be shut down for one week. The new cryogenic processing plant as
well as the smaller existing cryogenic unit were also damaged. Gas throughput
at the facility has since reached levels experienced before the fire, and the
Company expects it to be fully operational in May 1994 when the construction
of a new tank farm and repairs to the cryogenic units are expected to be
completed. The Company believes that insurance will cover, subject to certain
deductibles, substantially all of the costs related to rebuilding the NGL tank
farm and the other affected facilities, the interruption of business and
third-party claims, if any.
Black Lake
On September 27, 1993, effective January 1, 1993, the Company purchased Black
Lake from Nerco Oil & Gas, Inc. for approximately $136.2 million. The
acquisition includes a 68.9% working interest in the Black Lake field in
Louisiana and a gas processing plant. The purchase also included 50% of the
stock of Black Lake Pipeline Company, which owns a 240 mile liquids pipeline
extending from Cotton Valley, Louisiana to Mont Belvieu, Texas and transports
NGLs for Black Lake and three unaffiliated gas processing plants.
Westana Joint Venture
Effective August 1, 1993, the Company formed Westana Gathering Company
("Westana"), a general partnership, with Panhandle Eastern Pipe Line
Corporation ("PEPL"). Westana provides gas gathering and processing services
in the Anadarko Basin in Oklahoma and markets natural gas and NGLs for
producers connected to its system. The Company is the principal operator with
each partner holding a 50% ownership interest.
The Company contributed its Chester gas processing plant and gathering system,
with a net book value of $13.8 million, to Westana. Westana also operates
PEPL's 400 mile gathering system, which will be contributed to Westana, after
abandonment approval by the FERC. The Company is committed to provide an
additional partnership contribution of $8.3 million, of which $4.8 million was
contributed through December 31, 1993, for necessary modifications to the
gathering system. This contribution will be recouped by the Company through
preferential partnership distributions.
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Katy Gas Storage Facility
The Company has completed the construction of the Katy Gas Storage Facility
located approximately 20 miles from Houston, Texas. Lease acquisition and
construction costs incurred through December 31, 1993, including pad gas,
approximate $90 million and excludes capitalized pre-operating costs. The
Katy Gas Storage Facility commenced operations in January 1994. The complex
consists of a partially depleted natural gas reservoir with over 17 Bcf of
working gas and the capability to deliver up to 400 MMcf/D of natural gas as
well as a pipeline header system currently connecting seven pipelines with the
capability to connect six additional pipelines.
UTP System
On November 1, 1991, the Company purchased the gas processing division of
Union Texas Products Corporation, a subsidiary of Union Texas Petroleum
Holdings, Inc. (collectively referred to as the "UTP system"). The total
consideration was $142.7 million. The acquisition included 12 plants in Texas,
Oklahoma and Louisiana.
Midkiff/Benedum System
Effective October 1, 1992, the Company sold a 20% undivided interest (which
interest may increase based upon future expansion of the plants to accommodate
increased gas volumes) in the Midkiff and Benedum gas processing plants to the
major producer in the area of the plant for $22 million.
Description of Operations
Historically, the Company has derived over 90% of its revenues from the sale
of natural gas and NGLs. Set forth below are the Company's revenues by type of
operation ($000s):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1993 % 1992 % 1991 %
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Sale of residue gas............ $563,068 60.4 $278,928 46.5 $179,659 50.2
Sale of natural gas
liquids...................... 333,880 35.8 290,230 48.3 150,224 41.9
Processing and transportation
revenues..................... 25,622 2.7 22,124 3.7 25,538 7.1
Other, net..................... 9,768 1.1 8,834 1.5 2,821 0.8
-------- ----- -------- ----- -------- -----
$932,338 100.0 $600,116 100.0 $358,242 100.0
======== ===== ======== ===== ======== =====
</TABLE>
Gas Gathering and Processing
The Company contracts with producers to gather raw natural gas from individual
wells located near its plants. Once a contract has been executed, the Company
connects wells to gathering lines through which the natural gas is delivered
to a processing plant. At the plant, the natural gas is compressed,
unfractionated NGLs are extracted, and the remaining dry residue gas is
treated to meet pipeline quality specifications. Ten of the Company's
processing plants can further separate, or fractionate, the mixed NGL stream
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into ethane, propane, butane and natural gasoline to obtain higher value for
the NGLs. In addition, the Reno Junction Isomerization facility converts
normal butane into iso-butane. Seven of the Company's plants are able to
process and treat natural gas containing hydrogen sulfide or other impurities
which require removal prior to transportation.
The Company continually acquires additional natural gas supplies to maintain
or increase throughput levels to offset natural production declines in
dedicated volumes. Such natural gas supplies are obtained by purchasing
existing systems from third parties or by connecting additional wells. The
opportunity to connect new wells to existing facilities is primarily affected
by levels of drilling activity near the Company's gathering systems. The
Company believes it has expanded into areas which present significant
potential for new drilling or purchases of existing systems. Historically,
the Company has connected additional reserves which more than offset
production from reserves dedicated to existing facilities. However, certain
individual plants have experienced declines in dedicated reserves. In 1993,
excluding reserves acquired in the Mountain Gas and Black Lake acquisitions
and including reserves associated with Westana, the Company connected new
reserves to its gathering systems replacing 118% of 1993 production. On a
Company-wide basis, dedicated reserves, including certain proved undeveloped
properties, totaled approximately 1.95 Tcf at December 31, 1993.
Substantially all natural gas flowing through Company facilities is supplied
under long-term contracts providing for the dedication for purchase or
processing of such natural gas for periods ranging from 5 to 20 years. Under
the typical natural gas purchase contract, the Company is responsible for
arranging the transportation and marketing of the natural gas and NGLs after
processing. However, some contracts are structured as natural gas processing
arrangements in which gathering and processing services are performed for a
fee and the producer retains marketing responsibility for the natural gas.
In most of its gathering areas, the Company's policy is to structure natural
gas purchase contracts on a percentage-of-proceeds basis under which it is
entitled to a specified percentage of the net proceeds received from the
resale of residue gas and NGLs along with ancillary fees for treating,
compression and marketing services. Percentage-of-proceeds contracts provide
for the Company and producers to share proportionally in price changes. The
Company's existing contracts typically entitle it to retain the same
percentage, typically between 20% to 40%, of the net proceeds from the resale
of residue gas and NGLs. For the year ended December 31, 1993, percentage-of-
proceeds contracts accounted for approximately 85% of natural gas throughput
(exclusive of straddle plants).
Under its gas processing contracts, the Company collects fees based on the
volume of natural gas processed or receives a predetermined percentage,
ranging from 40% to 85%, of the NGLs produced. For the year ended December
31, 1993, natural gas processing contracts
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accounted for 13% of natural gas throughput and other fee-based contracts
accounted for 2% of natural gas throughput (exclusive of straddle plants).
Approximately 70% of the natural gas processed at the recently acquired
Mountain Gas facilities is subject to contracts that combine gathering and
compression fees with "keep whole" arrangements. Typically, the producer is
charged a gathering and compression fee of $.10 to $.33 per Mcf of natural gas
gathered and delivered to the processing facility. In addition, the Company
retains the NGLs recovered at the processing facility and keeps the producer
whole by returning to the producer at the tailgate of the plant an amount of
residue gas equal on a Btu basis to the raw natural gas received at the plant
inlet. The fixed nature of the gathering and compression fees reduces the
Company's exposure to the margin volatility of residue gas and NGLs typically
experienced in pure "keep-whole" arrangements. The remaining 30% of contracts
at the Mountain Gas facilities consists of either percentage-of-proceeds or
fee-based contracts.
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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.
<TABLE>
<CAPTION>
Average for Year Ended
December 31, 1993
----------------------------------------------
Gas Gas
Gathering Throughput Gas Gas NGL
Year Placed Systems Capacity Throughput Production Production
Facility(1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4)
- ------------------ ----------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Southern Region:
Texas
Midkiff and Benedum............. 1955 1,914 135 114.4 70.9 725.2
Giddings Gathering System....... 1979 615 80 70.4 60.4 105.7
Edgewood(5)..................... 1964 85 65 36.4 17.2 75.0
Perkins and Noel................ 1975 2,530 55 23.6 12.9 158.8
Walnut Bend..................... 1978 402 8 3.9 1.7 24.5
East Sour Lake(6)(7)............ 1983 - - .3 - .8
Katy(8)......................... 1994 - - - - -
Mid-Continent Region:
Louisiana
Black Lake(9)(10)............... 1966 55 180 108.3 88.1 167.1
Toca(6)(11)..................... 1958 - 160 81.7 - 55.8
Sligo(6)(11)(12)................ 1961 8 70 33.6 - 27.2
Pointe a la Hache(6)(19)........ 1962 - 20 8.8 - 2.9
Cox Bay(6)(19).................. 1962 - 20 7.3 - 4.1
Oklahoma
Chaney Dell..................... 1966 1,206 130 63.4 45.0 226.0
Lamont.......................... 1981 777 28 30.2 21.1 99.0
Chester......................... 1986 223 37 22.3 15.1 40.5
Rocky Mountain Region:
Wyoming
Granger(11)(13)(10)(14)......... 1987 200 230 123.2 117.4 111.4
Red Desert(13)(10).............. 1979 100 40 30.1 27.0 48.7
Lincoln Road.................... 1988 143 45 29.4 27.9 29.8
Hilight Complex(11)(15)......... 1969 589 80 35.8 15.5 110.7
Amos Draw....................... 1983 79 30 7.1 5.8 22.9
Kitty(11)....................... 1969 225 17 7.1 4.7 41.2
Newcastle(11)................... 1981 141 5 2.4 1.6 18.1
Reno Junction(16)............... 1991 - - - - 49.0
New Mexico
San Juan River(5)............... 1955 122 60 26.7 22.8 -
North Dakota
Williston(5)(11)(17)............ 1981 381 - 12.2 8.8 36.8
Temple(5)....................... 1984 65 7 3.1 2.4 10.5
Teddy Roosevelt(5)(11)(17)...... 1979 236 - 2.6 1.3 11.2
Alexander Gathering System(17).. 1984 96 - 1.8 1.2 5.7
Utah
Four Corners.................... 1988 95 15 5.2 4.4 11.4
Montana
Fairview(5)(11)(18)............. 1970 - 6 1.8 .9 6.8
Baker(5)(11).................... 1981 8 3 1.6 1.0 12.6
------ ----- ----- ----- -------
Total......................... 10,295 1,526 894.7 575.1 2,239.4
====== ===== ===== ===== =======
</TABLE>
- -------------
Footnotes on following page
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(1) The Company's interest in all facilities is 100% except for Midkiff and
Benedum (80%); Black Lake (69%); Lincoln Road (72%); Williston (50%);
Chester (50%); Newcastle (50%) and Walnut Bend (67%). 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 and gas throughput capacity are as of
December 31, 1993.
(3) Aggregate wellhead natural gas volumes collected by a gathering system.
(4) Volumes of residue gas and NGLs are allocated to a facility when a well
is dedicated to that facility; volumes exclude NGLs fractionated for
third parties.
(5) Sour gas facility (capable of processing gas containing hydrogen
sulfide).
(6) Straddle plant.
(7) Facility was shut-in during February 1993. Gas throughput, gas
production and NGL production represent operations on an annual basis
prior to shut-in.
(8) Operations commenced in January 1994.
(9) Acquired in the Black Lake acquisition.
(10) Throughput and production volume averages are for the year ended December
31, 1993 and include volumes prior to the Company's acquisition of these
facilities.
(11) Fractionation facility (capable of fractionating raw NGLs).
(12) The Company is currently negotiating with a potential purchaser.
(13) Acquired in the Mountain Gas acquisition.
(14) The Company's initial interest in the Granger facility was 78%. The
remaining 22% was purchased by the Company in two separate transactions
in November and December 1993.
(15) Includes production volumes from the Hartzog and Spearhead Ranch
facilities.
(16) NGL production represents conversion of third-party feedstock to iso-
butane.
(17) Processing facility was shut-in during August 1993. The gas dedicated to
these facilities is processed by a third-party under a contractual
arrangement. Gas throughput, gas production and NGL production represent
operations prior to shut-in and operations by the third-party.
(18) Gathering system was exchanged during July 1993. Gas throughput, gas
production and NGL production represent operations prior to the sale on
an annual basis.
(19) Temporarily shut-in during 1993.
The Company does not anticipate any additional significant capital
expenditures for improvements to its existing processing and gathering
facilities in the near future, although capital expenditures to connect new
reserves, acquire consolidating assets and to maintain existing facilities are
anticipated to be approximately $25 million to $30 million per year.
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Marketing
Natural Gas
The Company markets residue gas produced at its plants and purchased from
third parties to end-users, local distribution companies ("LDCs"), pipelines
and other marketing companies throughout the United States. The Company's
success in obtaining markets for residue gas has been an important factor in
maintaining production levels for its producers and throughput levels for its
gas plants. No production behind the Company's facilities has been shut-in or
curtailed as a result of the Company's failure to perform under its marketing
agreements.
In recent years, the Company has significantly increased its marketing
capabilities. Increased third party sales and sales attributable to new
plants have primarily accounted for the increase in average daily gas sales
from 442 MMcf/D for the year ended December 31, 1992 to 755 MMcf/D for the
year ended December 31, 1993. While continuing to increase sales to end-users
and to achieve greater market penetration close to its facilities, the Company
has expanded into new markets throughout the United States.
Most of the Company's current sales contracts are short-term, ranging from a
few days to one year. At December 31, 1993, the Company's commitment under
long-term contracts, several of which have an annual redetermination of prices
and several of which are rebid prior to expiration, was approximately 170
MMcf/D.
The Company intends to maintain its residue gas marketing and third party
sales to ensure a market for its products. Third party sales and residue gas
storage, combined with the stable supply from Company facilities, enable the
Company to respond quickly to changing market conditions and to take greater
advantage of seasonal price variations and peak demand periods. This creates
an opportunity for the Company to obtain a higher price on average for its
delivered residue gas than the price obtained by other marketers or brokers.
The Company customarily stores residue gas in underground storage facilities
to assure an adequate supply for long-term sales contracts and for resale
during periods when prices are favorable. At December 31, 1993, the Company
held approximately 7.9 Bcf of residue gas inventory in underground storage at
an average cost of $1.97 per Mcf ($1.81 per MMbtu). From time to time, the
Company hedges a portion of its residue gas volumes and requirements under
residue gas sales contracts on the futures market.
In order to meet the peaking demand for residue gas in certain markets, the
Company designed and constructed the Katy Gas Storage Facility. The ability
to withdraw gas from the Katy Gas Storage Facility on short notice positions
the Company to market residue gas to LDCs and other customers that need a
reliable yet variable
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supply of residue gas. The Katy Gas Storage Facility will also allow the
Company to bypass transportation bottlenecks and enhance flexibility in its
marketing operations. The complex consists of a partially depleted natural
gas reservoir with over 17 Bcf of working gas and the capability to deliver up
to 400 MMcf/D of residue gas as well as a pipeline header system currently
connecting seven pipelines with the capability to connect six additional
pipelines. The pipeline header system, together with the Black Lake
acquisition, provides access to markets in the Midwest and on the East Coast
not previously serviced by the Company.
In December 1993, the Company entered into a three-year winter-peaking gas
purchase and sales agreement with a major utility in East Texas which
designates the Katy Gas Storage Facility as the primary delivery point. Under
the agreement, the utility has the right to purchase, during each year of the
contract, up to approximately 30,000 MMBtu of gas per day in November and
March and 70,000 MMBtu of gas per day in December, January and February,
determined daily, at the Houston Ship Channel Index Price plus a demand
charge. The agreement calls for minimum delivery of three million MMBtu of
natural gas per year.
As part of its strategy to penetrate East Coast markets and to utilize Black
Lake and the Katy Gas Storage Facility more effectively, in July 1993 the
Company acquired the assets of Citizens National Gas Company which was
headquartered in Boston, Massachusetts. This acquisition provides the company
with an established East Coast marketing operation which sold an average of
approximately 350 MMcf/D of natural gas during the first six months of 1993.
During the year ended December 31, 1992, the Company sold residue gas to
approximately 150 end-user, pipeline, LDC and other customers. As a result of
the Citizens acquisition, the number of residue gas customers increased to
approximately 315 for the year ended December 31, 1993, further reducing the
Company's reliance on any single customer. No single customer accounted for
more than 10% of consolidated revenues for the year ended December 31, 1993.
NGL Marketing
The Company markets NGLs (ethane, propane, iso-butane, normal butane, natural
gasoline, and condensate) produced at its plants and purchased from third
parties to the Rocky Mountain, Mid-Continent and Gulf Coast regions. A
majority of the Company's production of NGLs now moves to the Gulf Coast area,
which is the largest NGL market in the United States. Through the development
of end-use markets and distribution capabilities, the Company ensures that
production from the plants moves on a reliable basis and avoids curtailment of
production.
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The volatility of NGL prices over the past years has caused the Company to
move to short-term contracts, with no prices set on a firm basis for more than
a 30-day period. Although some contracts do commit the Company for periods as
long as a year, prices are redetermined on a market-related basis. Storage
space is leased at the major trading locations, near Houston and in central
Kansas, in order to store products so that they can be sold at higher prices
on a seasonal basis. At December 31, 1993, approximately 17.3 million gallons
of NGLs were in storage at an average cost of $.30 per gallon. The Company
generally intends that stored liquids turn over on an annual basis.
For the year ended December 31, 1993, NGL sales averaged 2,941 MGal per day,
an increase from 2,400 MGal per day in 1992. Sales were made to approximately
170 different customers and no single customer accounted for more than 10% of
the Company's consolidated revenues for the year ended December 31, 1993.
Revenues are also derived from marketing fees charged to some producers for
NGL marketing services. At December 31, 1993, such fees were less than 1% of
the Company's consolidated revenues.
Producing Properties
Revenues derived from the Company's producing properties comprised
approximately 3.4% of revenues for the year ended December 31, 1993. The
producing properties are primarily working interests in a unit operated by the
Company in the Black Lake field in Louisiana which provides production to the
Black Lake plant and 20 gas units/wells producing from the Smackover formation
of the East Texas Basin which provide production to the Edgewood plant. Eight
of these units/wells are operated by the Company. The Company also has working
interests in six units in the Powder River Basin in northeast Wyoming and
three gas wells in the San Juan Basin in southwest Colorado.
Competition
The Company competes with other companies in the gathering, processing,
marketing and transmission business both for supplies of residue gas and for
customers to which to sell its residue gas and NGLs. Competition for residue
gas supplies is primarily based on efficiency, reliability, availability of
transportation and ability to obtain a satisfactory price for the producers'
residue gas. Competition for customers is primarily based upon reliability
and/or price of deliverable residue gas and NGLs. For customers that have the
capability of using alternative fuels, such as oil and coal, the Company also
competes based primarily on price against companies capable of providing such
alternative fuels.
13
<PAGE>
Environmental Matters
The construction and operation of the Company's gathering lines, plants and
other facilities used for the gathering, transporting, processing, treating or
storing of residue gas and NGLs are subject to federal, state and local
environmental laws and regulations, including those that can impose
obligations to clean up hazardous substances at the Company's facilities or at
facilities to which the Company sends wastes for disposal. In most instances,
the applicable regulatory requirements relate to water and air pollution
control or solid waste management procedures. The Company believes that it is
in substantial compliance with applicable material environmental laws and
regulations. Environmental regulation can increase the cost of planning,
designing, constructing and operating the Company's facilities. The Company
believes that the costs for compliance with current environmental laws and
regulations have not and will not have a material effect on the Company's
results of operation.
In 1990, the Congress enacted the Clean Air Act Amendments of 1990 (the "Clean
Air Act") which impose more stringent standards on emissions of certain
pollutants and require the permitting of certain existing air emissions
sources. Many of the regulations have not been promulgated and until their
promulgation, the Company cannot make a final assessment of the impact of the
Clean Air Act. However, based upon its preliminary review of the proposed
regulations, the Company does not anticipate that compliance with the Clean
Air Act will require any material capital expenditures, although it will
increase permitting costs in 1994 and 1995 and may increase certain operating
costs on an on-going basis. The Company does not believe that such cost
increases will have a material effect on the Company's results of operations.
The Company believes that it is reasonably likely that the trend in
environmental legislation and regulation will continue to be towards stricter
standards. The Company is unaware of future environmental standards that are
reasonably likely to be adopted that will have a material effect on the
Company's results of operations, but cannot rule out that possibility.
The Company is in the process of cleaning up certain releases of non-hazardous
substances at facilities that it operates. In addition, the former owner of
certain facilities that the Company acquired in 1992 is conducting cleanups at
those facilities pursuant to contractual obligations. The Company's
expenditures for environmental evaluation and remediation at existing
facilities have not been significant in relation to the results of operations
of the Company and totaled approximately $1.4 million for the year ended
December 31, 1993. For the year ended December 31, 1993, the Company paid an
aggregate of approximately $565,000 in air emissions fees to the states in
which it operated. Although the Company anticipates that such air emissions
fees will increase over
14
<PAGE>
time, the Company does not believe that such increases will have a material
effect on the Company's results of operations.
The Company employs six environmental engineers to monitor environmental
compliance and potential liabilities at its facilities. Prior to consummating
any major acquisition, the Company's environmental engineers perform audits on
the facilities to be acquired. In addition, on an on-going basis, the
environmental engineers perform informal environmental assessments of the
Company's existing facilities. To date, the Company has not found any
material environmental noncompliance or cleanup liabilities, the costs of
which would reasonably be expected to have, in the aggregate, a material
effect on the Company's results of operations.
Regulation
The purchase and sale of natural gas and the fees received for gathering and
processing by the Company have generally not been subject to regulation, and
therefore, except as constrained by competitive factors, it has considerable
pricing flexibility. Many aspects of the gathering, processing, marketing and
transportation of natural gas and NGLs by the Company, however, are subject to
federal, state and local laws and regulations which can have a significant
impact upon the Company's overall operations.
As a processor and marketer of natural gas, the Company is dependent on the
transportation and storage services offered by various interstate pipeline
companies to enable the delivery and sale of its own gas supplies as well as
those it processes and/or markets for others. Both the performance of
transportation and storage services by interstate pipelines, and the rates
charged for such services, are subject to the jurisdiction of the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938 (the
"NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). The availability
of interstate transportation and storage service necessary to enable the
Company to make deliveries and/or sales of residue gas can at times be pre-
empted by other system users in accordance with FERC-approved methods for
allocating the system capacity of "open access" pipelines. Moreover, the
rates charged by pipelines for such services are often subject to negotiation
between shippers and the pipelines within certain FERC-established parameters
and will periodically vary depending upon individual system usage and other
factors. An inability to obtain transportation and/or storage services at
competitive rates can hinder the Company's processing and marketing operations
and/or affect its sales margins.
During the past ten years the FERC has implemented a nondiscriminatory blanket
transportation program which initially authorized, and ultimately mandated,
interstate natural gas pipelines to perform "open access," self-implementing
(i.e., not
-----
15
<PAGE>
generally requiring case-specific certificate authorization) transportation
services. Order Nos. 636, et seq., which constitute the FERC's most recent
-------
issuances in this program, promulgated regulations that substantially
restructure the services provided by interstate pipelines by "unbundling"
(i.e. separating) and separately pricing pipeline gathering, transportation,
-----
storage and sales activities in an effort to enable non-pipeline merchants to
compete with pipelines for gas purchasers on an equal basis. These
regulations have largely been implemented by all interstate transporters
utilized by the Company (as well as by the Company's own non-major interstate
pipeline located in Wyoming) in numerous individual pipeline restructuring and
rate proceedings. The conversion of pipelines from natural gas merchants to
primarily transporters of gas through implementation of the FERC's open access
transportation and restructuring programs has caused the pipelines to incur
significant producer take-or-pay costs and other transition costs resulting
from their abandonment of gas purchasing and sales activities. The FERC has
allowed, and indicated in Order Nos. 636, et seq. that it will continue to
------
allow, the recovery of some or all of these and related costs from current
shippers of gas. Pipeline flow-through of many of these costs is subject to
the outcome of administrative and appellate proceedings in individual pipeline
rate and restructuring cases, and Order No. 636, et seq. themselves are
------
currently the subject of numerous petitions for appellate review presently
pending in the United States Court of Appeals for the District of Columbia
Circuit. The outcome of these proceedings could affect the Company's
operations and the costs of transporting and selling gas.
FERC Order Nos. 490, et seq. issued in 1988, provide for the abandonment of
------
certain sales and purchases of natural gas previously dedicated to interstate
commerce under the NGA without receiving case-specific abandonment authority,
under certain circumstances where such is contractually permissible. Although
the Company has utilized the regulations promulgated by these orders to
terminate and/or modify certain of its gas purchases and sales contracts,
judicial review of such orders has been sought in proceedings pending before
the U.S. Court of Appeals for the Sixth Circuit. Vacation of these orders
could result in a finding that certain of the Company's contracts had been
improperly terminated; however, subsequent legislative and administrative
decontrol of wellhead prices of natural gas would have the effect of limiting
any potential adverse impact upon the Company which might ultimately result
from such an appellate holding.
Pursuant to the Section 1(b) of the NGA, production and gathering activities
are exempt from the FERC's jurisdiction; however, judicial precedent has held
that where gathering is performed largely in connection with the delivery of
gas in interstate commerce, such gathering can be considered merely an
extension of the jurisdictional transportation of such gas and thus subject to
NGA rate regulation itself. Recently, primarily as a result of the
16
<PAGE>
aforementioned unbundling of interstate pipeline gathering services required
by Order No. 636, et seq., the FERC has undertaken an administrative inquiry
------
into the questions of whether and to what degree the gathering activities of
providers of these services (particularly those with interstate pipeline
affiliates) can and should be regulated under the NGA. The Company engages
extensively in natural gas gathering activities in conjunction with its
operations of gas processing facilities and elsewhere, and it could be
affected by the FERC's final determination of the questions being examined.
At this initial stage, however, the probable outcome and impact of these FERC
inquiries is too speculative to predict.
Employees
At December 31, 1993, the Company employed 825 full-time employees, none of
whom was a union member. The Company considers relations with employees to be
excellent.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Toca
On March 4, 1993, the Company filed a complaint against Warren Petroleum
Company, Arco Oil & Gas Co., Conoco Inc., Trident NGL, Inc. and other owners
of the Yscloskey Gas Plant located in Louisiana (the "Owners") in the United
States District Court for the Eastern District of Louisiana, alleging various
violations by the defendants of the federal anti-trust laws in connection with
a Hydrocarbon Fractionation Agreement at its Toca plant between the Company
and the Owners of the Yscloskey plant. The Company also filed a companion
state-court action involving the same parties in Civil District Court for the
Parish of Orleans, State of Louisiana, which the defendants removed to United
States District Court for the Eastern District of Louisiana. The Company and
Warren Petroleum Company (in its capacity as the designated Operator for the
Yscloskey Plant) have recently negotiated a new Hydrocarbon Fractionation
Agreement, which has been executed by substantially all of the Owners of the
Yscloskey Plant. The new 15-year agreement provides for a reduced
fractionation fee of 9.25% and eliminates the uncertainty regarding uneconomic
performance of the Yscloskey plant. The Company anticipates dismissing the
various complaints with prejudice.
Edgewood
On January 16, 1991, problems at the Company's Edgewood Plant relating to both
equipment that removes hydrogen sulfide from unprocessed natural gas and the
monitoring equipment owned by the purchaser of the residue gas, Enserch
Corporation, doing business as Lone Star Gas Company ("Lone Star"), allowed
residue gas containing hydrogen sulfide to enter Lone Star's transmission line
supplying residue gas to Emory, Texas.
The Company has been named as a co-defendant, along with Lone Star, in the
following complaints relating to the incident: Gary Prather, et al. v. Enserch
-------------------------------
Corporation, et al., filed March 15, 1993, Barbara Rogers, et al., v. Enserch
------------------- ----------------------------------
Corporation, et al. filed March 16, 1993, Judy Silvey, et al. v. Enserch, et
------------------- ----------------------------------
al., filed May 13, 1993, Floyd Rogers, et al. v. Enserch, et al., filed May
--- ---------------------------------------
14, 1993, Blair Schamlain, et al. v. Enserch, et al., filed May 25, 1993,
------------------------------------------
Betty Adair v. Enserch, et al., filed on July 14, 1993, Doris Hass v. Enserch
------------------------------ ---------------------
Corporation, et al., filed on December 17, 1993, Allie Ruth Harris v. Enserch
------------------- ----------------------------
Corporation, et al., filed on December 17, 1993, Sandra Parker, et al. v
------------------- -----------------------
Enserch Corporation, et al., filed on January 13, 1994, and Carma Brumit v.
--------------------------- ---------------
Enserch, et al., filed on January 18, 1994.
---------------
All the cases have been filed in the District Court, Rains County, Texas,
354th Judicial District, and make similar claims, asserting, among other
things, that the defendants breached an implied
18
<PAGE>
warranty of merchantability, falsely represented that the residue gas was
safe, were negligent and are liable under a strict liability theory. The
plaintiffs have alleged a variety of respiratory and neurological illnesses
and are seeking treble damages, exemplary damages and attorneys' fees. Prior
to the filing of the complaints, the Company received demand letters from the
plaintiffs that sought, in the aggregate, approximately $36 million. Damages
claimed in the lawsuits are in excess of $13.5 million.
The Company believes that it has meritorious defenses to the claims and
intends to defend vigorously against any such claims. The Company is
currently conducting extensive pre-trial discovery. The underwriters of the
Company's general liability insurance policy have indicated preliminarily that
such policy appears to cover the types of claims that have been asserted,
subject to their right to deny coverage based upon, among other things, final
determination of causation and the exact nature of the damages.
Granger
On December 6, 1993, Green River Gathering Company ("Green River") and
Mountain Gas filed a complaint against Washington Energy Exploration, Inc.
("Washington Energy") in District Court in Arapahoe County, Colorado seeking
the payment of certain outstanding receivables from Washington Energy and a
declaratory judgment that the gathering agreement between Washington Energy
and Green River is in full force and effect. Mountain Gas is a wholly-owned
subsidiary of the Company and Green River is a partnership owned by the
Company and Mountain Gas. Washington Energy is the operator of wells
producing approximately 33% of the natural gas transported through the Green
River Gathering system to Mountain Gas' Granger facility.
On December 27, 1993, Washington Energy filed an answer, counterclaim,
crossclaim and request for trial by jury, denying the substance of the
allegations and asserting certain affirmative defenses. Washington Energy has
also made certain counterclaims seeking monetary damages relating to Green
River's performance under the gathering agreement and under a processing
agreement between the parties, along with a declaratory judgment that both
agreements have been terminated. In addition, Washington Energy has made a
crossclaim against two unaffiliated entities, each of which owned a portion of
Green River during a portion of the period in question.
The Company believes that Green River is in compliance with the gathering
agreement and the processing agreement and that both are in full force and
effect. The Company believes that it has meritorious defenses to the
counterclaims and intends to defend vigorously against any such claims. The
Company is currently conducting extensive pre-trial discovery.
19
<PAGE>
Katy
Commencing in March 1993 and continuing through July 1993, Western Gas
Resources Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company,
filed a total of 165 condemnation actions in the County Court at Law No. 1 and
No. 2 of Fort Bend County, Texas to obtain certain storage rights and rights-
of-way relating to its Katy Gas Storage Facility. The County Court appointed
panels of Special Commissioners that have awarded compensation to the owners
whose rights were condemned. Certain of the land and mineral owners are
seeking in County Court a declaration that Storage does not possess the right
to condemn, or, in the alternative, that they should be awarded more
compensation than previously awarded by the Special Commissioners. The
Company believes that the outcome of such proceedings will not materially
affect operation of the Katy Gas Storage Facility. The likelihood of any
particular result, however, cannot be determined because the condemnation law
under which the proceedings are being brought has never been interpreted by
the courts.
Woods/Moncrief
In February 1994, the United States Appeals Court for the Tenth Circuit
affirmed a district court judgment against the Company in the amount of $2.9
million, including interest, in Western Gas Processors Ltd. v. Woods Petroleum
----------------------------------------------
Corporation and W.A. Moncrief, Jr., d/b/a Moncrief Oil Company, which related
--------------------------------------------------------------
to claims by certain producers that they had been underpaid. The Company has
taken a charge to litigation reserves in the year ended December 31, 1993, in
the amount of $2.4 million, as a result of the appellate court decision. The
Company will not take any further action.
20
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1993.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
As of March 1, 1994, there were 25,703,829 shares of Common Stock outstanding
held by 490 holders of record. The Common Stock is traded on the New York
Stock Exchange under the symbol "WGR". The following table sets forth
quarterly high and low closing sales prices as reported by the NYSE Composite
Tape for the quarterly periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1992
First Quarter... $21 3/8 $15
Second Quarter.. 20 5/8 15 1/2
Third Quarter... 30 1/4 19 3/8
Fourth Quarter.. 29 3/8 23 3/8
1993
First Quarter... 34 3/4 24 1/2
Second Quarter.. 36 29 5/8
Third Quarter... 45 34 1/8
Fourth Quarter.. 44 7/8 28 3/8
</TABLE>
The Company paid annual dividends on the Common Stock aggregating $.20 per
share during the years ended December 31, 1993 and 1992. The Company has
declared a dividend of $.05 per share of common stock for the quarter ending
March 31, 1994 to holders of record as of such date. Declarations of
dividends are within the discretion of the Board of Directors and are
dependent upon various factors, including the earnings, cash flow, capital
requirements and financial condition of the Company. In addition, the
Company's ability to pay dividends is restricted by certain covenants in its
credit facilities including a prohibition on declaring or paying dividends
that exceed, in the aggregate, the sum of $25 million plus 50% of the
Company's consolidated net income earned after March 31, 1993 plus 50% of the
cumulative net proceeds received from the sale of any equity securities sold
after March 31, 1993. At December 31, 1993, this threshold amounted to $39
million, or $106 million subsequent to the issuance of 2,760,000 shares of
$2.625 Convertible Preferred Stock in February 1994.
22
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and operating
data for the Company. Certain prior year amounts have been reclassified to
conform to the presentation used in 1993. The data for the three years ended
December 31, 1993 should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere in this document. The
selected consolidated financial data for the two years ended December 31, 1990
is derived from the Company's historical Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations." ($000s, except per share amounts and operating data):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1993 1992 1991 1990 1989
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues.................... $932,338 $600,116 $358,242 $255,652 $181,521
Gross profit................ 96,175 92,287 60,510 45,677 35,781
Income before taxes......... 55,631 58,445 32,783 27,856 20,507
Provision for income taxes.. 17,529 18,757 11,933 10,362 7,793
Net income.................. 38,102 39,688 20,850 17,494 12,714
Earnings per share of
common stock............... 1.25 1.43 .94 .83 .73
Cash Flow Data:
Net cash provided by
operating activities....... 102,568 94,684 36,197 23,772 22,525
Capital expenditures........ 491,414 68,428 234,093 115,064 20,822
Balance Sheet Data
(at period end):
Total assets................ 1,114,748 582,188 552,321 291,025 178,919
Long-term debt.............. 547,000 157,000 216,050 120,300 31,715
Stockholders' equity........ 312,869 285,611 220,355 97,640 85,258
Dividends declared per
share of common stock..... .20 .20 .15 -- --
Operating Data:
Average gas sales (MMcf/D).. 755.1 441.8 309.6 220.3 186.8
Average NGL sales (MGal/D).. 2,940.9 2,399.5 1096.6 630.2 434.3
Average gas volumes
gathered (MMcf/D).......... 894.7 625.4 323.0 216.8 194.5
Plant capacity (MMcf/D) 1,526.0 1,117.0 1,123.5 480.5 425.7
Average gas prices ($/Mcf) $ 2.02 $ 1.72 $ 1.59 $ 1.78 $ 1.75
Average NGL prices ($/Gal) $ .31 $ .32 $ .36 $ .40 $ .26
</TABLE>
23
<PAGE>
ITEM 7. 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 years ended December 31, 1993. Certain prior year amounts have
been reclassified to conform to the presentation used in 1993. Reference
should also be made to the Company's Consolidated Financial Statements and
related Notes thereto and the Selected Consolidated Financial and Operating
Data included elsewhere in this document.
Results of Operations
Year ended December 31, 1993 compared to year ended December 31, 1992.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------ Percent
1993 1992 Change
-------- ------- -------
<S> <C> <C> <C>
Financial results
($000s, except per
share amounts):
Revenues.................. $932,338 $600,116 55.4
Gross profit.............. 96,175 92,287 4.2
Net income................ 38,102 39,688 (4.0)
Earnings per share of
common stock............. 1.25 1.43 (12.6)
Net cash provided by
operating
activities.............. 102,568 94,684 8.3
Operating data:
Average gas sales (MMcf/D) 755.1 441.8 70.9
Average NGL sales (MGal/D) 2,940.9 2,399.5 22.6
Average gas prices ($/Mcf) $ 2.02 $ 1.72 17.4
Average NGL prices ($/Gal) $ .31 $ .32 (3.1)
</TABLE>
Net income decreased $1.6 million and net cash provided by operating
activities increased $7.9 million for the year ended December 31, 1993
compared to the same period in 1992.
Revenues from the sale of residue gas increased $284.1 million for the year
ended December 31, 1993 compared to the same period in 1992 due to an increase
in residue gas prices of $.30 per Mcf and an increase in sales volumes of 315
MMcf per day. Of this volume increase, 246 MMcf per day is attributable to an
increase in the sale of residue gas purchased from third parties, in part due
to the acquisition of Citizens. The remaining volume increase is the result
of increased production volumes at the Company's facilities, primarily due to
the Mountain Gas and Black Lake acquisitions as well as new well hookups at
the Midkiff/Benedum and Giddings facilities.
24
<PAGE>
Revenues from the sale of NGLs increased $43.7 million for the year ended
December 31, 1993 compared to the same period in 1992 due to an increase in
NGL sales volumes of 545 MGal per day which was somewhat offset by a $.01
per gallon decrease in the price of NGLs. Of the volume increase, 377 MGal per
day is attributable to an increase in the sale of NGLs purchased from third
parties. The remaining volume increase is the result of increased production
volumes at the Company's facilities, primarily due to the Mountain Gas and
Black Lake acquisitions as well as new well hookups at the Midkiff/Benedum and
Giddings facilities.
Other revenues increased approximately $1 million for the year ended December
31, 1993 compared to the same period in 1992 due to the termination of certain
hedging transactions and interest rate swap agreements in 1993 which resulted
in an increase of approximately $5.5 million compared to the same period in
1992. This increase was offset by the sale in 1992 of a 20% undivided
interest in the Midkiff/Benedum gas processing plants to the major producer in
the area of the plant for a pre-tax gain of approximately $4.5 million.
Historically, product purchases as a percentage of residue gas and NGL sales
from the Company's plant production approximated 70%. Product purchases as a
percentage of residue gas and NGL sales from third-party purchases is
substantially higher than the historical percentage and approximates 95%. The
increase in the Company's combined percentage is primarily due to a
significantly larger increase in the sales volume of products purchased from
third parties compared to the sales volume sold from the Company's facilities.
As a result, total product purchases as a percentage of residue gas and NGL
sales increased approximately 6.3% to 81.5% for the year ended December 31,
1993 compared to the same period in 1992.
Plant operating expense increased $7.3 million for the year ended December 31,
1993 compared to the same period in 1992 primarily due to the Mountain Gas and
Black Lake acquisitions and an increase in repair and maintenance charges
incurred at facilities acquired from UTP.
Selling and administrative expense increased $4.2 million as a result of
higher payroll and benefit charges and professional fees resulting from the
Company's growing operations and its preparation for the Katy Gas Storage
Facility, a litigation reserve established for the Woods/Moncrief lawsuit and
franchise taxes resulting from the Company's expansion into states which do
not charge income taxes, somewhat offset by increased overhead capitalized to
the Company's construction projects. In 1993, overhead capitalized to the
Company's construction projects increased approximately $3.3 million when
compared to the same period in 1992. Amounts capitalized to such projects in
1994 are expected to decline due to
25
<PAGE>
the completion of several major projects and fewer projects currently under
construction by the Company.
Depreciation, depletion and amortization expense increased $17.5 million for
the year ended December 31, 1993 compared to the same period in 1992 is
primarily due to the Mountain Gas and Black Lake acquisitions. In January
1994, the Katy Gas Storage Facility commenced operations and, as a result,
depreciation, depletion and amortization expense associated with the Katy Gas
Storage Facility will be approximately $3.0 million per year.
Interest expense increased $2.5 million for the year ended December 31, 1993
compared to the same period in 1992 due to higher average long-term debt
outstanding. In 1993, interest incurred and capitalized during the
construction period of new projects increased approximately $2.8 million when
compared to the same period in 1992. Amounts capitalized to such projects in
1994 are expected to decline due to the completion of several major projects
and fewer projects currently under construction by the Company. This increase
will be more than offset by a reduction in interest expense related to the
application of the net proceeds of $133.5 million from the sale of 2,760,000
shares of $2.625 Convertible Preferred Stock in February 1994 against the
Company's Revolving Credit Facility.
In 1993, the corporate income tax rate was increased from 34% to 35%. This
rate increase resulted in an increase in deferred income taxes of
approximately $2.1 million for the year ended December 31, 1993.
Year ended December 31, 1992 compared to year ended December 31, 1991.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------- Percent
1992 1991 Change
--------- -------- --------
<S> <C> <C> <C>
Financial results
($000s, except per
share amounts):
Revenues..................... $600,116 $358,242 67.5
Gross profit................. 92,287 60,510 52.5
Net income................... 39,688 20,850 90.4
Earnings per share of
common stock................ 1.43 .94 52.1
Net cash provided by
operating
activities................. 94,684 36,197 161.6
Operating data:
Average gas sales (MMcf/D)... 441.8 309.6 42.7
Average NGL sales (MGal/D)... 2,399.5 1,096.6 118.8
Average gas prices ($/Mcf)... $ 1.72 $ 1.59 8.2
Average NGL prices ($/Gal)... $ .32 $ .36 (11.1)
</TABLE>
26
<PAGE>
Net income and net cash provided by operating activities increased $18.8
million and $58.5 million, respectively, for the year ended December 31, 1992
compared to the same period in 1991.
Average gas prices increased $.13 per Mcf and average NGL prices decreased
$.04 per gallon for the year ended December 31, 1992 compared to the same
period in 1991, while average gas sales increased 132 MMcf per day and average
NGL sales increased 1,303 MGal per day. Revenues from the sale of residue gas
and NGLs increased $99.3 million and $140.0 million, respectively, for the
year ended December 31, 1992 compared to the same period in 1991. These
increases were primarily the result of increased production from Company
facilities due to the acquisition of 12 plants from UTP in November 1991 and
an increase in the sale of products purchased from third parties. Other
revenues increased $6.0 million, primarily as a result of a $4.5 million gain
on the sale of a 20% interest in the Midkiff and Benedum facilities in the
fourth quarter of 1992.
Product purchases as a percentage of residue gas and NGL sales increased 1.3%
to 75.2% in 1992 compared to 1991. Product purchases as a percentage of
residue gas and NGL sales of production from the Company's facilities is
approximately 70%. Increasing the historical percentage are purchases of
third party products which typically have a lower profit margin. The increase
in plant operating expense for the year ended December 31, 1992 compared to
the same period in 1991 was primarily due to the acquisition of the UTP
facilities. Selling and administrative expense increased $8.7 million for the
year ended December 31, 1992 compared to the same period in 1991 primarily due
to higher salary and benefit costs, insurance and other administrative
expenses related to the Company's acquisition of the UTP facilities. In
addition, selling and administrative expenses increased as a result of
additional franchise taxes due to increased operations in Texas and increased
costs related to the Company's ongoing evaluation of potential acquisitions.
The increase in depreciation expense for the year ended December 31, 1992
compared to the same period in 1991 was primarily due to the acquisition of
the UTP facilities. Effective January 1, 1992, the Company reviewed the
economic useful lives of its plant assets. As a result of this review, the
lives of certain of these assets were changed to reflect more closely their
remaining economic useful lives. The effect of this change was not material
to the results of operations for the year ended December 31, 1992. The
decrease in interest expense for the year ended December 31, 1992 compared to
the same period in 1991 was due to lower bank rates on variable rate
borrowings and lower average long-term debt outstanding.
27
<PAGE>
The decrease in the provision for income taxes as a percentage of income
before taxes resulted from a reduction in the deferred income tax rate as
prescribed by SFAS No. 109.
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. Net cash provided by operating activities
has been primarily affected by product prices, the Company's success in
increasing the number and efficiency of its facilities and the volumes of
natural gas processed by such facilities and the margin on third party residue
gas purchased for resale. The Company's continued growth will be dependent
upon success in the areas of additions to dedicated plant reserves,
acquisitions, new project development and marketing.
In the three years ended December 31, 1993, the Company's total sources of
funds aggregated $823.9 million and was comprised of net cash provided by
operating activities of $233.4 million, net borrowings under its credit
agreement of $426.7 million, net proceeds received from the exercise of common
stock options of $1.3 million, net proceeds from the issuance of the $2.28
Cumulative Preferred Stock of $33.4 million, net proceeds from the issuance of
the 7.25% Convertible Preferred Stock of $38.2 million, net proceeds from the
issuance of Common Stock of $71.3 million and net proceeds received from the
disposition of property and equipment of $19.6 million. During the same
period, the Company's use of such funds aggregated $819.5 million which were
used primarily to make capital investments of $793.9 million, to pay dividends
to holders of Common Stock of $12.3 million, to pay dividends to holders of
7.25% Convertible Preferred Stock and $2.28 Cumulative Preferred Stock of $9.1
million and to make distributions to minority interest holders in predecessor
company of $4.2 million.
On November 12, 1993, the Registration on Form S-3 (Registration No. 33-66516)
was declared effective. The Registration provides for the sale of up to $200
million of debt securities and preferred stock and up to 4 million shares of
common stock. On February 28, 1994, the Company sold, pursuant to the
Registration, 2,760,000 shares of $2.625 Convertible Preferred Stock for net
proceeds of $133.5 million, which have been used to repay a portion of the
debt incurred under the Company's Revolving Credit facility in the Mountain
Gas and Black Lake acquisitions.
The Company has been successful overall in replacing production with new
reserves. However, volumes of natural gas dedicated to some of the Company's
plants have declined during recent years because additions to dedicated plant
reserves have not fully offset
28
<PAGE>
production. In 1993, excluding reserves acquired in the Mountain Gas and
Black Lake acquisitions and including reserves associated with Westana, the
Company connected new reserves to its gathering systems replacing 118% of 1993
production. On a Company-wide basis, dedicated reserves, including certain
proved undeveloped properties, totaled approximately 1.95 Tcf at December 31,
1993.
An additional source of liquidity to the Company is volumes of residue gas and
NGLs in storage facilities. The Company stores volumes of residue gas and
NGLs primarily to assure an adequate supply for long-term sales contracts and
for resale during periods when prices are favorable. At December 31, 1993,
the Company held in storage approximately 17.3 million gallons of NGLs at an
average cost of $.30 per gallon and 7.9 Bcf of residue gas at an average cost
of $1.97 per Mcf ($1.81 per MMbtu).
From time to time, the Company contracts on the futures market for the
purchase and/or sale of stored residue gas and NGL products as a hedge against
price changes. At December 31, 1993, 296 net contracts (10,000 MMbtus per
contract) for the sale of residue gas in February 1994 through March 1995 at
prices ranging from $1.87 per Mcf to $2.56 per Mcf were outstanding. At
December 31, 1993, no such contracts for NGLs were outstanding.
Capital Investment Program
Between January 1, 1991 and December 31, 1993, the Company expended
approximately $793.9 million on new projects and currently has authorized an
additional $94.0 million for 1994. For the year ended December 31, 1993, the
Company expended $491.4 million on the Mountain Gas and Black Lake
acquisitions, the construction of the Katy Gas Storage Facility, connection of
new reserves, acquire consolidating assets for existing systems and upgrades
to existing and newly acquired facilities. For the year ended December 31,
1992, the Company expended a total of $68.4 million on the Katy Gas Storage
Facility, the acquisition of gathering systems connecting new reserves to
existing systems and upgrades to newly acquired facilities. For the year
ended December 31, 1991, the Company expended a total of $234.1 million for
the acquisition, construction and development of various facilities, including
the UTP, Edgewood and Midkiff systems and the Reno Junction Isomerization
facility, and the acquisition of producing gas wells. The Company financed
the UTP acquisition by the private placement of $40 million of Convertible
Preferred Stock with an institutional investor and with $100 million of long-
term debt from its existing bank group. This long-term debt was subsequently
reduced with the net proceeds of $71.3 million received from a common stock
offering in November 1991.
The Company has completed the construction of the Katy Gas Storage Facility.
Lease acquisition and construction costs incurred through December 31, 1993,
including pad gas, approximate $90 million and
29
<PAGE>
excludes capitalized pre-operating costs. The Katy Gas Storage Facility
commenced operations in January 1994. The complex consists of a partially
depleted natural gas reservoir with over 17 Bcf of working gas and the
capability to deliver up to 400 MMcf/D of natural gas as well as a pipeline
header system currently connecting seven pipelines with the capability to
connect six additional pipelines.
In order to maintain the volumes of natural gas dedicated to or processed by
the Company's existing facilities, future capital expenditures for gathering
systems needed to connect new reserves, acquire consolidating assets and to
maintain existing facilities are anticipated to be approximately $25 million
to $30 million per year. The availability of new reserves at existing
facilities is somewhat affected by the price of crude oil or natural gas
(depending on whether the natural gas is associated gas or gas well gas) which
in turn stimulates new drilling at higher price levels. The Company
anticipates spending an additional $64 million to $69 million on other capital
projects.
Depending on the timing of the Company's future projects, it may be required
to seek additional sources of capital. The Company's ability to secure such
capital is restricted by its credit facilities, although it may request
additional borrowing capacity from the banks, seek waivers from the banks to
permit it to borrow funds from third parties, seek replacement credit
facilities from other lenders or issue additional equity securities. While
the Company believes that it would be able to secure additional financing, if
required, no assurance can be given that it will be able to do so or as to the
terms of any such financing.
Financing Facilities
Revolving Credit Facility. In August 1993, the Company renegotiated a
Revolving Credit Facility with its agent bank, and in September 1993 the agent
bank completed the syndication of the facility with seven additional banks.
The Company's variable rate Revolving Credit Facility provides for a maximum
borrowing of $400 million, of which $345 million was outstanding at December
31, 1993, and, if not renewed, on August 31, 1996 any outstanding balance
thereunder converts to a four-year term during which such balance will be
repaid in equal quarterly installments. At the Company's option, the
Revolving Credit Facility bears interest at certain spreads over the
Eurodollar rate or at the agent bank's prime rate. The interest rate spreads
were adjusted based on the Company's earnings ratio (earnings before interest
and taxes divided by interest expense). At December 31, 1993, the spread was
1.0% for the Eurodollar rate resulting in an interest rate of 4.13% at
December 31, 1993.
30
<PAGE>
The Company will pay a commitment fee on the unused commitment of .25% if the
earnings ratio is greater than or equal to 4.5 to 1.0 or .375% if the ratio is
less than 4.5 to 1.0. For the year ended December 31, 1993, the Company's
earnings ratio was approximately 4.4 to 1.0.
Term Loan Facility. The Company also has a Term Loan Facility with four banks
for $50 million which bears interest at 9.87%. Payments on the Term Loan
Facility of $25 million, $12.5 million and $12.5 million are due in September
1995, 1996 and 1997, respectively.
The Company's Revolving Credit and Term Loan Facilities are subject to certain
mandatory prepayment terms. If funded debt under these facilities exceeds
four times the sum of the Company's last four quarters' cash flow (as defined
in the agreement), the overage must be repaid in no more than six monthly
payments commencing 90 days from notification. This mandatory prepayment
threshold will be reduced to 3.75 to 1.00 at December 31, 1994 and 3.50 to
1.00 at December 31, 1995.
The Term Loan Facility and Revolving Credit Facility are unsecured. The
Company is required to maintain a current ratio of at least 1.0 to 1.0, a
tangible net worth of at least $247 million, a debt to capitalization ratio of
no more than 65% through March 31, 1994, 60% from April 1, 1994 through
October 31, 1995 and 55% thereafter and an earnings ratio of not less than 2.0
to 1.0. The Company is prohibited from declaring or paying dividends that
exceed the sum of $25 million plus 50% of consolidated net income earned after
March 31, 1993 plus 50% of the cumulative net proceeds received from the sale
of any equity securities sold after March 31, 1993. At December 31, 1993, this
threshold amounted to $39 million, or $106 million subsequent to the issuance
of the 2,760,000 shares of $2.625 Convertible Preferred Stock in February
1994. The Company generally utilizes excess daily funds to reduce any
outstanding revolving credit balances to minimize interest expense and intends
to continue such practice.
Master Shelf Agreement. In December 1991, the Company entered into a Master
Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of
America ("Prudential") pursuant to which Prudential agreed to quote, from
time-to-time, an interest rate at which Prudential or its nominee would be
willing to purchase up to $100 million of the Company's senior promissory
notes (the "Senior Notes"). Any such Senior Notes must mature in no more than
12 years, with an average life not in excess of 10 years, and will be
unsecured. On October 27, 1992, the Company sold $25 million of 7.51% Senior
Notes due 2000 and $25 million of 7.99% Senior Notes due 2003. Principal
payments on the $50 million of Senior Notes of $8.3 million will be due on
October 27 of each year from 1998 through 2003. On September 22, 1993, the
Company sold $25 million of 6.77% Senior Notes due in a single payment on
September 22, 2003 and on December 27, 1993, the Company sold $25 million of
7.23%
31
<PAGE>
Senior Notes due in a single payment on December 27, 2003. The Master Shelf
contains certain financial covenants which conform with those contained in the
Revolving Credit Facility. In July 1993, Prudential and the Company amended
the Master Shelf to provide for an additional $50 million of borrowing
capacity (for a total borrowing capacity of $150 million) and to extend the
term of the Master Shelf to October 31, 1995.
Senior Notes. On April 28, 1993 the Company sold $50 million of 7.65% Senior
Notes due 2003 to a group of insurance companies led by Connecticut General
Life Insurance Company. Principal payments on the $50 million of Senior Notes
of $7.1 million will be due on April 30th of each year from 1997 through 2002
with any remaining principal and interest outstanding due on April 30, 2003.
The Senior Notes contain certain financial covenants which conform with those
contained in the Revolving Credit Facility.
Covenant Compliance. At December 31, 1993, the Company was in compliance with
or has obtained necessary waivers related to all of its debt covenants.
Interest Rate Swap Agreements. From time to time, the Company enters into
interest rate swap agreements to manage exposure to changes in interest rates.
The transactions generally involve the exchange of fixed and floating interest
payment obligations without the exchange of the underlying principal amounts.
In 1993, the Company terminated certain interest rate swap agreements,
totaling $175 million of notional principal amount, resulting in a pre-tax
gain of approximately $3.6 million.
The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility and the Master Shelf together with cash provided
from operations, will provide it with sufficient financing to connect new
reserves, maintain its existing facilities and complete its current capital
improvement projects. The Company also believes that cash provided from
operations will be sufficient to meet its debt service and preferred stock
dividend requirements.
Miscellaneous
The construction and operation of the Company's gathering lines, plants and
other facilities used for the gathering, transporting, processing, treating or
storing of residue gas and NGLs are subject to federal, state and local
environmental laws and regulations, including those that can impose
obligations to clean up hazardous substances at the Company's facilities or at
facilities to which the Company sends wastes for disposal. In most instances,
the applicable regulatory requirements relate to water and air pollution
control or solid waste management procedures. The Company believes that it is
in substantial compliance with applicable material environmental laws and
regulations. Environmental regulation can increase the cost of planning,
32
<PAGE>
designing, constructing and operating the Company's facilities. The Company
believes that the costs for compliance with current environmental laws and
regulations have not and will not have a material effect on the Company's
results of operation.
In 1990, the Congress enacted the Clean Air Act Amendments of 1990 (the "Clean
Air Act") which impose more stringent standards on emissions of certain
pollutants and require the permitting of certain existing air emissions
sources. Many of the regulations have not been promulgated and until their
promulgation, the Company cannot make a final assessment of the impact of the
Clean Air Act. However, based upon its preliminary review of the proposed
regulations, the Company does not anticipate that compliance with the Clean
Air Act will require any material capital expenditures, although it will
increase permitting costs in 1994 and 1995 and may increase certain operating
costs on an on-going basis. The Company does not believe that such cost
increases will have a material effect on the Company's results of operations,
but cannot rule out that possibility.
The Company believes that it is reasonably likely that the trend in
environmental legislation and regulation will continue to be towards stricter
standards. The Company is unaware of future environmental standards that are
reasonably likely to be adopted that will have a material effect on the
Company's results of operations.
The Company is in the process of cleaning up certain releases of non-hazardous
substances at facilities that it operates. In addition, the former owner of
certain facilities that the Company acquired in 1992 is conducting cleanups at
those facilities pursuant to contractual obligations. The Company's
expenditures for environmental evaluation and remediation at existing
facilities have not been significant in relation to the results of operations
of the Company and totaled approximately $1.4 million for the year ended
December 31, 1993. For the year ended December 31, 1993, the Company paid an
aggregate of approximately $565,000 in air emissions fees to the states in
which it operated. Although the Company anticipates that such air emissions
fees will increase over time, the Company does not believe that such increases
will have a material effect on the Company's results of operations.
The Company employs six environmental engineers to monitor environmental
compliance and potential liabilities at its facilities. Prior to consummating
any major acquisition, the Company's environmental engineers perform audits on
the facilities to be acquired. In addition, on an on-going basis, the
environmental engineers perform informal environmental assessments of the
Company's existing facilities. To date, the Company has not found any
material environmental noncompliance or cleanup liabilities, the costs of
which would reasonably be expected to have, in the aggregate, a material
effect on the Company's results of operations.
33
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Western Gas Resources, Inc.'s Consolidated Financial Statements as of December
31, 1993 and 1992 and for the three years ended December 31, 1993:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Management ...................................... 35
Report of Independent Accountants ......................... 36
Consolidated Balance Sheet ................................ 37
Consolidated Statement of Cash Flows ...................... 39
Consolidated Statement of Operations ...................... 41
Consolidated Statement of Changes in Stockholders' Equity.. 42
Notes to Consolidated Financial Statements ................ 43
</TABLE>
34
<PAGE>
REPORT OF MANAGEMENT
The financial statements and other financial information included in this
Annual Report on Form 10-K are the responsibility of management. The
financial statements have been prepared in conformity with generally accepted
accounting principles appropriate in the circumstances and include amounts
that are based on management's informed judgments and estimates.
Management relies on the Company's system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. The concept of reasonable assurance is based on the
recognition that there are inherent limitations in all systems of internal
accounting control and that the cost of such systems should not exceed the
benefits to be derived. The internal accounting controls in place during the
periods presented are considered adequate to provide such assurance.
The Company's financial statements are audited by Price Waterhouse,
independent accountants. Their report states that they have conducted their
audit in accordance with generally accepted auditing standards. These
standards include an evaluation of the system of internal accounting controls
for the purpose of establishing the scope of audit testing necessary to allow
them to render an independent professional opinion on the fairness of the
Company's financial statements.
The Audit Committee of the Board of Directors, composed solely of directors
who are not employees of the Company, reviews the Company's financial
reporting and accounting practices. The Audit Committee meets periodically
with the independent accountants and management to review the work of each and
to ensure that each is properly discharging its responsibilities.
Signature Title
--------- -----
/s/ BILL M. SANDERSON
-------------------------
Bill M. Sanderson President, Chief Operating Officer and
Director
/s/ WILLIAM J. KRYSIAK
-------------------------
William J. Krysiak Vice President - Controller
(Principal Financial and
Accounting Officer)
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Stockholders of Western Gas Resources, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of cash flows, of operations, and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Western Gas Resources, Inc. and its subsidiaries at December 31,
1993 and 1992, and the results of their cash flows and their operations for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Denver, Colorado
February 25, 1994
36
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
($000s)
<TABLE>
<CAPTION>
December 31,
---------------------
ASSETS 1993 1992
------ ---------- --------
<S> <C> <C>
Current assets:
Cash................................... $ 4,666 $ 13,160
Trade accounts receivable, net......... 142,336 90,920
Product inventory...................... 20,850 17,696
Parts inventory........................ 2,161 1,671
Other.................................. 1,544 1,558
---------- --------
Total current assets.................. 171,557 125,005
---------- --------
Property and equipment, at cost:
Gas gathering, processing
and transmission...................... 684,964 441,760
Oil and gas properties and
equipment............................. 134,638 36,294
Construction in progress............... 148,918 32,184
---------- --------
968,520 510,238
Less: Accumulated depreciation,
depletion and amortization............ (123,351) (89,118)
---------- --------
Total property and equipment, net.... 845,169 421,120
---------- --------
Other assets:
Gas purchase contracts (net of
accumulated amortization of $10,756
and $10,133, respectively)........... 37,556 15,401
Other.................................. 60,466 20,662
---------- --------
Total other assets................... 98,022 36,063
---------- --------
Total assets............................. $1,114,748 $582,188
========== ========
</TABLE>
- Continued on following page -
37
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
($000s, except share amounts)
- Continued from previous page -
<TABLE>
<CAPTION>
December 31,
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1992
------------------------------------ ----------- ---------
<S> <C> <C>
Current liabilities:
Accounts payable........................ $ 160,956 $ 86,656
Accrued expenses........................ 17,667 14,477
Dividends payable....................... 2,080 1,648
---------- --------
Total current liabilities............... 180,703 102,781
Long-term debt............................ 547,000 157,000
Deferred income taxes payable............. 66,481 34,430
Other long-term liabilities............... 7,695 2,366
---------- --------
Total liabilities....................... 801,879 296,577
---------- --------
Commitments and contingent liabilities
(Note 5)
Stockholders' equity:
Preferred Stock; 10,000,000 shares
authorized:
$2.28 cumulative preferred stock,
par value $.10; 1,400,000 shares
issued and outstanding ($35,000
aggregate liquidation preference) 140 140
7.25% cumulative senior perpetual
convertible preferred stock, par
value $.10; 400,000 shares issued
and outstanding ($40,000 aggregate
liquidation preference).............. 40 40
Common stock, par value $.10;
100,000,000 shares authorized;
25,651,722 and 25,522,575 shares
issued and outstanding, respectively 2,565 2,552
Additional paid-in capital.............. 204,176 203,310
Notes receivable from key employees
secured by common stock............... (1,985) (1,478)
Retained earnings....................... 107,933 81,047
---------- --------
Total stockholders' equity.............. 312,869 285,611
---------- --------
Total liabilities and stockholders'
equity.................................. $1,114,748 $582,188
========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000s)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1993 1992 1991
---------- -------- ---------
<S> <C> <C> <C>
Reconciliation of net income to net cash
- ----------------------------------------
provided by operating activities
--------------------------------
Net income........................... $ 38,102 $39,688 $ 20,850
Add income items that do not affect
working capital:
Depreciation, depletion and
amortization....................... 43,980 26,491 18,515
Deferred income taxes............... 7,439 8,361 4,723
Other non-cash items................ 77 1,436 742
-------- ------- --------
89,598 75,976 44,830
-------- ------- --------
Adjustments to working capital
to arrive at net cash provided
by operating activities:
Increase in trade accounts
receivable......................... (38,078) (2,227) (18,318)
(Increase) decrease in product
inventory.......................... (2,540) 8,280 (5,644)
(Increase) decrease in parts
inventory.......................... (490) 359 134
(Increase) decrease in other
current assets..................... 56 (278) (517)
Increase in other assets............ (7,370) (3,376) (798)
Increase in accounts payable........ 68,813 14,939 12,414
Increase (decrease) in accrued
expenses........................... (7,398) 1,011 4,096
-------- ------- --------
Total adjustments.................... 12,993 18,708 (8,633)
-------- ------- --------
Net cash provided by operating
activities......................... $102,591 $94,684 $ 36,197
======== ======= ========
</TABLE>
- Continued on following page -
39
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000s)
- Continued from previous page -
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Net cash provided by operating
activities............................. $ 102,591 $ 94,684 $ 36,197
--------- --------- ---------
Cash flows from investing activities:
Payments for business acquisitions (302,988) (11,299) (190,344)
Payments for additions to property
and equipment......................... (150,216) (54,681) (42,374)
Dispositions of property and
equipment............................. 741 18,547 302
Contributions to investments
for capital expenditures.............. (11,647) (1,041) (1,321)
Gas purchase contracts acquired........ (27,477) -- (85)
Increase (decrease) in other
long-term liabilities................. 914 (1,407) 31
--------- --------- ---------
Net cash used in investing
activities.......................... (490,673) (49,881) (233,791)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock................................. -- -- 71,345
Proceeds from issuance of
preferred stock....................... -- 33,400 38,246
Proceeds from exercise of common
stock options...................... 879 1,114 565
Notes receivable from key employees
secured by common stock............ (507) (580) (150)
Proceeds from issuance of long-
term debt............................. 100,000 50,000 --
Net borrowings (payments) under
revolving credit facility............. 290,000 (109,050) 95,750
Net distributions to minority
interest holders in predecessor
company............................... -- -- (4,202)
Dividends paid to holders of common
stock................................. (5,118) (5,085) (2,117)
Dividends paid to holders of
preferred stock....................... (5,666) (2,900) (556)
--------- --------- ---------
Net cash provided by (used in)
financing activities.......... 379,588 (33,101) 198,881
--------- --------- ---------
Net increase (decrease) in cash........ (8,494) 11,702 1,287
Cash at beginning of period............ 13,160 1,458 171
--------- --------- ---------
Cash at end of period.................. $ 4,666 $ 13,160 $ 1,458
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($000s, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Sale of residue gas................. $ 563,068 $ 278,928 $ 179,659
Sale of natural gas liquids......... 333,880 290,230 150,224
Processing and transportation
revenues........................... 25,622 22,124 25,538
Other, net.......................... 9,768 8,834 2,821
----------- ----------- -----------
Total revenues..................... 932,338 600,116 358,242
----------- ----------- -----------
Costs and expenses:
Product purchases................... 730,676 427,906 243,756
Plant operating expense............. 58,224 50,904 32,141
Oil and gas exploration and
production costs................... 3,283 2,528 3,320
Selling and administrative
expense............................ 27,572 23,393 14,705
Depreciation, depletion and
amortization....................... 43,980 26,491 18,515
Interest expense.................... 12,972 10,449 13,022
----------- ----------- -----------
Total costs and expenses........... 876,707 541,671 325,459
----------- ----------- -----------
Income before taxes................. 55,631 58,445 32,783
Provision for income taxes:
Current............................. 10,090 10,396 7,210
Deferred............................ 7,439 8,361 4,723
----------- ----------- -----------
17,529 18,757 11,933
----------- ----------- -----------
Net income.......................... $ 38,102 $ 39,688 $ 20,850
=========== =========== ===========
Weighted average shares of common
stock outstanding................... 25,608,503 25,453,029 21,669,688
=========== =========== ===========
Earnings per share of common stock.. $ 1.25 $ 1.43 $ .94
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($000s, except share amounts)
<TABLE>
<CAPTION>
Shares of Shares of
7.25% $2.28 7.25% $2.28 Notes
Shares Convertible Cumulative Convertible Cumulative Additional Receivable
of Common Preferred Preferred Common Preferred Preferred Paid-In from Key
Stock Stock Stock Stock Stock Stock Capital Employees
---------- ----------- ---------- ------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1990...................... 21,131,074 -- -- $2,113 $ -- $ -- $ 59,259 $ (748)
Net income, 1991........... -- -- -- -- -- -- -- --
Distributions to minority
interest holders in
predecessor company, 1991 -- -- -- -- -- -- -- --
Stock options exercised.... 104,456 -- -- 11 -- -- 554 (150)
Proceeds from issuance of
7.25% Convertible
Preferred Stock......... -- 400,000 -- -- 40 -- 38,206 --
Proceeds from issuance of
common stock............. 4,115,000 -- -- 411 -- -- 70,934 --
Dividends declared on
common stock.............. -- -- -- -- -- -- -- --
Dividends declared on 7.25%
convertible Preferred
Stock................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ------ ----------- ---------- -------- ----------
Balance at December 31,
1991...................... 25,350,530 400,000 -- 2,535 40 -- 168,953 (898)
Net income, 1992........... -- -- -- -- -- -- -- --
Stock options exercised.... 172,045 -- -- 17 -- -- 1,097 (580)
Proceeds from issuance of
$2.28 Cumulative Preferred
Stock................... -- -- 1,400,000 -- -- 140 33,260 --
Dividends declared on
common stock.............. -- -- -- -- -- -- -- --
Dividends declared on 7.25%
Convertible Preferred
Stock................... -- -- -- -- -- -- -- --
Dividends declared on $2.28
Cumulative Preferred
Stock................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ------ ----------- ---------- -------- ----------
Balance at December 31,
1992...................... 25,522,575 400,000 1,400,000 2,552 40 140 203,310 (1,478)
Net income, 1993........... -- -- -- -- -- -- -- --
Stock options exercised.... 129,147 -- -- 13 -- -- 866 (507)
Dividends declared on
common stock.............. -- -- -- -- -- -- -- --
Dividends declared on 7.25%
Convertible Preferred
Stock................... -- -- -- -- -- -- -- --
Dividends declared on $2.28
Cumulative Preferred
Stock................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ------ ----------- ---------- -------- ----------
Balance at December 31,
1993...................... 25,651,722 400,000 1,400,000 $2,565 $ 40 $ 140 $204,176 $ (1,985)
========== =========== ========== ====== =========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Stock-
Retained holders'
Earnings Equity
-------- --------
<S> <C> <C>
Balance at December 31,
1990...................... $ 37,016 $ 97,640
Net income, 1991........... 20,850 20,850
Distributions to minority
interest holders in
predecessor company, 1991 (4,202) (4,202)
Stock options exercised.... - 415
Proceeds from issuance of
7.25% Convertible
Preferred Stock......... - 38,246
Proceeds from issuance of
common stock............. - 71,345
Dividends declared on
common stock............. (3,383) (3,383)
Dividends declared on 7.25%
convertible Preferred
Stock................... (556) (556)
-------- --------
Balance at December 31,
1991...................... 49,725 220,355
Net income, 1992........... 39,688 39,688
Stock options exercised.... - 534
Proceeds from issuance of
$2.28 Cumulative
Preferred Stock......... - 33,400
Dividends declared on
common stock.............. (5,094) (5,094)
Dividends declared on 7.25%
Convertible Preferred
Stock................... (2,900) (2,900)
Dividends declared on $2.28
Cumulative Preferred
Stock................... (372) (372)
-------- --------
Balance at December 31,
1992...................... 81,047 285,611
Net income, 1993........... 38,102 38,102
Stock options exercised.... - 372
Dividends declared on
common stock.............. (5,124) (5,124
Dividends declared on 7.25%
Convertible Preferred
Stock................... (2,900) (2,900
Dividends declared on $2.28
Cumulative Preferred
Stock................... (3,192) (3,192
-------- --------
Balance at December 31,
1993...................... $107,933 $312,869
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, ACCOUNTING POLICIES AND OTHER MATTERS
-------------------------------------------------------------
Western Gas Resources, Inc., a Delaware corporation, is an independent gas
gatherer and processor with operations in major oil and gas-producing basins
in the Rocky Mountain, Gulf Coast and Southwestern regions of the United
States. Western Gas Resources, Inc. owns and operates natural gas gathering,
processing and storage facilities and markets and transports natural gas and
natural gas liquids ("NGLs").
Western Gas Resources, Inc. was formed in October 1989 to acquire a majority
interest in Western Gas Processors, Ltd. (the "Partnership") and to assume the
duties of WGP Company, the general partner of the Partnership. The
Partnership had been a Colorado limited partnership formed in 1977 to engage
in the gathering and processing of natural gas. The reorganization was
accomplished in December 1989 through an exchange for common stock of
partnership units held by the former general partners of WGP Company (the
"Principal Stockholders") and an initial public offering of Western Gas
Resources, Inc. common stock. At December 31, 1990, Western Gas Resources,
Inc. held a 51.8% partnership interest in the Partnership and the Principal
Stockholders owned 65.7% of Western Gas Resources, Inc.'s common stock and a
40.2% direct interest in the Partnership. The remaining 8.0% of the interest
in the Partnership was owned by public holders of the Partnership's $1.80
cumulative participating preference units ("PPUs") (including 7.8% of the PPUs
held by the Principal Stockholders).
On May 1, 1991, a further restructuring of the Partnership and Western Gas
Resources, Inc. (together with its predecessor, WGP Company, collectively, the
"Company") was approved by a vote of the security holders. As a result of the
affirmative vote on the restructuring, the Partnership prepaid the remaining
preference distributions to the PPU holders in the second quarter of 1991 and
the Company acquired all of the remaining limited partner units in exchange
for 10.2 million shares of newly issued common stock of the Company, all of
the Partnership's assets were transferred to the Company by operation of law
as a result of the merger, the Company directly owned all assets and was
subject to all obligations of the Partnership, and the Partnership ceased to
exist.
The combinations described above were reorganizations of entities under common
control and have been accounted for at historical cost in a manner similar to
poolings of interests. The Company has restated all historical financial
information to reflect the restructuring.
43
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1991, the Company issued 400,000 shares of 7.25% cumulative
perpetual convertible preferred stock ("7.25% Convertible Preferred Stock")
with a liquidation preference of $100 per share to an institutional investor.
In November 1991, the Company issued 4,115,000 shares of common stock at a
public offering price of $18.375 per share.
In November 1992, the Company issued 1,400,000 shares of $2.28 cumulative
preferred stock ("$2.28 Cumulative Preferred Stock"), with a liquidation
preference of $25 per share, at a public offering price of $25 per share.
On November 12, 1993, the Company's registration statement filed with the
Securities and Exchange Commission (the "Registration") on Form S-3
(Registration No. 33-66516) was declared effective. The Registration provides
for the sale of up to $200 million of debt securities and preferred stock and
up to 4 million shares of common stock. On February 17, 1994, the Company
filed a Prospectus Supplement under the Registration for the sale of 2,760,000
shares of $2.625 cumulative convertible preferred stock ("$2.625 Convertible
Preferred Stock"). On February 25, 1994 the Company closed the offering
providing for net proceeds of $133.5 million.
Significant Business Acquisitions and Dispositions
Mountain Gas
On July 29, 1993, effective January 1, 1993, the Company acquired the stock of
Mountain Gas Resources, Inc. ("Mountain Gas") from Morgan Stanley Leveraged
Equity Fund II, L.P. for total consideration of approximately $168.2 million,
including the payment of certain transaction costs and the assumption and
repayment of $35 million of long-term debt of Mountain Gas.
Mountain Gas owns the Red Desert and Granger facilities, both located near the
Company's Lincoln Road gas processing plant and gathering system. The 22%
interest in the Granger facility previously not owned by Mountain Gas was
purchased by the Company in two separate transactions in November and December
1993 for an aggregate of $27.7 million. At the date of acquisition, the Red
Desert facility consisted of a cryogenic plant and the Granger plant consisted
of a refrigeration unit and a cryogenic unit. In December 1993, the Company
completed construction of an additional cryogenic processing plant at Granger,
at a total cost of $15.2 million.
44
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1993, a fire at the Granger facility's NGL tank farm required the
facility to be shut down for one week. The new cryogenic processing plant as
well as the smaller existing cryogenic unit were also damaged. Gas throughput
at the facility has since reached levels experienced before the fire, and the
Company expects it to be fully operational in May 1994 when the construction
of a new tank farm and repairs to the cryogenic units are expected to be
completed. The Company believes that insurance will cover, subject to certain
deductibles, substantially all of the costs related to rebuilding the NGL tank
farm and the other affected facilities, the interruption of business and
third-party claims, if any.
Black Lake
On September 27, 1993, effective January 1, 1993, the Company purchased Black
Lake gas processing plant and related reserves ("Black Lake") from Nerco Oil &
Gas, Inc. ("Nerco") for approximately $136.2 million. The acquisition includes
a 68.9% working interest in the Black Lake field in Louisiana and a gas
processing plant. The purchase also includes 50% of the stock of Black Lake
Pipeline Company, which owns a 240 mile liquids pipeline extending from Cotton
Valley, Louisiana to Mont Belvieu, Texas and transports NGLs for Black Lake
and three unaffiliated gas processing plants.
Pro forma condensed results of operations for the years ended December 31,
1993 and 1992 give effect to the acquisition and financing of Mountain Gas and
Black Lake and the issuance and sale by the Company of 2,760,000 shares of
$2.625 Convertible Preferred Stock assuming that each transaction occurred on
January 1 for each year presented below. The pro forma results have been
prepared for comparative purposes only and are not indicative of the results
of operations which actually would have resulted had the acquisitions occurred
on the dates indicated, or which may result in the future (in $000s).
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31,
------------------------
1993 1992
------------- ---------
<S> <C> <C>
Revenues............................ $1,013,934 $741,775
Net income.......................... 48,509 46,543
Earnings per share of common stock.. 1.37 1.42
</TABLE>
45
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Westana Joint Venture
Effective August 1, 1993, the Company formed Westana Gathering Company
("Westana"), a general partnership, with Panhandle Eastern Pipe Line
Corporation ("PEPL"). Westana provides gas gathering and processing services
in the Anadarko Basin in Oklahoma and markets residue gas and NGLs for
producers connected to its system. The Company is the principal operator with
each partner holding a 50% ownership interest.
The Company contributed its Chester gas processing plant and gathering system,
with a net book value of $13.8 million, to Westana. Westana also operates
PEPL's 400 mile gathering system, which will be contributed to Westana, after
abandonment approval by the FERC. The Company is committed to provide an
additional partnership contribution of $8.3 million, of which $4.8 million was
contributed through December 31, 1993, for necessary modifications to the
gathering system. This contribution will be recouped by the Company through
preferential partnership distributions.
UTP System
On November 1, 1991, the Company purchased the gas processing division of
Union Texas Products Corporation, a subsidiary of Union Texas Petroleum
Holdings, Inc. (collectively referred to as the "UTP system"). The total
consideration was $142.7 million. The acquisition included 12 plants in Texas,
Oklahoma and Louisiana.
Edgewood System
Effective January 1, 1991, the Company purchased the Edgewood Gas Processing
Plant and a majority interest in the related production (collectively called
the "Edgewood system") from Amoco Production Company for $36 million. The
Edgewood system includes a gas processing plant and a sulfur recovery unit.
Effective July 1, 1991, the Company also acquired an approximate 80% working
interest in three producing gas wells in the Fruitvale field behind the
Edgewood plant.
Midkiff/Benedum System
Effective October 1, 1992, the Company sold a 20% undivided interest (which
interest may increase based upon future expansion of the plants to accommodate
increased gas volumes) in the Midkiff and Benedum gas processing plants to the
major producer in the area of the plant for $22 million, or an increase to net
income of $2.9 million, or $.11 per share of common stock.
46
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting Policies
The significant accounting policies followed by the Company and the Company's
wholly-owned subsidiaries are presented here to assist the reader in
evaluating the financial information contained herein. The Company's
accounting policies are in accordance with generally accepted accounting
principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
the Company's wholly-owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. The Company's interest in
certain investments is accounted for by the equity method.
Revenue Recognition
Revenue for sales or services is recognized at the time the gas or NGLs are
sold or at the time the service is performed.
Reclassification
Certain prior years' amounts in the consolidated financial statements and
related notes have been reclassified to conform to the presentation used in
1993.
Earnings Per Share of Common Stock
Earnings per share of common stock is computed by dividing the net income
available to shares of common stock by the weighted average number of shares
of common stock outstanding. Net income available to shares of common stock
is net income less dividends declared on the 7.25% Convertible Preferred Stock
and $2.28 Cumulative Preferred Stock. The computation of fully diluted
earnings per share of common stock for the years ended December 31, 1993 and
1992 was antidilutive, therefore, only primary earnings per share of common
stock is presented.
Inventories
Product inventory includes $15.5 million and $11.6 million of residue gas and
$5.2 million and $5.4 million of NGLs at December 31, 1993 and 1992,
respectively.
Prior to 1992, the cost of residue gas and NGL inventories was determined by
the weighted average cost and the first-in, first-out
47
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(FIFO) methods, respectively, on a location by location basis. Effective
January 1, 1992, the Company changed its method of accounting for NGL
inventories to the last-in, first-out (LIFO) method. The effect of this
change was not material to the Company's results of operations for the year
ended December 31, 1992.
Inventories are valued at the lower of cost or net realizable value. At
December 31, 1991, NGL inventories were written down to reflect market value,
resulting in a $1.4 million reduction in inventory value and a related charge
to earnings.
Property and Equipment
Depreciation is provided using the straight-line method based on the estimated
useful life of each facility which ranges from three to 45 years. Useful lives
are determined based on the shorter of the life of the equipment or the
reserves serviced by the equipment. The cost of certain gas purchase contracts
is amortized using the units-of-production method. Effective January 1, 1992,
the Company reviewed the economic useful lives of its plant assets. As a
result of this review, the lives of certain of these assets were changed to
reflect more closely their remaining economic useful lives. The effect of
this change was not material to the results of operations for the year ended
December 31, 1992.
The Company follows the successful efforts method of accounting for oil and
gas exploration and production activities. Acquisition costs, development
costs and successful exploration costs are capitalized. Exploratory dry hole
costs, lease rentals and geological and geophysical costs are charged to
expense as incurred. If the undiscounted future net revenue of all proved
developed properties does not exceed the net book value of such properties, a
charge for impairment would be made against income of the period affected.
Upon surrender of undeveloped properties, the original cost is charged against
income. Producing properties and related equipment are depleted and
depreciated by the units-of-production method based on estimated proved
developed reserves of oil and gas.
Interest incurred during the construction period of new projects is
capitalized and amortized over the life of the associated assets. Such
capitalized interest was $4.9 million, $2.1 million and $1.3 million,
respectively, for the three years ended December 31, 1993.
48
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
In the fourth quarter of 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", retroactive to January 1, 1992. SFAS No. 109 requires the recognition
of deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the financial statements
or income tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Adoption of SFAS No. 109 did not have a material effect on the Company's
results of operations for the year ended December 31, 1992. Prior years'
financial statements have not been restated to apply the provisions of SFAS
No. 109.
Deferred income taxes for 1993 and 1992 reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. These temporary
differences are determined in accordance with SFAS No. 109 and are more
inclusive in nature than "timing differences" as determined under previously
applicable accounting principles.
A pro forma provision for income taxes has been provided in the financial
statements of the Company for the year ended December 31, 1991 for
comparability to its taxable status after the restructuring. Prior to the
restructuring, the Predecessor Company was not subject to Federal income tax
since the tax effects of its activities accrued to its partners.
Futures Contracts
The Company, from time to time, enters into futures contracts to hedge against
a portion of the price risk associated with residue gas and NGLs. Changes in
the market value of futures contracts are accounted for as additions to or
reductions in inventory. Gains and losses resulting from changes in the
market value of futures contracts are recognized when the related inventory is
sold. At December 31, 1993, 296 such contracts (net) (10,000 MMbtus per
contract) for the sale of residue gas in February 1994 through March 1995 at
prices ranging from $1.87 per Mcf to $2.56 per Mcf were outstanding. At
December 31, 1993, no such contracts for NGLs were outstanding.
49
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Rate Swap Agreements
The Company has entered into various interest rate swap agreements to manage
exposure to changes in interest rates. The transactions generally involve the
exchange of fixed and floating interest payment obligations without the
exchange of the underlying principal amounts. At December 31, 1993 and 1992,
the total notional principal amount of outstanding interest rate swap
agreements was $50 million. In addition to the financial risk that will vary
during the life of these swap agreements in relation to the maturity of the
underlying debt and market interest rates, the Company is subject to credit
risk exposure from nonperformance of the counterparties to the swap
agreements.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with a maturity of three months or less.
Supplementary Cash Flow Information
Interest paid was $16.4 million, $12.5 million and $12.9 million,
respectively, for the three years ended December 31, 1993.
Income taxes paid were $10.2 million, $12.5 million and $6.6 million,
respectively, for the three years ended December 31, 1993.
Payments for business acquisitions during the year ended December 31, 1993
include the following payments for working capital and other liabilities
assumed (in $000s):
<TABLE>
<CAPTION>
<S> <C>
Trade accounts receivable, net.. $ 13,338
Product inventory............... 614
Other current assets............ 42
Other assets.................... 1,817
Accounts payable................ (5,487)
Accrued expenses................ (10,588)
--------
Total......................... $ (264)
========
</TABLE>
NOTE 2-RELATED PARTIES
The Company purchases a significant portion of the Williston Gas Company
("Williston") and Westana production for resale to unrelated third parties.
Such purchases from Williston included in the Consolidated Statement of
Operations were $8.6 million, $4.0 million and $7.4 million, respectively, for
the three years ended
50
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1993. Purchases from Westana totaled $5.3 million for the year
ended December 31, 1993.
The Company performs various operational and administrative functions for
Williston and Westana and allocates the actual expenses incurred in performing
the services to each Company. Such charges for Williston totaled $2.4
million, $3.2 million, and $4.0 million, respectively, for the three years
ended December 31, 1993. Charges to Westana totaled $933,000 for the year
ended December 31, 1993.
During the year ended December 31, 1990, an officer and director of the
Company borrowed $748,000 from the Company for the purpose of exercising
options to purchase 294,524 shares of common stock in the Company. Interest is
accrued at a rate equal to the interest rate paid by the Company on its
Revolving Credit Facility and is payable annually on December 31 during the
term of the note with all unpaid principal and accrued interest due and
payable on January 1, 1996. The note is secured by the common stock and is
accounted for as a reduction of stockholders' equity.
The Company has entered into agreements committing the Company to loan to
certain key employees an amount sufficient to exercise their options as each
portion of their options vests under the Key Employees' Incentive Stock Option
Plan and the Employee Option Plan. The Company will forgive the loan and
accrued interest if the employee has been continuously employed by the Company
for periods specified under the agreements. As of December 31, 1993 and 1992
loans totaling $1.2 million and $730,000, respectively, were outstanding to
key employees under these programs. The loans are secured by the common stock
and are accounted for as a reduction of stockholders' equity.
NOTE 3-LONG-TERM DEBT
The following summarizes the consolidated long-term debt at the dates
indicated (in $000s):
<TABLE>
<CAPTION>
December 31,
------------------
1993 1992
-------- --------
<S> <C> <C>
Variable Rate Revolving Credit
Facility..................... $345,000 $ 41,000
Senior Notes.................... 150,000 50,000
Bank Term Loan Facility......... 50,000 50,000
Line-of-credit.................. 2,000 --
Inventory Line-of-Credit........ -- 16,000
-------- --------
Total........................ $547,000 $157,000
======== ========
</TABLE>
51
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financing Facilities
Revolving Credit Facility. In August 1993, the Company renegotiated a
Revolving Credit Facility with its agent bank, and in September 1993 the agent
bank completed the syndication of the facility with seven additional banks.
The Company's variable rate Revolving Credit Facility provides for a maximum
borrowing of $400 million, of which $345 million was outstanding at December
31, 1993, and, if not renewed, on August 31, 1996 any outstanding balance
thereunder converts to a four-year term during which such balance will be
repaid in equal quarterly installments. At the Company's option, the
Revolving Credit Facility bears interest at certain spreads over the
Eurodollar rate or at the agent bank's prime rate. The interest rate spreads
were adjusted based on the Company's earnings ratio (earnings before interest
and taxes divided by interest expense). At December 31, 1993, the spread was
1.0% for the Eurodollar rate resulting in an interest rate of 4.13% at
December 31, 1993.
Term Loan Facility. The Company also has a Term Loan Facility with four banks
for $50 million which bears interest at 9.87%. Payments on the Term Loan
Facility of $25 million, $12.5 million and $12.5 million are due in September
1995, 1996 and 1997, respectively.
The Company will pay a commitment fee on the unused commitment of .25% if the
earnings ratio is greater than or equal to 4.5 to 1.0 or .375% if the ratio is
less than 4.5 to 1.0. For the year ended December 31, 1993, the Company's
earnings ratio was approximately 4.4 to 1.0.
The Company's Revolving Credit and Term Loan Facilities are subject to certain
mandatory prepayment terms. If funded debt under these facilities exceeds
four times the sum of the Company's last four quarters' cash flow (as defined
in the agreement), the overage must be repaid in no more than six monthly
payments commencing 90 days from notification. This mandatory prepayment
threshold will be reduced to 3.75 to 1.00 at December 31, 1994 and 3.50 to
1.00 at December 31, 1995.
The Term Loan Facility and Revolving Credit Facility are unsecured. The
Company is required to maintain a current ratio of at least 1.0 to 1.0, a
tangible net worth of at least $247 million, a debt to capitalization ratio of
no more than 65% through March 31, 1994, 60% from April 1, 1994 through
October 31, 1995 and 55% thereafter and an earnings ratio of not less than 2.0
to 1.0. The Company is prohibited from declaring or paying dividends that
exceed the sum
52
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of $25 million plus 50% of consolidated net income earned after March 31, 1993
plus 50% of the cumulative net proceeds received from the sale of any equity
securities sold after March 31, 1993. The Company generally utilizes excess
daily funds to reduce any outstanding revolving credit balances to minimize
interest expense and intends to continue such practice.
Master Shelf Agreement. In December 1991, the Company entered into a Master
Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of
America ("Prudential") pursuant to which Prudential agreed to quote, from
time-to-time, an interest rate at which Prudential or its nominee would be
willing to purchase up to $100 million of the Company's senior promissory
notes (the "Senior Notes"). Any such Senior Notes must mature in no more than
12 years, with an average life not in excess of 10 years, and will be
unsecured. On October 27, 1992, the Company sold $25 million of 7.51% Senior
Notes due 2000 and $25 million of 7.99% Senior Notes due 2003. Principal
payments on the $50 million of Senior Notes of $8.3 million will be due on
October 27 of each year from 1998 through 2003. On September 22, 1993, the
Company sold $25 million of 6.77% Senior Notes due in a single payment on
September 22, 2003 and on December 27, 1993, the Company sold $25 million of
7.23% Senior Notes due in a single payment on December 27, 2003. The Master
Shelf contains certain financial covenants which conform with those contained
in the Revolving Credit Facility. In July 1993, Prudential and the Company
amended the Master Shelf to provide for an additional $50 million of borrowing
capacity (for a total borrowing capacity of $150 million) and to extend the
term of the Master Shelf to October 31, 1995.
Senior Notes. On April 28, 1993 the Company sold $50 million of 7.65% Senior
Notes due 2003 to a group of insurance companies led by Connecticut General
Life Insurance Company. Principal payments on the $50 million of Senior Notes
of $7.1 million will be due on April 30th of each year from 1997 through 2002
with any remaining principal and interest outstanding due on April 30, 2003.
The Senior Notes contain certain financial covenants which conform with those
contained in the Revolving Credit Facility.
Covenant Compliance. At December 31, 1993, the Company was in compliance with
or has obtained necessary waivers related to all of its debt covenants.
Interest Rate Swap Agreements. From time to time, the Company enters into
interest rate swap agreements to manage exposure to changes in interest rates.
The transactions generally involve the
53
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exchange of fixed and floating interest payment obligations without the
exchange of the underlying principal amounts.
Approximate future maturities of long-term debt are as follows (in $000s):
<TABLE>
<CAPTION>
December 31,
1993
-----------
<S> <C>
1994............. $ 2,000
1995............. 25,000
1996............. 98,750
1997............. 105,893
1998............. 101,726
Thereafter....... 213,631
-----------
$ 547,000
===========
</TABLE>
NOTE 4-INCOME TAXES
The provisions for income taxes for the years ended December 31, 1993 and 1992
and the pro forma provision for income taxes for the year ended December 31,
1991 are comprised of (in $000s):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................ $10,090 $10,397 $ 7,290
State.................. -- (1) (80)
------- ------- -------
Total Current........ 10,090 10,396 7,210
------- ------- -------
Deferred:
Federal................ 6,411 7,305 3,833
State.................. 1,028 1,056 890
------- ------- -------
Total Deferred....... 7,439 8,361 4,723
------- ------- -------
Total tax provision.. $17,529 $18,757 $11,933
======= ======= =======
</TABLE>
54
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences and carryforwards which give rise to the deferred tax
liability at December 31, 1993 and 1992 are as follows (in $000s):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Depreciation, depletion and amortization...... $ 70,131 $ 49,614
Deferred taxes attributable to difference
between the book and tax basis of acquired
assets...................................... 23,637 --
AMT benefit carryforward...................... (23,642) (14,884)
NOL carryforwards............................. (3,779) --
Other......................................... 134 (300)
-------- --------
Total deferred income taxes................. $ 66,481 $ 34,430
======== ========
</TABLE>
During the year ended December 31, 1991, deferred income taxes principally
were provided for significant timing differences in the recognition of revenue
and expenses for tax and financial statement purposes. These items
principally consisted of the excess of tax depreciation, depletion and
amortization over that deducted for financial reporting purposes.
The differences between the provision for income taxes at the statutory rate
and the actual provision for income taxes are summarized as follows (in
$000s):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1993 % 1992 % 1991 %
-------- ----- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
rate.......................... $19,471 35.0 $19,872 34.0 $11,146 34.0
Loss from subsidiaries taxed
separately.................... -- -- -- -- 169 0.5
State income taxes, net of
federal benefit............... 656 1.2 696 1.2 535 1.6
Increase in deferred income
taxes to reflect the change
in the federal tax rate....... 2,100 3.8 -- -- -- --
Reduction of deferred income
taxes to reflect NOL and
AMT benefit carryforwards..... (3,779) (6.8) (1,932) (3.3) -- --
Other........................... (919) (1.7) 121 0.2 83 0.3
------- ---- ------- ---- ------- ----
$17,529 31.5 $18,757 32.1 $11,933 36.4
======= ==== ======= ==== ======= ====
</TABLE>
55
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5-COMMITMENTS AND CONTINGENT LIABILITIES
Toca
On March 4, 1993, the Company filed a complaint against Warren Petroleum
Company, Arco Oil & Gas Co., Conoco Inc., Trident NGL, Inc. and other owners
of the Yscloskey Gas Plant located in Louisiana (the "Owners") in the United
States District Court for the Eastern District of Louisiana, alleging various
violations by the defendants of the federal anti-trust laws in connection with
a Hydrocarbon Fractionation Agreement at its Toca plant between the Company
and the Owners of the Yscloskey plant. The Company also filed a companion
state-court action involving the same parties in Civil District Court for the
Parish of Orleans, State of Louisiana, which the defendants removed to United
States District Court for the Eastern District of Louisiana. The Company and
Warren Petroleum Company (in its capacity as the designated Operator for the
Yscloskey Plant) have recently negotiated a new Hydrocarbon Fractionation
Agreement, which has been executed by substantially all of the Owners of the
Yscloskey Plant. The new 15-year agreement provides for a reduced
fractionation fee of 9.25% and eliminates the uncertainty regarding uneconomic
performance of the Yscloskey plant. The Company anticipates dismissing the
various complaints with prejudice.
Edgewood
On January 16, 1991, problems at the Company's Edgewood Plant relating to both
equipment that removes hydrogen sulfide from unprocessed natural gas and the
monitoring equipment owned by the purchaser of the residue gas, Enserch
Corporation, doing business as Lone Star Gas Company ("Lone Star"), allowed
residue gas containing hydrogen sulfide to enter Lone Star's transmission line
supplying residue gas to Emory, Texas.
The Company has been named as a co-defendant, along with Lone Star, in the
following complaints relating to the incident: Gary Prather, et al. v. Enserch
-------------------------------
Corporation, et al., filed March 15, 1993, Barbara Rogers, et al., v. Enserch
------------------- ----------------------------------
Corporation, et al. filed March 16, 1993, Judy Silvey, et al. v. Enserch, et
------------------- ----------------------------------
al., filed May 13, 1993, Floyd Rogers, et al. v. Enserch, et al., filed May
--- ---------------------------------------
14, 1993, Blair Schamlain, et al. v. Enserch, et al., filed May 25, 1993,
------------------------------------------
Betty Adair v. Enserch, et al., filed on July 14, 1993, Doris Hass v. Enserch
------------------------------ ---------------------
Corporation, et al., filed on December 17, 1993, Allie Ruth Harris v. Enserch
------------------- ----------------------------
Corporation, et al., filed on December 17, 1993, Sandra Parker, et al. v
------------------- -----------------------
Enserch Corporation, et al., filed on
---------------------------
56
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
January 13, 1994, and Carma Brumit v. Enserch, et al., filed on January 18,
-------------------------------
1994.
All the cases have been filed in the District Court, Rains County, Texas,
354th Judicial District, and make similar claims, asserting, among other
things, that the defendants breached an implied warranty of merchantability,
falsely represented that the residue gas was safe, were negligent and are
liable under a strict liability theory. The plaintiffs have alleged a variety
of respiratory and neurological illnesses and are seeking treble damages,
exemplary damages and attorneys' fees. Prior to the filing of the complaints,
the Company received demand letters from the plaintiffs that sought, in the
aggregate, approximately $36 million. Damages claimed in the lawsuits are in
excess of $13.5 million.
The Company believes that it has meritorious defenses to the claims and
intends to defend vigorously against any such claims. The Company is
currently conducting extensive pre-trial discovery. The underwriters of the
Company's general liability insurance policy have indicated preliminarily that
such policy appears to cover the types of claims that have been asserted,
subject to their right to deny coverage based upon, among other things, final
determination of causation and the exact nature of the damages.
Granger
On December 6, 1993, Green River Gathering Company ("Green River") and
Mountain Gas filed a complaint against Washington Energy Exploration, Inc.
("Washington Energy") in District Court in Arapahoe County, Colorado seeking
the payment of certain outstanding receivables from Washington Energy and a
declaratory judgment that the gathering agreement between Washington Energy
and Green River is in full force and effect. Mountain Gas is a wholly-owned
subsidiary of the Company and Green River is a partnership owned by the
Company and Mountain Gas. Washington Energy is the operator of wells
producing approximately 33% of the natural gas transported through the Green
River Gathering system to Mountain Gas' Granger facility.
On December 27, 1993, Washington Energy filed an answer, counterclaim,
crossclaim and request for trial by jury, denying the substance of the
allegations and asserting certain affirmative defenses. Washington Energy has
also made certain counterclaims seeking monetary damages relating to Green
River's performance under the gathering agreement and under a processing
agreement between the parties, along with a declaratory judgment that both
57
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreements have been terminated. In addition, Washington Energy has made a
crossclaim against two unaffiliated entities, each of which owned a portion of
Green River during a portion of the period in question.
The Company believes that Green River is in compliance with the gathering
agreement and the processing agreement and that both are in full force and
effect. The Company believes that it has meritorious defenses to the
counterclaims and intends to defend vigorously against any such claims. The
Company is currently conducting extensive pre-trial discovery.
Katy
Commencing in March 1993 and continuing through July 1993, Western Gas
Resources Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company,
filed a total of 165 condemnation actions in the County Court at Law No. 1 and
No. 2 of Fort Bend County, Texas to obtain certain storage rights and rights-
of-way relating to its Katy Gas Storage Facility. The County Court appointed
panels of Special Commissioners that have awarded compensation to the owners
whose rights were condemned. Certain of the land and mineral owners are
seeking in County Court a declaration that Storage does not possess the right
to condemn, or, in the alternative, that they should be awarded more
compensation than previously awarded by the Special Commissioners. The
Company believes that the outcome of such proceedings will not materially
affect operation of the Katy Gas Storage Facility. The likelihood of any
particular result, however, cannot be determined because the condemnation law
under which the proceedings are being brought has never been interpreted by
the courts.
Woods/Moncrief
In February 1994, the United States Appeals Court for the Tenth Circuit
affirmed a district court judgment against the Company in the amount of $2.9
million, including interest, in Western Gas Processors Ltd. v. Woods Petroleum
----------------------------------------------
Corporation and W.A. Moncrief, Jr., d/b/a Moncrief Oil Company, which related
--------------------------------------------------------------
to claims by certain producers that they had been underpaid. The Company has
taken a charge to litigation reserves in the year ended December 31, 1993, in
the amount of $2.4 million, as a result of the appellate court decision. The
Company will not take any further action.
58
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6-EMPLOYEE BENEFIT PLANS
A discretionary profit sharing plan exists for all Company employees meeting
certain service requirements. The Company makes annual contributions to the
plan as determined by the Board of Directors. Contributions are made to bank
trust funds administered by an independent investment manager. Contributions
were $2.2 million, $2.0 million and $1.4 million, respectively, in the three
years ended December 31, 1993.
The Board of Directors of the Company has adopted a Key Employees' Incentive
Stock Option Plan and a Non-Employee Director Stock Option Plan that authorize
the granting of options to purchase 250,000 and 20,000 common shares of the
Company, respectively. The Board of Directors has granted options to purchase
240,000 common shares to certain officers and 15,000 common shares to three
non-employee directors of the Company, at exercise prices ranging from $10.71
to $34.00. Each of these options became exercisable as to 25% of the shares
covered by it on the later of January 1, 1992, or one year from the date of
grant, subject to the continuation of the optionee's relationship with the
Company, and became exercisable as to an additional 25% of the covered shares
on each subsequent January 1 through 1995 or on the later of each subsequent
date of grant anniversary, subject to the same condition. The Company has
entered into agreements committing the Company to loan certain key employees
an amount sufficient to exercise their options as each portion of their
options vests. The Company will forgive the loan and accrued interest if the
employee has been continuously employed by the Company for four years after
the date of the loan.
In April 1987, the Partnership adopted an employee option plan that authorizes
granting options to employees to purchase 430,000 common units in the
Partnership. Pursuant to the Restructuring, the Company assumed the
Partnership's obligation under the Employee option plan. The plan was amended
upon the Restructuring to allow each holder of existing options to exercise
such options and acquire one share of common stock for each common unit they
were originally entitled to purchase. The exercise price and all other terms
and conditions for the exercise of such options issued under the amended plan
were the same as under the plan, except that the Restructuring accelerated the
time after which certain options may be exercised. Through December 31, 1993
and 1992, the Board of Directors has granted options under the plan to
purchase shares of common stock at $5.40 per share to approximately 355 and
350 employees, respectively. As of December 31, 1993 and 1992, approximately
415,000 and 390,000 options were vested and
59
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately 325,000 and 240,000 options for common shares had been
exercised, respectively. In February 1994, the Board of Directors
retroactively approved, adopted and ratified approximately 53,000 options
which were granted to employees in excess of the 430,000 options originally
authorized. No more options may be granted under this plan. Options may be
exercised only at the rate of 20% of the common shares subject to such option
for each year of continuous service by the optionee commencing from the later
of July 2, 1987 or the optionee's employment commencement date. The Company
has entered into agreements committing the Company to loan to certain key
employees an amount sufficient to exercise their options, provided that the
Company will not loan in excess of 25% of the total amount available to the
employee in any one year. The Company will forgive any loan and accrued
interest on July 2, 1997, if the employee is then employed by the Company. As
of December 31, 1993 and 1992, loans related to 162,998 and 98,297 options,
totaling $1.2 million and $730,000, were extended under these terms.
The 1993 Stock Option Plan (the "1993 Plan") became effective on May 24, 1993
after approval by the Company's stockholders. The 1993 Plan is intended to be
an incentive stock option plan in accordance with the provisions of Section
422 of the Internal Revenue Code of 1986, as amended. The Company has
reserved 1,000,000 shares of Common Stock for issuance upon exercise of
options under the 1993 Plan. The 1993 Plan will terminate on the earlier of
March 28, 2003 or the date on which all options granted under the 1993 Plan
have been exercised in full.
The Board of Directors of the Company will determine and designate from time
to time those employees of the Company to whom options are to be granted. If
any option terminates or expires prior to being exercised, the shares relating
to such option shall be released and may be subject to reissuance pursuant to
a new option. The Board of Directors has the right to, among other things,
fix the price, terms and conditions for the grant or exercise of any option.
The purchase price of the stock under each option shall be the fair market
value of the stock at the time such option is granted.
Options granted will vest 20% a year after the date of grant. The employee
must exercise the option within five years of the date each portion vests.
If an employee's employment with the Company terminates, the employee may,
within the 60 day period immediately following such termination of employment,
but in no event later than the expiration date specified in the Option
Agreement, exercise any options that have vested as of the date of such
60
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
termination. If employment terminates by reason of death or disability, the
employee (in the event of disability) or the person or persons to whom rights
under the option shall pass by will or by the applicable laws of decent and
distribution (in the event of death), shall be entitled to exercise 100% of
the options granted regardless of the employee's years of service; provided
however, that no such option may be exercised after 180 days from the date of
death or termination of employment with the Company as a result of disability.
Through December 31, 1993, the Board of Directors has granted approximately
384,000 options at exercise prices ranging from $28.25 to $35.50 per share of
common stock to approximately 455 employees. No options granted under the
1993 Plan have vested.
NOTE 7 - SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED):
Costs
The following tables set forth capitalized costs at December 31, 1993 and
costs incurred for oil and gas producing activities for the year ended
December 31, 1993 (in $000s):
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Capitalized costs:
Proved properties........... $130,783
Unproved properties......... 3,855
--------
Total......................... 134,638
Less accumulated depletion.. (17,877)
--------
Net capitalized costs......... $116,761
========
<CAPTION>
1993
--------
<S> <C>
Costs incurred:
Acquisition of properties
Proved.................... $ 95,518
Unproved.................. 2,428
Development costs........... 1,106
Exploration costs........... 320
--------
Total costs incurred.......... $ 99,372
========
</TABLE>
61
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Results of Operations
The results of operations for oil and gas producing activities, excluding
corporate overhead and interest costs, for the year ended December 31, 1993
are as follows (in $000s):
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Revenues from sale of oil and gas
Sales............................ $ 13,566
Transfers........................ 18,113
--------
Total.......................... 31,679
Production costs................... (2,963)
Exploration costs.................. (320)
Depreciation, depletion and
amortization..................... (10,857)
Income tax expense................. (3,182)
--------
Results of operations.............. $ 14,357
========
</TABLE>
Reserve Quantity Information
Reserve estimates are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. The accuracy
of such estimates is a function of the quality of available data and of
engineering and geological interpretation and judgement. Results of
subsequent drilling, testing and production may cause either upward or
downward revisions of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. Reserve estimates, by their nature, are generally less precise than
other financial statement disclosures.
62
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth information for the year ended December 31,
1993 with respect to changes in the Company's proved reserves, all of which
are in the United States. The Company has no significant undeveloped
reserves.
<TABLE>
<CAPTION>
Natural Crude
Gas Oil
(MMcf) (MBbls)
-------- -------
<S> <C> <C>
Proved reserves:
December 31, 1992........................................ 39,475 381
Revisions of previous estimates.......................... 11,084 (42)
Purchases of reserves in place*.......................... 100,886 261
Production............................................... (15,854) (107)
------- ----
December 31, 1993........................................ 135,591 493
======= ====
</TABLE>
(*) Primarily represents acquisition of Black Lake oil and gas properties on
September 27, 1993, from Nerco.
Standardized Measures of Discounted Future Net Cash Flows
Estimated discounted future net cash flows and changes therein were determined
in accordance with SFAS No. 69. Certain information concerning the
assumptions used in computing the valuation of proved reserves and their
inherent limitations are discussed below. The Company believes such
information is essential for a proper understanding and assessment of the data
presented.
Future cash inflows are computed by applying year-end prices of oil and gas
relating to the Company's proven reserves to the year-end quantities of those
reserves. Future price changes are considered only to the extent provided by
contractual arrangements in existence at year-end.
The assumptions used to compute estimated future net revenues do not
necessarily reflect the Company's expectations of actual revenues or costs,
nor their present worth. In addition, variations from the expected production
rate also could result directly or indirectly from factors outside of the
Company's control, such as unintentional delays in development, changes in
prices or regulatory controls. The reserve valuation further assumes that all
reserves will be disposed of by production. However, if reserves are sold in
place additional economic considerations could also affect the amount of cash
eventually realized.
63
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions.
Future income tax expenses are computed by applying the appropriate year-end
statutory tax rates, with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to the Company's
proved oil and gas reserves. Permanent differences in oil and gas related tax
credits and allowances are recognized.
An annual discount rate of 10% was used to reflect the timing of the future
net cash flows relating to proved oil and gas reserves.
Information with respect to the Company's estimated discounted future cash
flows from its oil and gas properties for the year ended December 31, 1993 is
as follows (in $000s):
<TABLE>
<CAPTION>
1993
----------
<S> <C>
Future cash inflows..................................... $261,497
Future production costs................................. (36,978)
Future development costs................................ (12,623)
Future income tax expense............................... (17,957)
--------
Future net cash flows................................... 193,939
10% annual discount for estimated timing of cash flows.. (62,489)
--------
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves......... $131,450
========
</TABLE>
64
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principal changes in the Company's estimated discounted future net cash flows
for the year ended December 31, 1993 are as follows (in $000s):
<TABLE>
<CAPTION>
1993
--------
<S> <C>
January 1.............................................. $40,604
Sales and transfers of oil and
gas produced,
net of production costs............................ (28,716)
Net changes in prices and
production costs
related to future production....................... 2,318
Development costs incurred during the period 1,106
Changes in estimated future development costs (12,623)
Revisions of previous quantity estimates 17,819
Purchases of reserves in place....................... 118,894
Accretion of discount................................ 4,060
Net change in income taxes........................... (11,119)
Other................................................ (893)
-------
December 31............................................ $131,450
========
</TABLE>
NOTE 8 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes certain quarterly results of operations (in $000s,
except per share amounts):
<TABLE>
<CAPTION>
Earnings
Per Share
Operating Gross Net of Common
Revenues Profit* Income Stock
-------- ------- ------- --------
<S> <C> <C> <C> <C>
1993 quarter ended:
March 31......................... $193,478 $24,022 $10,116 $ .34
June 30.......................... 173,846 20,971 8,464 .27
September 30..................... 273,359 24,984 9,734 .32
December 31...................... 291,655 26,198 9,788 .32
-------- ------- ------- --------
$932,338 $96,175 $38,102 $ 1.25
======== ======= ======= ========
1992 quarter ended:
March 31......................... $125,081 $19,827 $ 8,291 $ .30
June 30.......................... 126,330 18,052 6,519 .23
September 30..................... 148,535 25,935 11,696 .43
December 31...................... 200,170 28,473 13,182 .47
-------- ------- ------- --------
$600,116 $92,287 $39,688 $ 1.43
======== ======= ======= ========
</TABLE>
*Excludes selling and administrative, interest and income tax expenses.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to instruction G(3) to Form 10-K, Items 10, 11, 12 and 13 are omitted
because the Company will file a definitive proxy statement (the "Proxy
Statement") pursuant to Regulation 14A under the Securities Exchange Act of
1934 not later than 120 days after the close of the fiscal year. The
information required by such Items will be included in the definitive proxy
statement to be so filed for the Company's annual meeting of stockholders
scheduled for May 11, 1994 and is hereby incorporated by reference.
66
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reference is made to the listing on page 34 for a list of all
financial statements filed as a part of this report.
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants
On Financial Statement Schedules.............. 79
Schedule II Amounts Receivable From
Related Parties............................... 80
Schedule V - Property and Equipment............. 82
Schedule VI - Accumulated Depreciation
and Depletion of Property and Equipment....... 84
Schedule X - Supplementary Income Statement
Information................................... 86
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not applicable.
(3) Exhibits:
2.1 Agreement for the Sale and Purchase of Assets dated as of May 1,
1990 between Parker Gas Companies, Inc. and its subsidiaries and
Western Gas Processors, Ltd. (Filed as exhibit 2.1 to Western Gas
Resources, Inc.'s Form 10-Q for the quarter ended March 31, 1990
and incorporated herein by reference).
2.2 Agreement for Sale and Purchase of Assets concerning the Treating
Business of Parker Gas Treating Company, dated May 24, 1990 (Filed
as exhibit 2.6 to Western Gas Processors, Ltd.'s Form 10-Q for the
quarter ended June 30, 1990 and incorporated herein by reference).
2.3 Addendum and Agreement concerning the Treating Agreement and
Giddings Agreement (Filed as exhibit 2.6 to Western Gas Processors,
Ltd.'s Form 10-Q for the quarter ended June 30, 1990 and
incorporated herein by reference).
2.4 Agreement for the Sale and Purchase of Assets dated as of November
2, 1990 between Giddings, Ltd. and Western
67
<PAGE>
Gas Processors, Ltd. (Filed as exhibit 10.26 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration
No. 33-39588 dated March 27, 1991 and incorporated herein by
reference).
2.5 Letter of intent for the Sale and Purchase of Assets dated as of
September 24, 1990 between Amoco Production Company and Western Gas
Processors, Ltd. (Filed as exhibit 10.27 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-
39588 dated March 27, 1991 and incorporated herein by reference).
2.6 Purchase and sale agreement by and between Amoco Production Company
and Western Gas Processors, Ltd. dated as of January 7, 1991 (Filed
as exhibit 10.28 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27,
1991 and incorporated herein by reference).
2.7 Amendment to purchase and sale agreement by and between Amoco
Production Company and Western Gas Processors, Ltd. dated February
13, 1991 (Filed as exhibit 10.29 to Western Gas Resources, Inc.'s
Registration Statement on Form S-4, Registration No. 33-39588 dated
March 27, 1991 and incorporated herein by reference).
2.8 Second amendment to purchase and sale agreement by and between
Amoco Production Company and Western Gas Processors, Ltd. dated
February 11, 1991 (Filed as exhibit 10.30 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-
39588 dated March 27, 1991 and incorporated herein by reference).
3.1 Certificate of Incorporation of Western Gas Resources, Inc. (Filed
as exhibit 3.1 to Western Gas Resources, Inc.'s Registration
Statement on Form S-1, Registration No. 33-31604 and incorporated
herein by reference).
3.2 Certificate of Amendment to the Certificate of Incorporation of
Western Gas Resources, Inc. (Filed as exhibit 3.2 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-31604 and incorporated herein by reference).
3.3 Bylaws of Western Gas Resources, Inc. (Filed as exhibit 3.3 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-31604 and incorporated herein by reference).
68
<PAGE>
3.4 Assistant Secretary's Certificate regarding amendment to bylaws of
Western Gas Resources, Inc. (Filed as exhibit 3.4 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration
No. 33-39588 dated March 27, 1991 and incorporated herein by
reference).
3.5 Certificate of Designation of 7.25% Cumulative Senior Perpetual
Convertible Preferred Stock of the Company (Filed as exhibit 3.5 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).
3.6 Certificate of Designation of $2.28 Cumulative Preferred Stock of
the Company. (Filed as exhibit 3.6 to Western Gas Resources,
Inc.'s Registration Statement of Form S-1, Registration No. 33-
53786 dated November 12, 1992 and incorporated herein by
reference).
3.7 Amendments of the By-Laws of Western Gas Resources, Inc. as adopted
by the Board of Directors on December 13, 1993. (See page 89).
4.1 Subscription Agreements between the respective Founders and Western
Gas Resources, Inc. regarding such Founders' initial subscription
for shares of common stock (Filed as exhibit 10.31 to Western Gas
Resources, Inc.'s Registration Statement on Form S-4, Registration
No. 33-39588 dated March 27, 1991 and incorporated herein by
reference).
4.2 Commitment letter between DLJ Bridge Finance, L.P., and the Company
dated September 16, 1991 (Filed as exhibit 4.1 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).
4.3 Amendment No. 1 to Registration Rights Agreement as of May 1, 1991
between Western Gas Resources, Inc., Bill Sanderson, WGP, Inc.,
Dean Phillips, Inc., Heetco, Inc. NV, Sauvage Gas Company and
Sauvage Gas Service, Inc. (Filed as exhibit 4.2 to Western Gas
Resources, Inc.'s Form 10-Q for the quarter ended June 30, 1991 and
incorporated herein by reference).
10.1 Amended and Restated Agreement of Limited Partnership of the
Partnership dated June 1, 1987 (Filed as exhibit 10.1 to Western
Gas Resources, Inc.'s Registration Statement on Form S-4,
Registration No. 33-39588 , dated March 27, 1991 and incorporated
herein by reference).
69
<PAGE>
10.2 Transfer Restriction Agreement between Western Gas Resources, Inc.
and Western Gas Processors, Ltd. (Filed as exhibit 10.4 to Western
Gas Resources, Inc.'s Registration Statement on Form S-4,
Registration No. 33-39588 dated March 27, 1991 and incorporated
herein by reference).
10.3 Reinvestment Agreement among Western Gas Processors, Ltd., Western
Gas Resources, Inc., WGP, Inc., Heetco, Inc. NV, Dean Phillips,
Inc., Sauvage Gas Company and Sauvage Gas Service, Inc. (Filed as
exhibit 10.5 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27,
1991 and incorporated herein by reference).
10.4 Fifth Restated Loan Agreement dated as of September 21, 1988
between Western Gas Processors, Ltd., and NCNB Texas National Bank
(Filed as exhibit 4.8 to Western Gas Processors, Ltd.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).
10.5 First Amendment to Fifth Restated Loan Agreement dated as of
February 7, 1989 between Western Gas Processors, Ltd. and NCNB
Texas National Bank (Filed as exhibit 4.9 to Western Gas
Processors, Ltd.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 and incorporated herein by reference).
10.6 Second Amendment to Fifth Restated Loan Agreement dated as of
October 20, 1989 between Western Gas Processors, Ltd. and NCNB
Texas National Bank (Filed as exhibit 10.6 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-31604 and incorporated herein by reference).
10.7 Restated Profit-Sharing Plan and Trust Agreement of Western Gas
Resources, Inc. (Filed as exhibit 10.8 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-
39588 dated March 27, 1991 and incorporated herein by reference).
10.8 Employees Common Units Option Plan of Western Gas Processors, Ltd.
(Filed as exhibit 10.9 to Western Gas Resources, Inc.'s
Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).
10.9 Amendment to Employees Common Units Option Plan of Western Gas
Processors, Ltd. (Filed as exhibit 10.10 to Western Gas Resources,
Inc.'s Registration Statement on
70
<PAGE>
Form S-4, Registration No. 33-39588 dated March 27, 1991 and
incorporated herein by reference).
10.10 Western Gas Resources, Inc. Non-Employee Director Stock Option Plan
(Filed as exhibit 10.12 Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27,
1991 and incorporated herein by reference).
10.11 Western Gas Resources, Inc. Key Employees' Incentive Stock Option
Plan (Filed as exhibit 10.13 to Western Gas Resources, Inc.'s
Registration Statement on Form S-4, Registration No. 33-39588 dated
March 27, 1991 and incorporated herein by reference).
10.12 Registration Rights Agreement among Western Gas Resources, Inc.,
WGP, Inc., Heetco, Inc., NV, Dean Phillips, Inc., Sauvage Gas
Company and Sauvage Gas Service, Inc. (Filed as exhibit 10.14 to
Western Gas Resources, Inc.'s Registration Statement on Form S-4,
Registration No. 33-39588 dated March 27, 1991 and incorporated
herein by reference).
10.13 Agreement of Sale Concerning the Midkiff Plant and Spraberry
Gathering System (without exhibits) dated as of May 12, 1989 between
El Paso Natural Gas Company and Western Gas Processors, Ltd. (Filed
as exhibit 10.13 to Western Gas Resources, Inc.'s Registration
Statement on Form S-1, filed December 8, 1989, Registration No. 33-
31604 and incorporated herein by reference).
10.14 Interim Operating Agreement for the Midkiff system (Filed as exhibit
10.14 to Western Gas Resources, Inc.'s Registration Statement on
Form S-1, filed December 8, 1989, Registration No. 33-31604 and
incorporated herein by reference).
10.15 Amendment Number One to the Amended and Restated Agreement of
Limited Partnership of Western Gas Processors, Ltd. dated as of
December 4, 1989 (Filed as exhibit 10.2 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).
10.16 Guaranty of Western Gas Resources, Inc. in favor of NCNB Texas
National Bank (Filed as exhibit 10.17 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).
71
<PAGE>
10.17 Form of Agreement to be Bound of Western Gas Resources, Inc. (Filed
as exhibit 10.18 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27,
1991 and incorporated herein by reference).
10.18 Assumption Agreement of Western Gas Resources, Inc. (Filed as
exhibit 10.19 to Western Gas Resources, Inc.'s Registration
Statement on Form S-4, Registration No. 33-39588 dated March 27,
1991 and incorporated herein by reference).
10.19 Distribution Reinvestment Plan of Western Gas Processors, Ltd.
(Filed as exhibit 10.19 to Western Gas Resources, Inc.'s
Registration Statement on Form S-1, filed December 8, 1989,
Registration No. 33-31604 and incorporated herein by reference).
10.20 Second Amendment to Amended and Restated Agreement of Limited
Partnership of Western Gas Processors, Ltd. (Filed as exhibit 10.3
to Western Gas Resources, Inc.'s Registration Statement on Form S-4,
Registration No. 33-39588 dated March 27, 1991 and incorporated
herein by reference).
10.21 Sixth Restated Loan Agreement dated as September 26, 1990 between
Western Gas Processors, Ltd. and NCNB Texas National Bank (Filed as
exhibit 10.6 to Western Gas Resources, Inc.'s Registration Statement
on Form S-4 dated March 27, 1991 and incorporated herein by
reference).
10.22 First Amendment to Sixth Restated Loan Agreement dated as of October
26, 1990 between Western Gas Processors, Ltd. and NCNB Texas
National Bank (Filed as exhibit 10.7 to Western Gas Resources,
Inc.'s Registration Statement on Form S-4, Registration No. 33-39588
dated March 27, 1991 and incorporated herein by reference).
10.23 Loan Agreement dated as of May 1, 1991 between the Company and NCNB
Texas National Bank as Agent and Certain Banks as Lenders (Filed as
exhibit 10.1 to Western Gas Resources, Inc.'s Registration Statement
on Form S-1, Registration No. 33-43077 dated November 14, 1991 and
incorporated herein by reference).
10.24 First Amendment to Loan Agreement dated as of August 12, 1991 by and
among the Company and NCNB Texas National Bank and Various Lenders
(Filed as exhibit 10.2 to Western Gas Resources, Inc.'s Registration
Statement on Form S-1, Registration No. 33-43077 dated November 14,
1991 and incorporated herein by reference).
72
<PAGE>
10.25 Second Amendment and First Restatement of Western Gas Processors,
Ltd. Employees' Common Units Option Plan (Filed as exhibit 10.6 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).
10.26 Agreement to provide loans to exercise key employees' common stock
options (Filed as exhibit 10.26 to Western Gas Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference).
10.27 Agreement to provide loans to exercise employees' common stock
options (Filed as exhibit 10.27 to Western Gas Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference).
10.28 Agreement and Plan of Restructuring among the Company, the
Partnership and the Founders (Filed as exhibit 10.10 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).
10.29 Asset Purchase Agreement among Union Texas Petroleum Holdings,
Inc., Union Texas Products Corporation and the Company dated
September 17, 1991 (without exhibits) (Filed as exhibit 10.11 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).
10.30 Stock Purchase Agreement dated October 23, 1991 between the Company
and The 1818 Fund, L.P. (Filed as exhibit 10.19 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).
10.31 Registration Rights Agreement dated October 23, 1991 between the
Company and The 1818 Fund, L.P. (Filed as exhibit 10.20 to Western
Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-43077 dated November 14, 1991 and incorporated
herein by reference).
10.32 First Restated Loan Agreement dated as of October 31, 1991 by and
among the Company and NCNB Texas National Bank as Agent and NCNB
Texas National Bank and Bankers Trust Company as Co-Managers of the
Acquisition Loan and Certain Banks as Lenders (Filed as exhibit
10.21 to Western Gas Resources, Inc.'s Registration Statement on
73
<PAGE>
Form S-1, Registration No. 33-43077 dated November 14, 1991 and
incorporated herein by reference).
10.33 First Restated Loan Agreement (Inventory) dated as of October 31,
1991 by and among the Company and NCNB Texas National Bank as Agent
and Certain Banks as Lenders (Filed as exhibit 10.22 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-43077 dated November 14, 1991 and incorporated herein by
reference).
10.34 First Amendment to First Restated Loan Agreement dated December 23,
1991 by and among the Company and NCNB Texas National Bank as Agent
and NCNB Texas National Bank and Bankers Trust Company as Co-
Managers (Filed as exhibit 10.34 to Western Gas Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference).
10.35 Loan Agreement dated as of May 1, 1991 between Western Gas
Resources, Inc. and NCNB Texas National Bank (Filed as exhibit 10.27
to Western Gas Resources, Inc.'s Form 10-Q for the quarter ended
June 30, 1991 and incorporated herein by reference).
10.36 Letter Agreement dated June 10, 1992 amending the Stock Purchase
Agreement dated October 23, 1991 between the Company and the 1818
Fund, L.P. (Filed as exhibit 10.36 to Western Gas Resources, Inc.'s
Form 10-Q for the quarter ended June 30, 1992 and incorporated
herein by reference).
10.37 Second Restated Loan Agreement dated as of October 20, 1992 by and
among the Company and NationsBank of Texas, N.A. as Agent and
Certain Banks as Lenders (Filed as exhibit 10.21 to Western Gas
Resources, Inc.'s Registration Statement on Form S-1, Registration
No. 33-53786 dated November 12, 1992 and incorporated herein by
reference).
10.38 Second Restated Loan Agreement (Inventory) dated as of October 20,
1992 by and among the Company and NationsBank of Texas, N.A. as
Agent and Certain Banks as Lenders (Filed as exhibit 10.22 to
Western Gas Resources, Inc.'s Registration Statement on Form S-1,
Registration No. 33-53786 dated November 12, 1992 and incorporated
herein by reference).
10.39 $100,000,000 Senior Notes Master Shelf Agreement dated as of
December 19, 1991 by and between the Company and the Prudential
Insurance Company of America (Filed as exhibit 10.23 to Western Gas
Resources, Inc.'s Registration
74
<PAGE>
Statement on Form S-1, Registration No. 33-53786 dated November 12,
1992 and incorporated herein by reference).
10.40 Letter Amendment No. 1 dated October 22, 1992 to $100,000,000 Senior
Notes Master Shelf Agreement (Filed as exhibit 10.40 to Western Gas
Resources, Inc's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).
10.41 Asset Purchase Agreement (without exhibits) dated October 21, 1992
between the Company and Parker & Parsley Gas Processing Co. (Filed
as exhibit 10.25 to Western Gas Resources, Inc.'s Registration
Statement on Form S-1, Registration No. 33-53786 dated November 12,
1992 and incorporated herein by reference)
10.42 Consulting Agreement dated as of January 1, 1993 by and between the
Company and Walter L. Stonehocker (Filed as exhibit 10.42 to Western
Gas Resources Inc.'s Form 10-K for the year ended December 31, 1992
and incorporated herein by reference).
10.43 Consulting Agreement dated as of January 1, 1993 by and between the
Company and Ward Sauvage (Filed as exhibit 10.43 to Western Gas
Resources Inc.'s Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).
10.44 Consulting Agreement dated as of January 1, 1993 by and between the
Company and Dean Phillips (Filed as exhibit 10.44 to Western Gas
Resources Inc.'s Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference).
10.45 Stock Purchase Agreement (without exhibits) dated March 30, 1993 by
and between the Company and The Morgan Stanley Leveraged Equity Fund
II, L.P. (Filed as exhibit 10.45 to Western Gas Resources Inc.'s
Form 10-Q for the six months ended June 30, 1993 and incorporated
herein by reference).
10.46 Amendment No. 1 (without exhibits) to Stock Purchase Agreement dated
as of March 30, 1993 by and between the Company and The Morgan
Stanley Leveraged Equity Fund II, L.P. (Filed as exhibit 10.46 to
Western Gas Resources Inc.'s Form 10-Q for the six months ended June
30, 1993 and incorporated herein by reference).
10.47 $150,000,000 Amended and Restated Master Shelf Agreement (without
exhibits) effective as of July 22, 1993 by and between the Company
and Prudential Insurance Company of America (Filed as exhibit 10.47
to Western Gas Resources
75
<PAGE>
Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).
10.48 Note Purchase Agreement (without exhibits) dated as of April 1, 1993
by and between the Company and the Purchasers for $50,000,000, 7.65%
Senior Notes Due April 30, 2003 (Filed as exhibit 10.48 to Western
Gas Resources Inc.'s Form 10-Q for the six months ended June 30,
1993 and incorporated herein by reference).
10.49 $15,000,000 Credit Agreement dated July 30, 1993 by and between the
Company and NationsBank of Texas, N.A. (Filed as exhibit 10.49 to
Western Gas Resources Inc.'s Form 10-Q for the six months ended
June 30, 1993 and incorporated herein by reference).
10.50 General Partnership Agreement (without exhibits), dated August 10,
1993 for Westana Gathering Company by and between Western Gas
Resources - Oklahoma, Inc. (a subsidiary of the Company) and
Panhandle Gathering Company (Filed as exhibit 10.50 to Western Gas
Resources Inc.'s Form 10-Q for the six months ended June 30, 1993
and incorporated herein by reference).
10.51 Amendment to General Partnership Agreement dated August 10, 1993 by
and between Western Gas Resources - Oklahoma, Inc. (a subsidiary of
the Company) and Panhandle Gathering Company (Filed as exhibit 10.51
to Western Gas Resources Inc.'s Form 10-Q for the six months ended
June 30, 1993 and incorporated herein by reference).
10.52 Operating and Maintenance Agreement (without exhibits) dated August
10, 1993 by and between Western Gas Resources - Oklahoma, Inc. (a
subsidiary of the Company) and Panhandle Gathering Company (Filed as
exhibit 10.52 to Western Gas Resources Inc.'s Form 10-Q for the six
months ended June 30, 1993 and incorporated herein by reference).
10.53 Amendment to Operating and Maintenance Agreement dated August 10,
1993 by and between Western Gas Resources -Oklahoma, Inc. (a
subsidiary of the Company) and Panhandle Gathering Company (Filed as
exhibit 10.53 to Western Gas Resources Inc.'s Form 10-Q for the six
months ended June 30, 1993 and incorporated herein by reference).
10.54 Interim Agreement (without exhibits) dated August 10, 1993 by and
between Westana Gathering Company and Panhandle Eastern Pipe Line
Company (Filed as exhibit 10.54 to Western Gas Resources Inc.'s Form
10-Q for the
76
<PAGE>
six months ended June 30, 1993 and incorporated herein by
reference).
10.55 Amendment to Interim Agreement dated August 10, 1993 by and between
Westana Gathering Company and Panhandle Eastern Pipe Line Company
(Filed as exhibit 10.55 to Western Gas Resources Inc.'s Form 10-Q
for the six months ended June 30, 1993 and incorporated herein by
reference).
10.56 Pipeline Operating Agreement (without exhibits) dated August 10,
1993 by and between Westana Gathering Company and Panhandle Eastern
Pipe Line Company (Filed as exhibit 10.56 to Western Gas Resources
Inc.'s Form 10-Q for the six months ended June 30, 1993 and
incorporated herein by reference).
10.57 $400,000,000 Loan Agreement (Revolver) (without exhibits) dated as
of August 31, 1993 among the Company and NationsBank of Texas, N.A.
as Agent and Certain Banks as Lenders (Filed as exhibit 10.57 to
Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).
10.58 Third Restated Loan Agreement (Term) (without exhibits) dated as of
August 31, 1993 among the Company and NationsBank of Texas, N.A. as
Agent and Certain Banks as Lenders (Filed as exhibit 10.58 to
Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).
10.59 Letter Amendment No. 1 to the Amended and Restated Master Shelf
Agreement effective as of June 30, 1993 by and between the Company
and Prudential Insurance Company of America (Filed as exhibit 10.59
to Western Gas Resources Inc.'s Form 10-Q for the nine months ended
September 30, 1993 and incorporated herein by reference).
10.60 Asset Purchase Agreement (without exhibits) dated July 18, 1993 by
and between the Company and Nerco Oil & Gas, Inc. (Filed as exhibit
10.60 to Western Gas Resources Inc.'s Form 10-Q for the nine months
ended September 30, 1993 and incorporated herein by reference).
10.61 Amendment No. 1 to Note Purchase Agreement dated as of August 31,
1993 by and among the Company and the Purchasers (Filed as exhibit
10.61 to Western Gas Resources Inc.'s Form 10-Q for the nine months
ended September 30, 1993 and incorporated herein by reference).
77
<PAGE>
10.62 First Amendment to Stock Purchase Agreement, amending the Stock
Purchase Agreement dated October 23, 1991 between Western Gas
Resources, Inc. and the 1818 Fund, L.P. (See page 92).
10.63 First Amendment to Loan Agreement (Revolver) as of December 31, 1993
among Western Gas Resources, Inc. and NationsBank of Texas, N.A. as
Agent and Certain Banks as Lenders (See page 96).
10.64 First Amendment to Third Restated Loan Agreement (Term) as of
December 31, 1993 among Western Gas Resources, Inc. and NationsBank
of Texas, N.A. as Agent and Certain Banks as Lenders (See page 107).
11.1 Statement regarding computation of per share earnings (See page 116)
21.1 List of Subsidiaries of Western Gas Resources, Inc. (See page 118).
23.1 Consent of Price Waterhouse, independent accountants (See page 120).
(b) Reports on Form 8-K:
None.
(c) Exhibits required by Item 601 of Regulation S-K. See (a) (3) above.
(d) Financial statement schedules required by Regulation S-X. See (a) (2)
above.
78
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Stockholders of Western Gas Resources, Inc.
Our audits of the Consolidated Financial Statements referred to in our report
dated February 25, 1994 appearing on page 36 also included an audit of the
Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our
opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related Consolidated Financial Statements.
PRICE WATERHOUSE
Denver, Colorado
February 25, 1994
79
<PAGE>
SCHEDULE II
WESTERN GAS RESOURCES, INC.
NOTES RECEIVABLE FROM RELATED PARTIES
($000s)
<TABLE>
<CAPTION>
Balance at
Deductions End of Period
Balance at ---------------------- ----------------------
Beginning Amounts Amounts Non-
Name of Debtor of Period Additions Collected Written Off Current Current
- -------------- ----------- --------- --------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Bill M. Sanderson(1)......... $ 754 $ 30 $ - $ - $ 784 $ -
Lonnie R. Brock(2)........... 102 78 - - 180 -
Dale Burford(2).............. 106 94 - - - 200
Gary W. Davis(2)............. 101 93 - - - 194
John F. Neal(2).............. 114 100 - - - 214
Lanny F. Outlaw(2)........... 114 79 - - - 193
John C. Walter(2)............ 103 78 - - - 181
------ ------ ----- -------- ----- ------
Total...................... $1,394 $ 552 $ - $ - $ 964 $ 982
====== ====== ===== ======== ===== ======
Year ended December 31, 1992:
Bill M. Sanderson(1)......... $ 770 $ 29 $ 45 $ - $ - $ 754
Lonnie R. Brock(2)........... 15 87 - - - 102
Dale Burford(2).............. 16 90 - - - 106
Gary W. Davis(2)............. 14 87 - - - 101
John F. Neal(2).............. 20 94 - - - 114
Lanny F. Outlaw(2)........... 20 94 - - - 114
John C. Walter(2)............ 15 88 - - - 103
------ ------ ----- -------- ----- ------
Total...................... $ 870 $ 569 $ 45 $ - $ - $1,394
====== ====== ===== ======== ===== ======
Year ended December 31, 1991:
Bill M. Sanderson(1)......... $ 748 $ 22 $ - $ - $ - $ 770
Lonnie R. Brock(2)........... - 15 - - - 15
Dale Burford(2).............. - 16 - - - 16
Gary W. Davis(2)............. - 14 - - - 14
John F. Neal(2).............. - 20 - - - 20
Lanny F. Outlaw(2)........... - 20 - - - 20
John C. Walter(2)............ - 15 - - - 15
------ ------ ----- -------- ----- ------
Total...................... $ 748 $ 122 $ - $ - $ - $ 870
====== ====== ===== ======== ===== ======
</TABLE>
- Continued on following page -
80
<PAGE>
SCHEDULE II
WESTERN GAS RESOURCES, INC.
NOTES RECEIVABLE FROM RELATED PARTIES
($000s, except share amounts)
- Continued from previous page -
(1) In July 1990, the Company loaned Mr. Sanderson $748 to purchase 294,524
shares of the Company's common stock. Interest is accrued at a rate equal to
that paid by the Company on its Revolving Credit Facility, which was 4.1%,
4.4% and 5.9% at December 31, 1993, 1992, and 1991, respectively. Interest
is payable annually on December 31 during the term of the note with all
unpaid principal and accrued interest due and payable on January 1, 1996.
The note is secured by the common stock and is accounted for as a reduction
of stockholders' equity.
(2) In 1991, the Company entered into agreements committing the Company to loan
to certain key employees an amount sufficient to exercise their options,
provided that the Company will not loan in excess of 25% of the total amount
available to the employee in one year. The Company will forgive the loan and
accrued interest on July 2, 1997,if the employee is then employed by the
Company or four years after the date of the loan, depending on the option
exercised. The interest on each loan is based on the Applicable Federal Rate
on the date the loan is made.
81
<PAGE>
SCHEDULE V
WESTERN GAS RESOURCES, INC.
PROPERTY AND EQUIPMENT
($000s)
<TABLE>
<CAPTION>
Balance at Sales Balance
Beginning or at End
Classification of Period Additions Retirements Transfers of Period
- -------------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993:
Gas gathering,
processing and
transmission....... $ 441,760 $ 230,491 (1) $(21,378) $ 34,091 $ 684,964
Construction in
progress........... 32,184 150,825 (1) -- (34,091) 148,918
Oil and gas
properties
and equipment...... 36,294 98,344 (1) -- -- 134,638
--------- --------- -------- -------- ---------
Total......... $ 510,238 $ 479,660 $(21,378) $ - $ 968,520
========= ========= ======== ======== =========
Year ended
December 31, 1992:
Gas gathering,
processing and
transmission....... $ 413,347 $ 21,210 (2) $(23,654)(3) $ 30,857 $ 441,760
Construction in
progress........... 13,327 49,715 (2) (1) (30,857) 32,184
Oil and gas
properties
and equipment...... 35,912 465 (2) (83) -- 36,294
--------- --------- -------- -------- ---------
Total......... $ 462,586 $ 71,390 $(23,738) $ -- $ 510,238
========= ========= ======== ======== =========
Year ended
December 31, 1991:
Gas gathering,
processing and
transmission....... $ 215,611 $ 171,235 (4) $ (355) $ 26,856 $ 413,347
Construction in
progress........... 12,235 27,948 (4) -- (26,856) 13,327
Oil and gas
properties
and equipment...... 10,363 25,560 (4) (11) -- 35,912
--------- --------- -------- -------- ---------
Total......... $ 238,209 $ 224,743 $ (366) $ -- $ 462,586
========= ========= ======== ======== =========
</TABLE>
-Continued on following page -
82
<PAGE>
SCHEDULE V
WESTERN GAS RESOURCES, INC.
PROPERTY AND EQUIPMENT
($000s)
- Continued from previous page -
(1) Additions for the year ended December 31, 1993 include Black Lake,
Mountain Gas, Citizens, Sand Wash, Olympic Pipeline, Rocker B and other
small acquisitions totaling $338,900. Additionally, construction
projects at existing facilities totaled $140,800, including $74,400 for
the Katy Gas Storage Facility, $15,700 for acquired construction in
progress, $13,900 for improvements to the Midkiff/Benedum facility,
$5,800 for improvements to the Chaney Dell/Lamont facility, $9,800 for
improvements to the acquired Mountain Gas Plants, $12,200 for
improvements to Giddings and $8,900 for miscellaneous projects.
(2) Additions for the year ended December 31, 1992 include the Wakita,
Manchester, Burro and other small acquisitions totaling $11,000.
Additionally, construction projects at existing facilities totaled
$60,000, including $24,000 on the Katy storage facility, $11,000 for
improvements to plants acquired in the UTP acquisition, $10,000 for
improvements to the Giddings Plant, $5,000 for improvements to the
Midkiff Plant, $4,000 for improvements to the Hilight Plant and $6,000
for miscellaneous projects.
(3) Sales or retirements for the year ended December 31, 1992 includes the
sale of a 20% undivided interest in the Midkiff and Benedum gas
processing plants for approximately $22,000.
(4) Additions for the year ended December 31, 1991 include the UTP, Edgewood
and Fruitvale acquisitions totalling $190,000. Additionally,
construction projects at existing facilities totaled approximately
$36,000, including $16,000 for the butane isomerization unit, $6,000 for
improvements to the Midkiff plant, $2,000 for improvements to the
Giddings plant, $3,000 for the acquisition of the Company's headquarters
and $9,000 for miscellaneous projects.
83
<PAGE>
SCHEDULE VI
WESTERN GAS RESOURCES, INC.
ACCUMULATED DEPRECIATION
AND DEPLETION
OF PROPERTY AND EQUIPMENT
($000s)
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
Classification of Period (1) (2) Retirements of Period
- -------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended
December 31, 1993:
Gas gathering,
processing and
transmission...... $(82,098) $(27,978) $4,603 $(105,473)
Oil and gas
properties
and equipment..... (7,020) (10,858) -- (17,878)
-------- -------- ------ ---------
Total........ $(89,118) $(38,836) $4,603 $(123,351)
======== ======== ====== =========
Year Ended
December 31, 1992:
Gas gathering,
processing and
transmission...... $(64,811) $(19,001) $1,714 $ (82,098)
Oil and gas
properties
and equipment..... (4,362) (2,658) -- (7,020)
-------- -------- ------ ---------
Total......... $(69,173) $(21,659) $1,714 $ (89,118)
======== ======== ====== =========
Year ended
December 31, 1991:
Gas gathering,
processing and
transmission....... $(49,075) $(15,828) $ 92 $ (64,811)
Oil and gas
properties
and equipment...... (3,125) (1,244) 7 (4,362)
-------- -------- ------ ---------
Total......... $(52,200) $(17,072) $ 99 $ (69,173)
======== ======== ====== =========
</TABLE>
- Continued on following page -
84
<PAGE>
SCHEDULE VI
WESTERN GAS RESOURCES, INC.
ACCUMULATED DEPRECIATION
AND DEPLETION
OF PROPERTY AND EQUIPMENT
($000s)
- Continued from previous page -
(1) Depreciation is provided using the straight-line method based on
estimated useful lives ranging from three to forty-five years.
(2) Total depreciation and amortization expense for the three years ended
December 31, 1993, 1992 and 1991, as presented on the Consolidated
Statement of Operations, includes amortization expense of $5,787, $1,630
and $1,641, respectively.
85
<PAGE>
SCHEDULE X
WESTERN GAS RESOURCES, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
($000s)
<TABLE>
<CAPTION>
Charged to costs and expenses
Year Ended December 31,
---------------------------
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
Item:
Maintenance and
repairs.............. $13,600 $13,102 $10,232
Amortization of gas
purchase contracts... 3,059 1,048 1,307
</TABLE>
86
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No.33-66516) and
in the Registration Statement on Form S-8 (No. 33-67834) of Western Gas
Resources, Inc. of our report dated February 25, 1994 appearing on page 36 of
this Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears on page 79 of this
Form 10-K.
PRICE WATERHOUSE
Denver, Colorado
March 17, 1994
87
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Denver,
State of Colorado on March 14, 1994.
WESTERN GAS RESOURCES, INC.
---------------------------
(Registrant)
By: /s/ BRION G. WISE
-----------------------
Brion G. Wise
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ BRION G. WISE Chairman of the Board, March 14, 1994
- ------------------------ Chief Executive Officer
Brion G. Wise and Director
/s/ BILL M. SANDERSON President, Chief March 14, 1994
- ------------------------ Operating Officer and
Bill M. Sanderson Director
/s/ WALTER L. STONEHOCKER Vice Chairman of the Board March 14, 1994
- ------------------------ and Director
Walter L. Stonehocker
/s/ RICHARD B. ROBINSON Director March 14, 1994
- ------------------------
Richard B. Robinson
Director March 14, 1994
- ------------------------
Dean Phillips
Director March 14, 1994
- ------------------------
Ward Sauvage
Director March 14, 1994
- ------------------------
James A. Senty
/s/ WALTER F. IMHOFF Director March 14, 1994
- ------------------------
Walter F. Imhoff
Director March 14, 1994
- ------------------------
Walter W. Grist
/s/ WILLIAM J. KRYSIAK Vice President - Controller March 14, 1994
- ------------------------ (Principal Financial and
William J. Krysiak Accounting Officer)
88
<PAGE>
EXHIBIT NO. 3.7
89
<PAGE>
AMENDMENTS OF THE BY-LAWS
The first sentence of Section 13 of Article III of the By-Laws shall be
deleted in its entirety and replaced, in lieu thereof, by the following:
"There shall be an Executive Committee of the Board of Directors of the
Corporation consisting of at least two (2) but not more than three (3) members
of the Board of Directors, elected to such committee by the Board on an annual
basis."
Section 14 of Article III of the By-Laws shall be deleted in the entirety
and replaced, in lieu thereof, by the following:
"Section 14. The Executive Committee shall, subject to the provisions of law
and any other provision of these by-laws, have the authority and power to
cause the Corporation to do the following:
(a) To deal in real and personal property of the Corporation; to create
and/or contribute property of the Corporation to any entity or business
organization formed by the Corporation, either alone or with third
parties; to pay from the Corporation's funds any and all expenses and
fees; to obtain and maintain insurance coverage concerning the property
of the Corporation.
(b) To execute and deliver on behalf of the Corporation all leases,
bills of sales, assignments, deeds, unitization agreements, contracts,
farm-outs and other instruments of transfer; all checks, drafts and other
orders for the payment of Corporation funds; all contracts or instruments
concerning the acquisition, construction, management, operation or
disposition of corporate assets; all bonds, promissory notes, mortgages,
deeds of trust, security agreements and other similar documents; and all
other instruments, documents, contracts or agreements of any kind or
character relating to the affairs of the Corporation; and to delegate in
writing to the officers of the Corporation the authority to sign such
instruments, notes, deeds, contracts, agreements and documents.
(c) To exercise all rights, powers and authority as is necessary or
prudent in the operation and maintenance of the business of the
Corporation.
(d) To directly, or by delegation of authority to the officers of the
Corporation, appoint, employ, remove, suspend and discharge any of the
following:
(1) Managers, assistants, independent contractors, geologists,
geophysicists, landmen, employees and agents as from time to
time may be deemed advisable and to determine the duties and
fix and change the salaries and other terms of employment of
such persons.
(2) Qualified technical personnel temporarily employed or to be
employed on specific problems incident to the operation of the
Corporation and its businesses.
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<PAGE>
(3) Attorneys, architects, engineers, accountants, contractors,
consultants, advertising agencies, sales representatives and
all such other agents or independent contractors as such
officers shall deem necessary or advisable for the
furtherance of the Corporation's purposes and operations.
Notwithstanding the above, in no event shall the Executive Committee have
the authority to approve: (i) with respect to gas purchase and sale
agreements, any agreement that provides for the sale or purchase in any single
year of gas in excess of Thirty-Five Million Dollars ($35,000,000); (ii) with
respect to the purchase of operating supplies, capital expenditures or general
and administrative expenditures, any single expenditure or group of related
expenditures in excess of Ten Million Dollars ($10,000,000); or (iii) any
business transaction with an affiliate of the Corporation, without the
approval of the Board of Directors. The term "affiliate" as used herein shall
mean a person or entity, of any kind or nature, controlling, controlled by or
under common control with the Corporation and shall include, without
limitation, any subsidiaries of the Corporation and any person or entity
owning, directly, or indirectly, five percent or more of the capital stock of
the Corporation.
Adopted by the Board of Directors
on December 13, 1993
91
<PAGE>
EXHIBIT NO. 10.62
92
<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------------
First Amendment to Stock Purchase Agreement, dated as of November
30, 1993, between Western Gas Resources, Inc., a Delaware corporation (the
--
"(Company"), and The 1818 Fund, L.P., a Delaware limited partnership (the
"Purchaser").
WHEREAS, the Company and the Purchaser are parties to the Stock
Purchase Agreement, dated as of October 23, 1991 (the "Stock Purchase
Agreement"), and the Company and the Purchaser desire to amend the Stock
Purchase Agreement in the manner hereinafter provided.
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein contained and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
SECTION 1. AMENDMENT OF THE STOCK PURCHASE
-------------------------------
AGREEMENT. Section 9.5 of the Stock Purchase Agreement is deleted in its
---------
entirety and replaced by the following:
"9.5 No Inconsistent Agreements. The Company and its
--------------------------
subsidiaries may enter into a loan or other agreement, or enter into
an amendment or other modification to any currently existing
agreement, which by its terms restricts or prohibits the ability of
the Company to pay dividends on the Preferred Stock, to redeem the
Preferred Stock or the Convertible Notes, to issue Convertible Notes
or Notes upon conversion or exchange of the Preferred Stock, to pay
interest on the Convertible Notes or the Notes, in each case in
accordance with the Certificate of Designation, this Agreement and the
terms of the Convertible Notes, but only (i) if such restriction or
prohibition becomes effective only during the existence of a default
or event of default under such agreement or (ii) if such payment or
redemption would, although not in itself a breach of any covenant in
any such agreement, result in the occurrence of a default or event of
default arising from a breach by the Company of one or more covenants
regarding the financial condition of the Company.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Purchaser
------------------------------
represents and warrants to the Company, and the
93
<PAGE>
Company represents and warrants to the Purchaser, that the execution,
delivery and performance thereby of this Amendment has been duly authorized
by all necessary action, and that the provisions of this Amendment are
valid and binding obligations thereof, enforceable in accordance with their
terms.
SECTION 3. COUNTERPARTS. This Amendment may be executed in
------------
counterparts, each of which shall be deemed an original but both of which
together shall constitute one and the same instrument.
SECTION 4. EFFECT ON STOCK PURCHASE AGREEMENT. Except as
----------------------------------
specifically set forth in this Amendment, the Stock Purchase Agreement
shall remain unmodified and in full force and effect.
SECTION 5. HEADINGS. Headings in this Amendment are for
--------
reference only, and shall not affect the interpretation or meaning of any
provision of this Amendment.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by,
-------------
and construed and interpreted in accordance with, the laws of the State of
New York applicable to agreements made and to be performed entirely within
such State.
94
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be
fully executed and delivered as of the day and year first above written.
THE 1818 FUND, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By: /s/ T. Michael Long
----------------------------------
Name: T. Michael Long
Title: General Partner
WESTERN GAS RESOURCES, INC.
By: /s/ John C. Walter
----------------------------------
Name: John C. Walter
Title: Vice President-General Counsel
The undersigned hereby acknowledge
and agree that they shall remain to be
bound by Section 10.1 and 10.3 of
the Stock Purchase Agreement irrespective of the
execution and delivery of this Amendment.
/s/ Brion G. Wise
---------------------------------------
Brion G. Wise
/s/ Bill M. Sanderson
---------------------------------------
Bill M. Sanderson
95
<PAGE>
EXHIBIT NO. 10.63
96
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT (REVOLVER)
THIS FIRST AMENDMENT TO LOAN AGREEMENT (REVOLVER) (herein called the
"Amendment") made as of the 31st day of December 1993, by and among Western
Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of
Texas, N.A., a national banking association, as Agent ("Agent"), and
NationsBank of Texas, N.A., Bank of America National Trust and Savings
Association, Bank of Montreal, The First National Bank of Boston, Banque
Paribas, CIBC Inc., Colorado National Bank and Credit Lyonnais Cayman
Island Branch (herein, collectively referred to as "Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Loan
Agreement (Revolver) dated as of August 31, 1993 (as amended to the date
hereof, the "Original Agreement") for the purpose and consideration therein
expressed, whereby Lenders became obligated to make loans to Borrower as
therein provided; and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original
Agreement and provide for certain specific waivers and consents as
expressly set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to
Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I.
Definitions and References
--------------------------
Section 1.1. Terms Defined in the Original Agreement. Unless the
---------------------------------------
context otherwise requires or unless otherwise expressly defined herein,
the terms defined in the Original Agreement shall have the same meanings
whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
-------------------
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Loan Agreement" shall mean the Original Agreement as amended
hereby.
97
<PAGE>
ARTICLE II.
Amendments, Waiver and Consents
-------------------------------
Section 2.1. Amendment to Definitions.
------------------------
The definition of "Preferred Stock" set forth in Section 1.1 of the
Original Agreement is hereby amended in its entirety to read as follows:
"`Preferred Stock' means, collectively, (i) the 7.25% Cumulative Senior
---------------
Perpetual Convertible Preferred Stock of Borrower and (ii) up to 2,760,000
shares of Cumulative Convertible Preferred Stock of Borrower to be
underwritten by Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation strictly in accordance with the terms of
that certain prospectus of Borrower dated as of November 12, 1993 and that
certain prospectus supplement of Borrower dated as of February 17, 1994."
Section 2.2. Amendment to Mandatory Prepayment Section.
-----------------------------------------
The first paragraph of Section 2.7(b) of the Original Agreement is hereby
amended in its entirety to read as follows:
"(b) Mandatory Prepayment Ratio. Borrower shall calculate the
--------------------------
Mandatory Prepayment Ratio in accordance with the terms of the definition
of "Mandatory Prepayment Ratio" on each Prepayment Calculation Date and
shall deliver notice of such recalculated Mandatory Prepayment Ratio
(together with a certificate signed by the chief financial officer,
treasurer or controller of Borrower certifying as to the accuracy of such
calculation) to Agent and Lenders within 45 days after each Prepayment
Calculation Date which falls on the last day of a Fiscal Quarter and on
each other Prepayment Calculation Date. If on any Prepayment Calculation
Date the Mandatory Prepayment Ratio exceeds the applicable Test Amount
(as defined below), Borrower shall, within ten Business Days after Agent
on behalf of Majority Lenders gives written notice of such fact to
Borrower, either (A) make a prepayment of Indebtedness owing by it to
Lenders or to other Senior Creditors of Borrower in an amount which will
bring Borrower into compliance with the Test Amount then in effect (the
"Prepayment Amount") and provide Agent written evidence of such
prepayment to other Senior Creditors or (B) give written notice to
Lenders or certain of Borrower's other Senior Creditors (and a copy of
any such notice to Agent) electing to prepay the Prepayment Amount in no
more than six (6) equal monthly installments beginning no later than
ninety (90) days from the date Borrower was sent such deficiency notice
by Agent, and Borrower shall thereafter make such prepayment in equal
consecutive monthly installment on the first day of each calendar month
within such period until and including the first date of such sixth
calendar month (if applicable) and shall provide Agent with written
evidence of each such prepayment; provided that if the Mandatory
Prepayment Ratio exceeds the applicable Test Amount more than once during
any two consecutive Fiscal Quarters (as used in this section, each an
"Additional Deficiency"), Borrower must pay the Prepayment Amount of each
Additional Deficiency in full or begin making monthly installments with
respect to the Prepayment Amount of each Additional Deficiency no later
than thirty (30) days from the date Borrower was sent a deficiency notice
with respect to
98
<PAGE>
such Additional Deficiency by Agent. If, on any Prepayment Calculation
Date, Borrower does not recalculate the Mandatory Prepayment Ratio in
accordance with the terms hereof, Agent may recalculate the Mandatory
Prepayment Ratio at such time, and from time to time thereafter until
Borrower does recalculate the Mandatory Prepayment Ratio in accordance
with the terms hereof and deliver the same to Agent, based upon
information available to it at that time, which calculation shall be
binding upon Borrower. As used in this section, the term "Test Amount"
means (i) 4.0 to 1.0 at any time after the date hereof until and
including December 31, 1994, (ii) 3.75 to 1.0 at any time from and
including January 1, 1995 until and including December 31, 1995, and
(iii) 3.5 to 1.0 at any time from and including January 1,1996 and
thereafter, and the term "Senior Creditors" means all creditors of
Borrower other than Lenders which have obligations owing from Borrower
which are not subordinated to the Obligations."
Section 2.3. Amendment to Covenant Regarding Limitation on Mergers,
------------------------------------------------------
Issuances of Securities.
-----------------------
The covenant set forth in Section 6.2(d) of the Original Agreement is
hereby amended in its entirety to read as follows:
"(d) Limitation on Mergers, Issuances of Securities. No Related
----------------------------------------------
Person will merge or consolidate with or into any other business entity
except that (i) Borrower may merge or consolidate with or into any other
business entity if such Borrower is the surviving business entity, (ii)
any Subsidiary of Borrower which is a Guarantor may merge or consolidate
with another Subsidiary of Borrower so long as a Guarantor is the
surviving business entity, and (iii) any Subsidiary of Borrower which is
not a Guarantor may merge or consolidate with another Subsidiary of
Borrower which is not a Guarantor; provided that the surviving entity
immediately becomes a Guarantor if required to do so pursuant to the
terms of Section 7.3 hereof. Except as expressly provided below in this
subsection, no Related Person will, after the Closing Date, issue
partnership interests, stock, or other securities other than shares of
common or preferred stock issued to Borrower nor will any Subsidiary of
Borrower allow any diminution of Borrower's interest (direct or indirect)
therein. Notwithstanding anything to the contrary herein, Borrower may
not issue any shares of its preferred stock without the express written
consent of Lenders (including without limitation any Preferred Stock or
Additional Preferred Stock) after the Closing Date but may issue shares
of (A) up to 2,760,000 of the Cumulative Convertible Preferred Stock of
Borrower to be underwritten by Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation strictly in
accordance with the terms of that certain prospectus of Borrower dated as
of November 12, 1993 and that certain prospectus supplement of Borrower
dated as of February 17, 1994 and (B) its common stock if (I) such issue
is pursuant to the conversion or exchange of previously issued Preferred
Stock or the conversion of the 7.25% Convertible Subordinated Notes into
which the Preferred Stock is exchangeable by Borrower or (II) immediately
after the issuance thereof no Change in Control has occurred and no event
has occurred nor will any event occur as a result of such issuance of
Borrower's common stock which would require Borrower to redeem for cash
the Preferred Stock or any subordinated notes which may have been issued
in exchange for
99
<PAGE>
the Preferred Stock or which gives the holders of the Preferred Stock or
any subordinated notes which may have been issued in exchange for the
Preferred Stock the right to demand such redemption."
Section 2.4. Amendment to Current Ratio Covenant.
-----------------------------------
The Current Ratio Covenant set forth in Section 6.2(o) of the Original
Agreement is hereby amended in its entirety to read as follows:
"(o) Current Ratio. Beginning September 30, 1993, the ratio of
-------------
Borrower's Consolidated current assets to Borrower's Consolidated current
liabilities shall never be less than 1.0 to 1.0. For purposes of this
subsection, Borrower's Consolidated current liabilities will be
calculated without including any payments of principal of any
Indebtedness of Borrower which are required to be repaid within one year
from the time of calculation and Borrower's Consolidated current assets
will be calculated including the unused portion of the Commitment which
is then available for borrowing but in no event to exceed Ten Million
Dollars ($10,000,000)."
Section 2.5. Waivers by Lenders.
------------------
Subject to the terms and conditions hereof, each Lender hereby waives any
and all violations of Section 6.2(o) of the Original Agreement which have
occurred with respect to the Fiscal Quarter ending December 31, 1993.
Section 2.6. Consents of Lenders.
-------------------
(a) In accordance with the provisions of the definition of "Mandatory
Prepayment Ratio" found in Section 1.1 of the Original Agreement, each
Lender hereby agrees that (i) the Katy Hub and Gas Storage Facility
constitutes a Grass Roots Project and (ii) Borrower may include in
Borrower's calculations of the Mandatory Prepayment Ratio for the Fiscal
Quarter ending December 31, 1993 estimates of cash earnings from the Katy
Hub and Gas Storage Facility, during such facility's first year of
operations, up to a maximum aggregate amount of Fifteen Million Dollars
($15,000,000).
(b) Notwithstanding the provisions and limitations contained in Section
6.2(d) of the Original Agreement, Lenders hereby consent to Borrower's
issuance of up to 2,760,000 shares of Cumulative Convertible Preferred
Stock of Borrower (the "Preferred Shares") to be underwritten by Morgan
Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation strictly in accordance with the terms of that certain
prospectus of Borrower dated as of November 12, 1993 and that certain
prospectus supplement of Borrower dated as of February 17, 1994.
ARTICLE III.
Conditions of Effectiveness
---------------------------
Section 3.1. Effective Date. This Amendment shall become effective as
--------------
of the date first above written when, and only when, (i) Agent shall have
received, at Agent's office, a counterpart of this Amendment executed and
delivered by Borrower
100
<PAGE>
and Majority Lenders and (ii) Agent shall have additionally received each
of the following, each document (unless otherwise indicated) being dated
the date of receipt thereof by Agent, duly authorized, executed and
delivered, and in form and substance satisfactory to Agent:
(a) Supporting Documents. Agent shall have received (i) a
--------------------
certificate of the Secretary of Borrower dated the date of this Amendment
certifying that the resolutions adopted by the Board of Directors of
Borrower and attached as Exhibit A to that certain Omnibus Certificate
dated as of August 31, 1993 (the "Original Certificate"), continue in
full force and effect, the officers of Borrower authorized to sign Loan
Documents as set forth in the Original Certificate continue to be so
authorized, no Default that has not been expressly waived by Lenders
exists on and as of the date hereof and all of the representations and
warranties set forth in Article IV hereof and Article V of the Original
Agreement are true and correct at and as of their respective times of
effectiveness and (ii) such supporting documents as Agent may reasonably
request.
(b) Amendment Fee. Agent shall have received payment, for
-------------
distribution to Lenders, of all amendment fees owed by Borrower pursuant
to that certain letter agreement dated as of February 12, 1994, between
Borrower and Agent.
ARTICLE IV.
Representations and Warranties
------------------------------
Section 4.1. Representations and Warranties of Borrower. In order to
------------------------------------------
induce each Lender to enter into this Amendment, Borrower represents and
warrants to each Lender that:
(a) The representations and warranties contained in each subsection
of Section 5.1 of the Original Agreement are true and correct at and as
of the time of the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to borrow monies
and to perform its obligations under the Loan Agreement. Borrower has
duly taken all corporate action necessary to authorize the execution and
delivery of this Amendment and to authorize the performance of the
obligations of Borrower hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment, the
performance by Borrower of its obligations hereunder and the consummation
of the transactions contemplated hereby do not and will not conflict with
any provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement,
judgment, license, order or permit applicable to or binding upon
Borrower, or result in the creation of any lien, charge or encumbrance
upon any assets or properties of Borrower. Except for those which have
been obtained, no consent, approval, authorization or order of any court
or governmental authority or third party is required in connection with
the execution and delivery by Borrower of this Amendment or to consummate
the transactions contemplated hereby.
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(d) When duly executed and delivered, this Amendment and the Loan
Agreement will be a legal and binding obligation of Borrower, enforceable
in accordance with its terms, except as limited by bankruptcy, insolvency
or similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general application.
(e) The audited annual Consolidated financial statements of
Borrower dated as of December 31, 1992 and the unaudited quarterly
Consolidated financial statements of Borrower dated as of December 31,
1993 fairly present Borrower's Consolidated financial position at such
dates and the Consolidated results of Borrower's operations and changes
in Borrower's Consolidated cash flow for the respective periods thereof.
Copies of such financial statements have heretofore been delivered to
each Lender. Since December 31, 1993, no material adverse change has
occurred in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Ratification of Agreements. The Original Agreement as
--------------------------
hereby amended and each other Loan Document affected hereby are ratified
and confirmed in all respects. Any reference to the Loan Agreement in any
Loan Document shall be deemed to be a reference to the Original Agreement
as hereby amended. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Agent or Lenders under the Loan
Agreement or any other Loan Document nor constitute a waiver of any
provision of the Loan Agreement or any other Loan Document, including but
not limited to violations of Section 6.2(o) which occur after December 31,
1993. The consent by Lenders to Borrower's issuance of the Preferred
Shares shall not operate as a consent by Lenders to the issuance of any
other security or instrument, it being expressly agreed by all parties
hereto that any subsequent issuance of securities or instruments by
Borrower must be approved by Lenders or be expressly permitted under the
terms of the Original Agreement.
Section 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive
until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by Borrower
or any Related Person hereunder or under the Loan Agreement to any Lender
shall be deemed to constitute representations and warranties by, and/or
agreements and covenants of, Borrower under this Amendment and under the
Loan Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Loan Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance the laws of the State of Texas
102
<PAGE>
and any applicable laws of the United States of America in all respects,
including construction, validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the
same Amendment.
Section 5.6. Reservation of Rights. Borrower acknowledges and agrees
---------------------
that neither Agent's or Lenders' forbearance in exercising their rights and
remedies in connection with the violations of Section 6.2 (o) of the
Original Agreement nor the execution and delivery by Agent and Lenders of
this Amendment, shall be deemed to (i) create a course of dealing or
otherwise obligate Agent or Lenders to forbear or execute similar waivers
in the future, or (ii) waive, relinquish or impair any right of Agent or
Lenders to receive any indemnity or similar payment from any Person as a
result of any indemnity or similar payment from any person or entity as a
result of any matter arising from or relating to such violations.
103
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by their duly authorized
officers.
WESTERN GAS RESOURCES, INC.
By:
---------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By:
---------------------------
Malcolm C. Turner
Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
---------------------------
Name:
Title:
BANK OF MONTREAL
By:
---------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------
Name:
Title:
BANQUE PARIBAS
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
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CIBC INC.
By:
---------------------------
Name:
Title:
COLORADO NATIONAL BANK
By:
---------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:
---------------------------
Name:
Title:
105
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS
Each of the undersigned hereby acknowledge and consent to the foregoing
Amendment, respectively confirm each Guaranty dated as of August 31, 1993
executed by each of the undersigned in favor of Agent and the Lenders pursuant
to the Original Agreement and agree that each of the undersigned's obligations
and covenants with respect to each such Guaranty shall remain in full force and
effect after the execution of the foregoing Amendment.
John C. Walter, Vice President-General Counsel and Secretary of Western
Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas
Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC,
Inc., is executing this Acknowledgment and Consent of Guarantors in his capacity
of officer of each such corporation.
Dated as of the 31st day of December, 1993.
WESTERN GAS RESOURCES OKLAHOMA, INC.
WESTERN GAS RESOURCES TEXAS, INC.
WESTERN GAS RESOURCES STORAGE, INC.
MOUNTAIN GAS RESOURCES, INC.
MGTC, INC.
MIGC, INC.
By:
-------------------------------
John C. Walter
Vice-President, General Counsel
and Secretary
106
<PAGE>
EXHIBIT NO. 10.64
107
<PAGE>
FIRST AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM)
THIS FIRST AMENDMENT TO THIRD RESTATED LOAN AGREEMENT (TERM) (herein called
the "Amendment") made as of the 31st day of December 1993, by and among Western
Gas Resources, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas,
N.A., a national banking association, as Agent ("Agent"), and NationsBank of
Texas, N.A., Bankers Trust Company, Bank of Montreal and CIBC Inc. (herein,
collectively referred to as "Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Third
Restated Loan Agreement (Term) dated as of August 31, 1993 (as amended to the
date hereof, the "Original Agreement") for the purpose and consideration therein
expressed, whereby Lenders made loans to Borrower as therein provided; and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
and provide for certain specific waivers and consents as expressly set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Original Agreement and in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
--------------------------
Section 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used in this Amendment shall have the meanings assigned to
them in this Section 1.2.
"Loan Agreement" shall mean the Original Agreement as amended hereby.
ARTICLE II.
Amendments, Waiver and Consents
-------------------------------
Section 2.1. Amendment to Definitions.
------------------------
The definition of "Preferred Stock" set forth in Section 1.1 of the Original
Agreement is hereby amended in its entirety to read as follows:
"`Preferred Stock' means, collectively, (i) the 7.25% Cumulative Senior
---------------
Perpetual Convertible Preferred Stock of Borrower and (ii) up to 2,760,000
shares of Cumulative Convertible Preferred Stock of Borrower to be underwritten
by Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation strictly in accordance with the
108
<PAGE>
terms of that certain prospectus of Borrower dated as of November 12, 1993 and
that certain prospectus supplement of Borrower dated as of February 17, 1994."
Section 2.2. Amendment to Definitions.
------------------------
The first paragraph of Section 2.5(a) of the Original Agreement is hereby
amended in its entirety to read as follows:
"(a) Mandatory Prepayment Ratio. Borrower shall calculate the Mandatory
--------------------------
Prepayment Ratio in accordance with the terms of the definition of "Mandatory
Prepayment Ratio" on each Prepayment Calculation Date and shall deliver notice
of such recalculated Mandatory Prepayment Ratio (together with a certificate
signed by the chief financial officer, treasurer or controller of Borrower
certifying as to the accuracy of such calculation) to Agent and Lenders within
45 days after each Prepayment Calculation Date which falls on the last day of
a Fiscal Quarter and on each other Prepayment Calculation Date. If on any
Prepayment Calculation Date the Mandatory Prepayment Ratio exceeds the
applicable Test Amount (as defined below), Borrower shall, within ten Business
Days after Agent on behalf of Majority Lenders gives written notice of such
fact to Borrower, either (A) make a prepayment of Indebtedness owing by it to
Lenders or to other Senior Creditors of Borrower in an amount which will bring
Borrower into compliance with the Test Amount then in effect (the "Prepayment
Amount") and provide Agent written evidence of such prepayment to other Senior
Creditors or (B) give written notice to Lenders or certain of Borrower's other
Senior Creditors (and a copy of any such notice to Agent) electing to prepay
the Prepayment Amount in no more than six (6) equal monthly installments
beginning no later than ninety (90) days from the date Borrower was sent such
deficiency notice by Agent, and Borrower shall thereafter make such prepayment
in equal consecutive monthly installment on the first day of each calendar
month within such period until and including the first date of such sixth
calendar month (if applicable) and shall provide Agent with written evidence
of each such prepayment; provided that if the Mandatory Prepayment Ratio
exceeds the applicable Test Amount more than once during any two consecutive
Fiscal Quarters (as used in this section, each an "Additional Deficiency"),
Borrower must pay the Prepayment Amount of each Additional Deficiency in full
or begin making monthly installments with respect to the Prepayment Amount of
each Additional Deficiency no later than thirty (30) days from the date
Borrower was sent a deficiency notice with respect to such Additional
Deficiency by Agent. If, on any Prepayment Calculation Date, Borrower does
not recalculate the Mandatory Prepayment Ratio in accordance with the terms
hereof, Agent may recalculate the Mandatory Prepayment Ratio at such time, and
from time to time thereafter until Borrower does recalculate the Mandatory
Prepayment Ratio in accordance with the terms hereof and deliver the same to
Agent, based upon information available to it at that time, which calculation
shall be binding upon Borrower. As used in this section, the term "Test
Amount" means (i) 4.0 to 1.0 at any time after the date hereof until and
including December 31, 1994, (ii) 3.75 to 1.0 at any time from and including
January 1, 1995 until and including December 31, 1995, and (iii) 3.5 to 1.0 at
any time from and including January 1,1996 and thereafter, and the term
"Senior Creditors" means all creditors of Borrower other than Lenders which
have obligations owing from Borrower which are not subordinated to the
Obligations."
Section 2.3. Amendment to Covenant Regarding Limitation on Mergers, Issuances
----------------------------------------------------------------
of Securities.
- -------------
109
<PAGE>
The covenant set forth in Section 5.2(d) of the Original Agreement is hereby
amended in its entirety to read as follows:
"(d) Limitation on Mergers, Issuances of Securities. No Related Person
----------------------------------------------
will merge or consolidate with or into any other business entity except that
(i) Borrower may merge or consolidate with or into any other business entity
if such Borrower is the surviving business entity, (ii) any Subsidiary of
Borrower which is a Guarantor may merge or consolidate with another Subsidiary
of Borrower so long as a Guarantor is the surviving business entity, and (iii)
any Subsidiary of Borrower which is not a Guarantor may merge or consolidate
with another Subsidiary of Borrower which is not a Guarantor; provided that
the surviving entity immediately becomes a Guarantor if required to do so
pursuant to the terms of Section 6.3 hereof. Except as expressly provided
below in this subsection, no Related Person will, after the Closing Date,
issue partnership interests, stock, or other securities other than shares of
common or preferred stock issued to Borrower nor will any Subsidiary of
Borrower allow any diminution of Borrower's interest (direct or indirect)
therein. Notwithstanding anything to the contrary herein, Borrower may not
issue any shares of its preferred stock without the express written consent of
Lenders (including without limitation any Preferred Stock or Additional
Preferred Stock) after the Closing Date but may issue shares of (A) up to
2,760,000 of the Cumulative Convertible Preferred Stock of Borrower to be
underwritten by Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation strictly in accordance with the terms of that
certain prospectus of Borrower dated as of November 12, 1993 and that certain
prospectus supplement of Borrower dated as of February 17, 1994 and (B) its
common stock if (I) such issue is pursuant to the conversion or exchange of
previously issued Preferred Stock or the conversion of the 7.25% Convertible
Subordinated Notes into which the Preferred Stock is exchangeable by Borrower
or (II) immediately after the issuance thereof no Change in Control has
occurred and no event has occurred nor will any event occur as a result of
such issuance of Borrower's common stock which would require Borrower to
redeem for cash the Preferred Stock or any subordinated notes which may have
been issued in exchange for the Preferred Stock or which gives the holders of
the Preferred Stock or any subordinated notes which may have been issued in
exchange for the Preferred Stock the right to demand such redemption."
Section 2.4. Amendment to Current Ratio Covenant.
-----------------------------------
The Current Ratio Covenant set forth in Section 5.2(o) of the Original
Agreement is hereby amended in its entirety to read as follows:
"(o) Current Ratio. Beginning September 30, 1993, the ratio of
-------------
Borrower's Consolidated current assets to Borrower's Consolidated current
liabilities shall never be less than 1.0 to 1.0. For purposes of this
subsection, Borrower's Consolidated current liabilities will be calculated
without including any payments of principal of any Indebtedness of Borrower
which are required to be repaid within one year from the time of calculation
and Borrower's Consolidated current assets will be calculated including the
unused portion of the Commitment which is then available for borrowing but in
no event to exceed Ten Million Dollars ($10,000,000)."
Section 2.5. Waivers by Lenders.
------------------
Subject to the terms and conditions hereof, each Lender hereby waives any and
all violations of Section 5.2(o) of the Original Agreement which have occurred
with respect to the Fiscal Quarter ending December 31, 1993.
110
<PAGE>
Section 2.6. Consents of Lenders.
-------------------
(a) In accordance with the provisions of the definition of "Mandatory
Prepayment Ratio" found in Section 1.1 of the Original Agreement, each Lender
hereby agrees that (i) the Katy Hub and Gas Storage Facility constitutes a Grass
Roots Project and (ii) Borrower may include in Borrower's calculations of the
Mandatory Prepayment Ratio for the Fiscal Quarter ending December 31, 1993
estimates of cash earnings from the Katy Hub and Gas Storage Facility, during
such facility's first year of operations, up to a maximum aggregate amount of
Fifteen Million Dollars ($15,000,000).
(b) Notwithstanding the provisions and limitations contained in Section
5.2(d) of the Original Agreement, Lenders hereby consent to Borrower's issuance
of up to 2,760,000 shares of Cumulative Convertible Preferred Stock of Borrower
(the "Preferred Shares") to be underwritten by Morgan Stanley & Co. Incorporated
and Donaldson, Lufkin & Jenrette Securities Corporation strictly in accordance
with the terms of that certain prospectus of Borrower dated as of November 12,
1993 and that certain prospectus supplement of Borrower dated as of February 17,
1994.
ARTICLE III.
Conditions of Effectiveness
---------------------------
Section 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when, and only when, (i) Agent shall have received, at
Agent's office, a counterpart of this Amendment executed and delivered by
Borrower and each Majority Lenders and (ii) Agent shall have additionally
received each of the following, each document (unless otherwise indicated) being
dated the date of receipt thereof by Agent, duly authorized, executed and
delivered, and in form and substance satisfactory to Agent:
(a) Supporting Documents. Agent shall have received (i) a certificate
--------------------
of the Secretary of Borrower dated the date of this Amendment certifying that
the resolutions adopted by the Board of Directors of Borrower and attached as
Exhibit A to that certain Omnibus Certificate dated as of August 31, 1993 (the
"Original Certificate"), continue in full force and effect, the officers of
Borrower authorized to sign Loan Documents as set forth in the Original
Certificate continue to be so authorized, no Default that has not been
expressly waived by Lenders exists on and as of the date hereof and all of the
representations and warranties set forth in Article IV hereof and Article V of
the Original Agreement are true and correct at and as of their respective
times of effectiveness and (ii) such supporting documents as Agent may
reasonably request.
(b) Amendment Fee. Agent shall have received payment, for distribution
-------------
to Lenders, of all amendment fees owed by Borrower pursuant to that certain
letter agreement dated as of February 12, 1994, between Borrower and Agent.
ARTICLE IV.
Representations and Warranties
------------------------------
Section 4.1. Representations and Warranties of Borrower. In order to induce
------------------------------------------
each Lender to enter into this Amendment, Borrower represents and warrants to
each Lender that:
111
<PAGE>
(a) The representations and warranties contained in each subsection of
Section 4.1 of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this Amendment
and is and will continue to be duly authorized to borrow monies and to perform
its obligations under the Loan Agreement. Borrower has duly taken all
corporate action necessary to authorize the execution and delivery of this
Amendment and to authorize the performance of the obligations of Borrower
hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment, the
performance by Borrower of its obligations hereunder and the consummation of
the transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in
the creation of any lien, charge or encumbrance upon any assets or properties
of Borrower. Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or third party
is required in connection with the execution and delivery by Borrower of this
Amendment or to consummate the transactions contemplated hereby.
(d) When duly executed and delivered, this Amendment and the Loan
Agreement will be a legal and binding obligation of Borrower, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
(e) The audited annual Consolidated financial statements of Borrower
dated as of December 31, 1992 and the unaudited quarterly Consolidated
financial statements of Borrower dated as of December 31, 1993 fairly present
Borrower's Consolidated financial position at such dates and the Consolidated
results of Borrower's operations and changes in Borrower's Consolidated cash
flow for the respective periods thereof. Copies of such financial statements
have heretofore been delivered to each Lender. Since December 31, 1993, no
material adverse change has occurred in the financial condition or businesses
or in the Consolidated financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended and each other Loan Document affected hereby are ratified and confirmed
in all respects. Any reference to the Loan Agreement in any Loan Document shall
be deemed to be a reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
Agent or Lenders under the Loan Agreement or any other Loan Document nor
constitute a waiver of any provision of the Loan Agreement or any other Loan
Document, including but not limited to violations of Section 5.2(o) which occur
after December 31, 1993. The consent by Lenders to Borrower's issuance of the
Preferred Shares shall not operate as a consent by Lenders to the issuance of
any other security or instrument, it being expressly agreed by all parties
hereto that any subsequent issuance of securities or instruments by Borrower
must be approved by
112
<PAGE>
Lenders or be expressly permitted under the terms of the Original Agreement.
Section 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower or any Related
Person hereunder or under the Loan Agreement to any Lender shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment and under the Loan Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Loan Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance the laws of the State of Texas and any applicable laws
of the United States of America in all respects, including construction,
validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
Section 5.6. Reservation of Rights. Borrower acknowledges and agrees that
---------------------
neither Agent's or Lenders' forbearance in exercising their rights and remedies
in connection with the violations of Section 5.2 (o) of the Original Agreement
nor the execution and delivery by Agent and Lenders of this Amendment, shall be
deemed to (i) create a course of dealing or otherwise obligate Agent or Lenders
to forbear or execute similar waivers in the future, or (ii) waive, relinquish
or impair any right of Agent or Lenders to receive any indemnity or similar
payment from any Person as a result of any indemnity or similar payment from any
person or entity as a result of any matter arising from or relating to such
violations.
113
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by their duly authorized officers.
WESTERN GAS RESOURCES, INC.
By:
---------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
By:
---------------------------
Malcolm C. Turner
Senior Vice President
BANKERS TRUST COMPANY
By:
---------------------------
Name:
Title:
BANK OF MONTREAL
By:
---------------------------
Name:
Title:
CIBC INC.
By:
---------------------------
Name:
Title:
114
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF GUARANTORS
Each of the undersigned hereby acknowledge and consent to the foregoing
Amendment, respectively confirm each Guaranty dated as of August 31, 1993
executed by each of the undersigned in favor of Agent and the Lenders pursuant
to the Original Agreement and agree that each of the undersigned's obligations
and covenants with respect to each such Guaranty shall remain in full force and
effect after the execution of the foregoing Amendment.
John C. Walter, Vice President-General Counsel and Secretary of Western
Gas Resources Oklahoma, Inc., Western Gas Resources Texas, Inc., Western Gas
Resources Storage, Inc., Mountain Gas Resources, Inc., MGTC, Inc. and MIGC,
Inc., is executing this Acknowledgment and Consent of Guarantors in his capacity
of officer of each such corporation.
Dated as of the 31st day of December, 1993.
WESTERN GAS RESOURCES OKLAHOMA, INC.
WESTERN GAS RESOURCES TEXAS, INC.
WESTERN GAS RESOURCES STORAGE, INC.
MOUNTAIN GAS RESOURCES, INC.
MGTC, INC.
MIGC, INC.
By:
---------------------------
John C. Walter
Vice-President, General Counsel
and Secretary
115
<PAGE>
EXHIBIT NO. 11.1
116
<PAGE>
WESTERN GAS RESOURCES, INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Earnings
Per Share
Net of Common
Shares Income Stock Dilution
---------- ----------- --------- --------
<S> <C> <C> <C> <C>
Net income......................... $38,102,000
Weighted average shares of common
stock outstanding................. 25,608,503
Less preferred dividend:
7.25% Convertible Preferred
Stock........................... (2,900,000)
Less preferred dividend:
$2.28 Cumulative Preferred
Stock........................... (3,192,000)
---------- -----------
25,608,503 32,010,000
Basic earnings per share of
common share...................... 1.2500
======
Assume exercise of common
stock equivalents:
$5.40 employee common stock options.. 100,101
Key employee common stock options.... 59,103
Director common stock options........ 8,584
1993 Employee common stock options... 11,568
---------- -----------
25,787,859 32,010,000
Primary earnings per share
of common stock..................... 1.2413 0.70%
====== =====
Assume conversion of anti-dilutive
7.25% Convertible Preferred
stock............................... 2,090,000 2,900,000
Assume exercise of common
stock equivalents:
$5.40 employee common stock options.. 99,502
Key employee common stock options.... 56,244
Director common stock options........ 8,430
1993 Employee common stock options... 338
---------- -----------
27,863,017 $34,910,000
========== ===========
Fully diluted earnings per share
of common stock..................... 1.2529 (0.24)%
====== ======
</TABLE>
117
<PAGE>
EXHIBIT NO. 21.1
118
<PAGE>
SUBSIDIARIES OF WESTERN GAS RESOURCES, INC.:
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Name of Subsidiary Incorporation Relationship
- ------------------ --------------- ------------
<S> <C> <C>
MIGC, Inc. Delaware Wholly-owned subsidiary of
Western Gas
Resources, Inc.
MGTC, Inc. Wyoming Wholly-owned subsidiary of MIGC,
Inc.
Western Gas Resources Texas Wholly-owned subsidiary of
- -Texas, Inc. Western Gas
Resources, Inc.
Western Gas Resources Texas Wholly-owned subsidiary of
Storage, Inc. Western Gas
Resources, Inc.
Centre Court Travel Colorado Wholly-owned subsidiary of
Western Gas
Resources, Inc.
Rising Star Pipeline Delaware Wholly-owned subsidiary of
Corporation Western Gas
Resources, Inc.
Setting Sun Pipeline Delaware Wholly-owned subsidiary of
Corporation Western Gas
Resources, Inc.
Western Gas Resources Delaware Wholly-owned subsidiary of
- -Louisiana, Inc. Western Gas
Resources, Inc.
Western Gas Resources Delaware Wholly-owned subsidiary of
- -Oklahoma, Inc. Western Gas
Resources, Inc.
Mountain Gas Resources, Delaware Wholly-owned subsidiary of
Inc. Western Gas
Resources, Inc.
</TABLE>
119
<PAGE>
EXHIBIT NO. 23.1
120
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No.33-66516) and
in the Registration Statement on Form S-8 (No. 33-67834) of Western Gas
Resources, Inc. of our report dated February 25, 1994 appearing on page 36 of
this Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears on page 79 of this
Form 10-K.
PRICE WATERHOUSE
Denver, Colorado
March 17, 1994
121
