<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_________________
Commission file number 1-10389
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WESTERN GAS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1127613
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12200 N. Pecos Street, Denver, Colorado 80234-3439
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 452-5603
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Registrant's telephone number, including area code
No Changes
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
On November 3, 1997, there were 32,146,437 shares of the registrant's Common
Stock outstanding.
1
<PAGE>
WESTERN GAS RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
<S> <C> <C>
Consolidated Balance Sheet - September 30, 1997
and December 31, 1996...................................... 3
Consolidated Statement of Cash Flows - Nine
months ended September 30, 1997 and 1996................... 4
Consolidated Statement of Operations - Three
and Nine months ended September 30, 1997 and 1996.......... 5
Consolidated Statement of Changes in
Stockholders' Equity - Nine months ended
September 30, 1997......................................... 6
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9
PART II - Other Information
- ---------------------------
Item 1. Legal Proceedings........................................ 16
Item 6. Exhibits and Reports on Form 8-K......................... 17
Signatures......................................................... 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 18,468 $ 39,504
Trade accounts receivable, net............................................... 231,753 338,708
Product inventory............................................................ 45,364 25,972
Parts inventory.............................................................. 2,192 2,599
Other........................................................................ 2,212 1,477
---------- ----------
Total current assets........................................................ 299,989 408,260
---------- ----------
Property and equipment:
Gas gathering, processing, storage and transmission.......................... 1,003,778 938,902
Oil and gas properties and equipment......................................... 168,249 144,732
Construction in progress..................................................... 105,596 35,250
---------- ----------
1,277,623 1,118,884
Less: Accumulated depreciation, depletion and amortization.................. (292,366) (252,571)
---------- ----------
Total property and equipment, net........................................... 985,257 866,313
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $26,948 and
$24,552, respectively)...................................................... 44,293 46,689
Other........................................................................ 42,455 40,369
---------- ----------
Total other assets.......................................................... 86,748 87,058
---------- ----------
Total assets.................................................................. $1,371,994 $1,361,631
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 280,218 $ 386,268
Accrued expenses............................................................. 32,000 28,670
Dividends payable............................................................ 4,217 4,215
---------- ----------
Total current liabilities.................................................. 316,435 419,153
Long-term debt................................................................ 480,857 379,500
Deferred income taxes payable................................................. 87,529 82,511
---------- ----------
Total liabilities........................................................... 884,821 881,164
---------- ----------
Commitments and contingent liabilities........................................ - -
Stockholders' equity:
Preferred stock, par value $.10; 10,000,000 shares authorized:
$2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding
($35,000 aggregate liquidation preference)................................. 140 140
$2.625 cumulative convertible preferred stock; 2,760,000 shares issued and
outstanding ($138,000 aggregate liquidation preference).................... 276 276
Common stock, par value $.10; 100,000,000 shares authorized; 32,168,439 and
32,134,151 shares issued, respectively...................................... 3,217 3,213
Treasury stock, at cost, 25,016 shares....................................... (788) (788)
Additional paid-in capital................................................... 399,490 397,061
Retained earnings............................................................ 86,212 82,378
Notes receivable from key employees secured by common stock.................. (1,374) (1,813)
---------- ----------
Total stockholders' equity.................................................. 487,173 480,467
---------- ----------
Total liabilities and stockholders' equity.................................... $1,371,994 $1,361,631
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(000s)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income................................................................... $ 16,483 $ 18,546
Add income items that do not affect working capital:
Depreciation, depletion and amortization.................................... 44,956 47,134
Deferred income taxes....................................................... 7,872 8,389
Distributions in excess of equity income, net............................... 25 4,360
Loss (gain) on the sale of property and equipment........................... 73 (2,165)
Other non-cash items, net................................................... 2,063 76
----------- ------------
71,472 76,340
----------- ------------
Adjustments to working capital to arrive at net cash provided by
operating activities:
Decrease in trade accounts receivable....................................... 106,286 6,498
Increase in product inventory............................................... (20,356) (2,360)
Decrease in parts inventory................................................. 407 460
Increase in other current assets............................................ (735) (583)
Decrease in other assets.................................................... (393) (21)
(Decrease) increase in accounts payable..................................... (106,050) 31,086
(Decrease) increase in accrued expenses..................................... (4,425) 7,828
----------- ------------
Total adjustments.......................................................... (25,266) 42,908
----------- ------------
Net cash provided by operating activities.................................... 46,206 119,248
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (155,129) (38,468)
Proceeds from the dispositions of property and equipment.................... 2,178 3,953
Distribution from unconsolidated affiliate.................................. 278 -
Contributions to unconsolidated affiliates.................................. (2,743) (335)
----------- ------------
Net cash used in investing activities........................................ (155,416) (34,850)
----------- ------------
Cash flows from financing activities:
Net proceeds from exercise of common stock options.......................... 175 50
Debt issue costs paid....................................................... (711) (503)
Payments on revolving credit facility....................................... (955,150) (786,350)
Borrowings under revolving credit facility.................................. 1,151,150 724,850
Payments on long-term debt.................................................. (94,643) (12,500)
Dividends paid.............................................................. (12,647) (11,697)
----------- ------------
Net cash provided by (used in) financing activities.......................... 88,174 (86,150)
----------- ------------
Net decrease in cash and cash equivalents.................................... (21,036) (1,752)
Cash and cash equivalents at beginning of period............................. 39,504 5,795
----------- ------------
Cash and cash equivalents at end of period................................... $ 18,468 $ 4,043
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Sale of residue gas................................. $ 384,181 $ 316,104 $ 1,120,382 $ 979,771
Sale of natural gas liquids......................... 141,574 127,996 442,316 361,571
Sale of electric power.............................. 16,695 10,339 54,111 11,584
Processing, transportation and storage revenue...... 10,320 10,647 30,192 32,421
Other, net.......................................... 3,118 2,635 8,000 9,311
----------- ----------- ----------- -----------
Total revenues.................................... 555,888 467,721 1,655,001 1,394,658
----------- ----------- ----------- -----------
Costs and expenses:
Product purchases................................... 499,884 413,260 1,482,401 1,213,955
Plant operating expense............................. 19,100 18,367 55,607 53,402
Oil and gas exploration and production expense...... 1,761 1,110 4,925 3,640
Depreciation, depletion and amortization............ 14,386 15,709 44,956 47,134
Selling and administrative expense.................. 6,453 6,415 22,131 21,552
Interest expense.................................... 6,454 8,497 19,183 26,646
----------- ----------- ----------- -----------
Total costs and expenses.......................... 548,038 463,358 1,629,203 1,366,329
----------- ----------- ----------- -----------
Income before taxes.................................. 7,850 4,363 25,798 28,329
Provision for income taxes:
Current............................................. 102 416 1,443 1,394
Deferred............................................ 2,751 1,066 7,872 8,389
----------- ----------- ----------- -----------
Total provision for income taxes.................. 2,853 1,482 9,315 9,783
----------- ----------- ----------- -----------
Net income........................................... 4,997 2,881 16,483 18,546
Preferred stock requirements......................... (2,610) (2,610) (7,829) (7,829)
----------- ----------- ----------- -----------
Income attributable to common stock.................. $ 2,387 $ 271 $ 8,654 $ 10,717
=========== =========== =========== ===========
Income per share of common stock..................... $.07 $.01 $.27 $.42
=========== =========== =========== ===========
Weighted average shares of common stock outstanding.. 32,142,427 25,776,871 32,130,038 25,774,446
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(000s, except share amounts)
<TABLE>
<CAPTION>
Shares of
Shares of $2.625 $2.625
$2.28 Cumulative Shares $2.28 Cumulative
Cumulative Convertible Shares of Common Cumulative Convertible Additional
Preferred Preferred of Common Stock Preferred Preferred Common Treasury Paid-In
Stock Stock Stock in Treasury Stock Stock Stock Stock Capital
---------- ----------- ---------- ------------ ---------- ----------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 1,400,000 2,760,000 32,109,135 25,016 $140 $276 $3,213 $(788) $397,061
Net income................. - - - - - - - - -
Stock options exercised.... - - 34,288 - - - 4 - 196
Tax benefit related to
stock options............. - - - - - - - - 2,233
Loans forgiven............. - - - - - - - - -
Dividends declared on
common stock.............. - - - - - - - - -
Dividends declared on
$2.28 cumulative
preferred stock........... - - - - - - - - -
Dividends declared on
$2.625 cumulative
convertible preferred
stock.................... - - - - - - - - -
----------- --------- ---------- ---------- ----------- ------ ---------- ------- ----------
Balance at September 30,
1997...................... 1,400,000 2,760,000 32,143,423 25,016 $140 $276 $3,217 $(788) $399,490
=========== ========= ========== ========== =========== ====== ========== ======= ==========
Notes Total
Receivable Stock-
Retained from Key holders'
Earnings Employees Equity
---------- ---------- ---------
<S> <C> <C> <C>
Balance at December 31,
1996...................... $ 82,378 $ (1,813) $ 480,467
Net income................. 16,483 - 16,483
Stock options exercised.... - (25) 175
Tax benefit related to
stock options............. - - 2,233
Loans forgiven............. - 464 464
Dividends declared on
common stock.............. (4,820) - (4,820)
Dividends declared on
$2.28 cumulative
preferred stock........... (2,395) - (2,395)
Dividends declared on
$2.625 cumulative
convertible preferred
stock.................... (5,434) - (5,434)
----------- --------- ----------
Balance at September 30,
1997...................... $ 86,212 $ (1,374) $ 487,173
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GENERAL
The interim Consolidated Financial Statements presented herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Form 10-K for the year ended December 31, 1996. The
interim Consolidated Financial Statements as of September 30, 1997 and for the
three and nine month periods ended September 30, 1997 and 1996 included herein
are unaudited but reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to fairly present the
results for such periods.
Certain prior year amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1997.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock is computed by dividing income attributable
to shares of common stock by the weighted average number of shares of common
stock outstanding. Income attributable to common stock is income less preferred
stock requirements. The Company declared preferred stock dividends of $2.6
million and $7.8 million, respectively, for both of the three and nine month
periods ended September 30, 1997 and 1996. The computation of fully diluted
earnings per share of common stock for the three and nine months ended September
30, 1997 and 1996 was not dilutive; therefore, only primary earnings per share
of common stock is presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128")
with an effective date for fiscal years ending after December 15, 1997. The
Company does not believe that the implementation of SFAS No. 128 will result in
a material change in calculated earnings per share. In February 1997, the
Financial Accounting Standards Board also issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structure," ("SFAS No. 129") with an effective date for fiscal years ending
after December 15, 1997. The Company will comply with the disclosure
requirements of SFAS 129 as required under the pronouncement.
ADDITIONAL PAID-IN CAPITAL
The Company realizes an income tax benefit from the exercise of non-qualified
stock options related to the difference between the market price at the date of
exercise and the option price. Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," requires that this difference be
credited to additional paid-in capital. In September 1997, the Company recorded
an adjustment of $2.2 million to Additional Paid-In Capital to reflect such
difference associated with the Company's $5.40 Stock Option Plan. The
adjustment also resulted in a deferred tax asset which the Company expects to
realize.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was $23.1 million and $26.7 million, respectively, for the nine
months ended September 30, 1997 and 1996.
Income taxes paid were $2.6 million and $4.2 million, respectively, for the nine
months ended September 30, 1997 and 1996.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
No. 130") with an effective date for fiscal years beginning after December 15,
1997. The Company will comply with the display requirements of SFAS 130 as
required under the pronouncement.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information," ("SFAS No. 131") with an effective date for
fiscal years
7
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (CONTINUED)
beginning after December 15, 1997. The Company will comply with the disclosure
requirements of SFAS 131 as required under the pronouncement.
SUBSEQUENT EVENT
On October 30, 1997, the Company sold a 50% undivided interest in its Powder
River Basin coal bed methane gas operations. The sale involves gathering assets,
producing properties, production equipment and certain undeveloped acreage in
this area. Included in the sale are an interest in the operating wells and
undeveloped acreage purchased by the Company in March 1997. Currently, the
Company is calculating the final, adjusted purchase price and is anticipating a
pre-tax gain between $4.0 and $5.0 million which will be recognized in the
fourth quarter of 1997.
LEGAL PROCEEDINGS
Reference is made to "Part II - Other Information - Item 1. Legal Proceedings,"
of this Form 10-Q.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis relates to factors which have affected the
consolidated financial condition and results of operations of the Company for
the three and nine month periods ended September 30, 1997 and 1996. Certain
prior year amounts have been reclassified to conform to the presentation used in
1997. Reference should also be made to the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this document. This section,
as well as other sections in this Form 10-Q, contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology, such
as "may," "intend," "will," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology. In
addition to the important factors referred to herein, numerous factors affecting
the gas processing industry generally and in the markets for residue gas and
NGLs in which the Company operates could cause actual results to differ
materially from those in such forward-looking statements.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1996 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING
DATA).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- Percent ----------------------------- Percent
1997 1996 Change 1997 1996 Change
------------- -------- ------- ---------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS:
Revenues.......................... $555,888 $467,721 19 $1,655,001 $1,394,658 19
Gross profit...................... 20,757 19,275 8 67,112 76,527 (12)
Net income........................ 4,997 2,881 73 16,483 18,546 (11)
Income per share of common stock.. .07 .01 600 .27 .42 (36)
Net cash provided by operating
activities...................... $ 2,837 $ 6,996 (59) $ 46,206 $ 119,248 (61)
OPERATING DATA:
Average gas sales (MMcf/D)........ 2,010 1,711 17 1,870 1,755 7
Average NGL sales (MGal/D)........ 4,545 3,595 26 4,420 3,562 24
Average gas prices ($/Mcf)........ $ 2.08 $ 2.01 3 $ 2.19 $ 2.04 7
Average NGL prices ($/Gal)........ $ .34 $ .39 (13) $ .36 $ .37 (3)
</TABLE>
Revenues from the sale of residue gas increased approximately $68.1 million to
$384.2 million for the quarter ended September 30, 1997 compared to the same
period in 1996. Average gas sales volumes increased 299 MMcf per day to 2,010
MMcf per day for the quarter ended September 30, 1997 compared to the same
period in 1996, primarily as a result of an increase in the sale of residue gas
purchased from third parties. Average gas prices increased $.07 per Mcf to
$2.08 per Mcf for the quarter ended September 30, 1997 compared to the same
period in 1996. Revenues from the sale of residue gas increased approximately
$140.6 million to $1,120.4 million for the nine months ended September 30, 1997
compared to the same period in 1996. Average gas sales volumes increased 115
MMcf per day to 1,870 MMcf per day for the nine months ended September 30, 1997
compared to the same period in 1996, due to an increase in the sale of residue
gas purchased from third parties. Average gas prices increased $.15 per Mcf to
$2.19 per Mcf for the nine months ended September 30, 1997 compared to the same
period in 1996. Included in the average gas price was approximately $650,000
and $1.5 million, respectively, of loss recognized for the three and nine months
ended September 30, 1997 related to futures positions on equity volumes. The
Company has entered into futures positions for a portion of its equity gas for
the remainder of 1997 and for 1998, primarily the first quarter. See further
discussion in "Liquidity and Capital Resources - Risk Management Activities."
Revenues from the sale of NGLs increased approximately $13.6 million to $141.6
million for the quarter ended September 30, 1997 compared to 1996. Average NGL
sales volumes increased 950 MGal per day to 4,545 MGal per day, primarily due to
an approximate 750 MGal per day increase in the sale of NGLs purchased from
third parties. Average NGL prices decreased $.05 per gallon to $.34 per gallon
for the quarter ended September 30, 1997 compared to 1996. Revenues from the
sale of NGLs increased approximately $80.7 million to $442.3 million for the
nine months ended September 30, 1997 compared to 1996.
9
<PAGE>
Average NGL sales volumes increased 858 MGal per day to 4,420 MGal per day,
primarily due to an approximate 800 MGal per day increase in the sale of NGLs
purchased from third parties for this same period. Average NGL prices remained
relatively constant for the nine months ended September 30, 1997 compared to
1996. Included in the average NGL price was approximately $800,000 and $4.7
million, respectively, of gain recognized for the three and nine months ended
September 30, 1997 related to futures positions on equity volumes. The Company
has entered into futures positions for a portion of its equity production for
the remainder of 1997 and for 1998, primarily the first quarter. See further
discussion in "Liquidity and Capital Resources - Risk Management Activities."
Revenue associated with electric power marketing increased $6.4 million and
$42.5 million, respectively, for the three and nine months ended September 30,
1997 compared to the same periods in 1996, primarily because the Company had
minimal transactions in this market during these periods in 1996. Going forward,
the Company elected to focus greater attention on the analysis of potential
participation in power generation assets and less emphasis on trading
activities.
The increase in product purchases of $86.6 million to $499.9 million for the
three months ended September 30, 1997 is primarily a result of an increase in
the sale of residue gas and NGLs purchased from third parties. The increase in
product purchases of $268.4 million to $1,482.4 million for the nine months
ended September 30, 1997 is due primarily to a combination of higher residue gas
prices and increased sales of NGLs purchased from third parties. Contributing to
the increase in product purchases for the nine months ended September 30, 1997
were higher payments to producers related to the Company's "keepwhole" contracts
at its Granger facility. Under a "keepwhole" contract, the Company's margin is
reduced when the value of NGLs declines relative to the value of residue gas.
Also contributing to the increases in product purchases for the nine months
ended September 30, 1997, were lower of cost or market write-downs of NGL
inventories of $963,000.
Interest expense decreased $2.0 million and $7.5 million, respectively, for the
three and nine months ended September 30, 1997 compared to the same periods in
1996. The decrease in interest expense for three months ended September 30, 1997
was primarily due to more interest being capitalized related to the construction
of the Bethel facility. The decrease in the nine month period was also due to
lower average outstanding debt balances due to the use of the Company's net
proceeds from the November 1996 public offering of 6,325,000 shares of Common
Stock to reduce indebtedness under the Revolving Credit Facility. However, the
Company's borrowings under its long-term debt agreements, as of September 30,
1997, are consistent with prior year balances, primarily due to costs associated
with the construction of the Bethel facility. The Bethel facility is expected to
be substantially completed during the first quarter of 1998, at which time
interest will no longer be capitalized. See further discussion in "Liquidity and
Capital Resources - Capital Investment Program."
Overall profitability for the nine months ended September 30, 1997 was less than
anticipated due to several factors. Combined product purchases as a percentage
of residue gas, NGL and electric power sales increased from 91% to 92% and from
90% to 92% for the three and nine months ended September 30, 1997 compared to
the same periods in 1996. Over the past several years, the Company has
experienced narrowing margins related to the increasing competitiveness of the
natural gas marketing industry. During the nine months ended September 30, 1997,
the Company's marketing margins were reduced by approximately 50% compared to
the same period in 1996. Included in the sale of residue gas and gas purchases
for the three months ended September 30, 1997 is the sale of approximately 3.3
Bcf of gas previously stored in the Katy Facility at a margin of approximately
$.30 per Mcf. Results of operations in the fourth quarter of 1997 will be
adversely affected by additional costs associated with the Bethel facility. As a
result of start-up costs associated with opening the facility and depreciation,
the Bethel facility is not expected to contribute positively to earnings in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities, funds available under its financing
facilities and proceeds from offerings of equity securities. In the past, these
sources have been sufficient to meet the needs and finance the growth of the
Company's business. The Company believes that the amounts available to be
borrowed under the Revolving Credit Facility, together with cash provided by
operating activities, will provide it with sufficient funds to connect new
reserves, maintain its existing facilities and complete its current capital
projects. The Company also believes that cash provided by operating activities
will be sufficient to meet its debt service and preferred stock dividend
requirements for the next one year period. However, the Company can give no
assurance that the historical sources of liquidity and capital resources will be
available for future development and acquisition projects in excess of budgeted
amounts, and it may be required to investigate alternative financing sources.
Net cash provided by operating activities is primarily affected by product
10
<PAGE>
prices and sales of inventory, the Company's success in increasing the number
and efficiency of its facilities and the volumes of natural gas processed by
such facilities, as well as the margin on third-party product purchased for
resale. The Company's continued growth will be dependent upon success in the
areas of marketing, additions to dedicated plant reserves, acquisitions and new
project development.
The Company's sources and uses of funds for the nine months ended September 30,
1997 are summarized as follows (000s):
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
<S> <C>
Borrowings on revolving credit facility........ $1,151,150
Net cash provided by operating activities...... 46,206
Other.......................................... 2,631
----------
Total sources of funds....................... $1,199,987
==========
USES OF FUNDS:
Payments related to long-term debt agreements.. $1,050,504
Capital expenditures........................... 157,872
Dividends paid................................. 12,647
----------
Total uses of funds.......................... $1,221,023
==========
</TABLE>
Additional sources of liquidity available to the Company are volumes of residue
gas and NGLs in storage facilities. The Company stores residue gas and NGLs
primarily to ensure an adequate supply for long-term sales contracts and for
resale during periods when prices are favorable. The Company held residue gas in
storage and held imbalances for such purposes of approximately 16.9 Bcf at an
average cost of $1.88 per Mcf at September 30, 1997 as compared to approximately
10.4 Bcf at an average cost of $1.84 per Mcf at December 31, 1996, primarily at
the Katy Facility. At September 30, 1997, the Company had hedging contracts in
place for anticipated sales at a weighted average price of $2.15 per Mcf for
substantially all of the residue gas in inventory. The Company also held NGLs in
storage of approximately 39,985 MGal, consisting primarily of propane and normal
butane, at an average cost of $.34 per gallon and approximately 16,100 MGal at
an average cost of $.42 per gallon at September 30, 1997 and December 31, 1996,
respectively, at various third-party storage facilities. At September 30, 1997,
the Company had hedging contracts in place for anticipated sales, consisting
primarily of propane and ethane, at a weighted average price of $.31 per gallon
for approximately 11,380 MGal of the stored NGLs in inventory.
Risk Management Activities
The Company enters into futures transactions on the New York Mercantile Exchange
("NYMEX") and the Kansas City Board of Trade and OTC swaps and options with
creditworthy counterparties consisting primarily of financial institutions and
other natural gas companies. Using these tools, as well as physical forward
transactions, the Company has hedged a portion of its equity volumes of residue
gas and NGLs in 1997 at pricing levels in excess of its 1997 operating budget.
The Company's 1997 hedging strategy established a minimum and maximum price to
the Company while allowing market participation between these levels. As of
November 3, 1997, the Company had hedged approximately 60% of its residue equity
gas for the remainder of 1997 at a weighted average NYMEX-equivalent minimum
price of $2.11 per Mcf. Additionally, the Company has hedged approximately 50%
of its equity NGLs for the remainder of 1997 at a weighted average composite
Mont Belvieu and West Texas Intermediate Crude-equivalent minimum price of $.36
per gallon. The Company has also begun to implement its hedging strategy for
1998 at pricing levels equal to or in excess of its anticipated operating
budget. The Company's 1998 hedging strategy includes the significant use of
option structures which provide the Company with a minimum floor price while
allowing it to participate in higher market prices. As of November 3, 1997, the
Company has hedged approximately 55% of its equity residue gas and approximately
50% of its equity NGLs for the first quarter of 1998.
Capital Investment Program
Capital expenditures related to existing operations are expected to be
approximately $190.8 million during 1997, consisting of the following: capital
expenditures related to gathering, processing and pipeline assets are expected
to be $135.2 million, of which $121.3 million will be used for new connects,
system expansions, the Bethel facility and asset consolidations and $13.9
million for maintaining existing facilities. The Company expects capital
expenditures for exploration and production activities and acquisitions, the
Katy Facility and miscellaneous items to be $49.6 million, $4.0 million and $2.0
million, respectively. As of September 30, 1997, the Company had expended,
including a $7.6 million note payable related to the purchase of certain assets
in the Powder River Basin, $165.5 million consisting of the following: (i)
$116.5 million for new connects, system expansions, the Bethel facility and
asset consolidations; (ii) $8.4 million for maintaining existing facilities;
(iii) $36.7 for exploration and production activities and acquisitions; (iv)
$2.7 million related to the Katy Facility; and (v) $1.2 million of miscellaneous
expenditures.
11
<PAGE>
Bethel Facility. The Company is currently constructing the Bethel facility
in East Texas that will gather and treat gas containing hydrogen sulfide ("Sour
Gas") from the Cotton Valley Pinnacle Reef Trend. The Company has completed the
initial portion of the Bethel facility, which is capable of treating
approximately 350 MMcf per day, assuming 500 parts per million of hydrogen
sulfide in the gas stream. The Company has designed the Bethel facility to
accommodate incremental expansions, depending upon the success of continued
development in the trend. Long-term gathering and treating agreements have been
signed with several producers, including Sonat Exploration Company, UMC
Petroleum Corporation, Broughton Associates Joint Venture and Union Pacific
Resources Company, relating to their interests in the Cotton Valley Pinnacle
Reef trend. The agreements cover specified areas of dedication aggregating
approximately 650,000 acres of previously undedicated interests and other
individual wellsites.
Previously, a group of local citizens had been granted party status at hearings
to be held by the Texas Natural Resource Conservation Commission ("TNRCC"),
which issues construction permits for facilities that will emit air pollutants,
and by the Railroad Commission of Texas ("TRC"), which issues permits for the
operation of facilities that treat Sour Gas (the "H-9"). The Company has reached
a settlement with all adverse parties. As a result of the settlement, on August
12, 1997, the TNRCC issued an air permit to the Company, which will allow it to
commence construction of one or more expansions to the existing 350 MMcf per day
facility to increase throughput capacity in phases up to approximately 1.4 Bcf
per day, assuming 5,000 parts per million of hydrogen sulfide in the gas stream.
Also on August 12, 1997, the TRC remanded the consideration of the H-9 back to
the administrative process and issued an interim H-9 to permit the Company to
treat Sour Gas containing low concentrations of hydrogen sulfide. The Company
received the H-9 for 700 MMcf per day, assuming 5,000 parts per million of
hydrogen sulfide in the gas stream, of throughput capacity in early September
1997.
To accommodate wells which may contain greater concentrations of hydrogen
sulfide than originally anticipated, the Company began construction of a 60-ton
sulfur recovery plant which is expected to be completed during the first quarter
of 1998. The Bethel facility, including the sulfur recovery plant, is expected
to cost approximately $91.0 million, of which approximately $85.9 million has
been expended since inception through September 30, 1997. As of November 3,
1997, the Bethel facility was treating approximately 80 MMcf per day and volumes
are expected to reach 125 MMcf per day by December 31, 1997. However, due to
uncertainties related to construction costs, possible delays in pipeline
permitting and other conditions outside the Company's control, there can be no
assurance that this project will develop as rapidly as currently anticipated. A
portion of the production that is anticipated to be gathered and treated at the
Bethel facility is expected to be produced from prospects that have not yet been
drilled and completed, and there can be no assurance of successful completion of
wells in these prospects. In addition, the carbon dioxide and hydrogen sulfide
content of the gas that can be produced from these wells is unknown and affects
the ultimate capacity of the Bethel facility. See further discussion in "Results
of Operations."
Coal Bed Methane. On October 30, 1997, the Company sold a 50% undivided
interest in its Powder River Basin coal bed methane gas operations to Barrett
Resources Corporation ("Barrett"). The sale involves gathering assets, producing
properties, production equipment and certain undeveloped acreage in this area.
Included in the sale are an interest in the operating wells and undeveloped
acreage purchased by the Company in March 1997. Currently, the Company is
calculating the final, adjusted purchase price and is anticipating a pre-tax
gain between $4.0 and $5.0 million which will be recognized in the fourth
quarter of 1997.
An area of mutual interest ("AMI") has been created under the agreement which
encompasses approximately 2.1 million acres in the coal bed methane play. Both
parties will develop certain specified areas within the AMI with Barrett
becoming the principal operator over the next 20 months. Production from the
Powder River coal bed methane play has been expanding rapidly over the last two
years with approximately 50 MMcf per day of gas volumes currently being produced
from several operators in the area, including the Company's interest. Most of
the coal bed methane gas is being transported by MIGC, the Company's interstate
pipeline, with connections to both the Colorado Interstate Gas pipeline and the
Pony Express Pipeline for transportation to gas markets in the Rocky Mountains
and Midwest. The Company has committed to purchase all gas produced from the
jointly-owned properties within the AMI under a long-term gas purchase
agreement. Under the agreement, MIGC agreed to install additional compression
and transmission facilities as needed to handle the anticipated increase in gas
volumes.
Midkiff/Benedum. The Company has expanded the capacity at its
Midkiff/Benedum processing plant to approximately 185 MMcf per day, however, the
plant capacity is approximately 165 MMcf per day due to gathering and
compression limitations. The expansion was to accommodate increased drilling
activity by Pioneer Natural Resources Company and other producers which supply
natural gas to this facility. The Company's share of the expansion cost was
approximately $4.3 million.
12
<PAGE>
Other. The Company continually monitors the economic performance of each
of its operating facilities to ensure that a desired cash flow objective is
achieved. If an operating facility is not generating desired cash flows or does
not fit in with the Company's strategic plans, the Company will explore various
options, such as consolidation with other Company-owned facilities,
dismantlement, asset swap or outright sale. Due to weaknesses in the price of
ethane, the Company's ability to recover ethane profitably is limited at certain
of its facilities. Additionally, the Company is experiencing narrowing margins
in converting normal butane into iso-butane at the Company's Reno Junction
isomerization facility. As a result, the Company anticipates producing less
ethane and iso-butane in the fourth quarter of 1997.
Depending on the timing of the Company's future projects, it may be required to
seek additional sources of capital. The Company's ability to secure such
capital is restricted by its credit facilities, although it may request
additional borrowing capacity from its banks, seek waivers from its banks to
permit it to borrow funds from third parties, seek replacement credit facilities
from other lenders or issue additional equity securities. While the Company
believes that it would be able to secure additional financing, if required, no
assurance can be given that it will be able to do so or as to the terms of any
such financing.
Financing Facilities
Revolving Credit Facility. The Company's unsecured variable rate Revolving
Credit Facility, was restated and amended on May 30, 1997. The Revolving Credit
Facility is with a syndicate of nine banks and provides for a maximum borrowing
base of $300 million, $196 million of which was outstanding at September 30,
1997. The Revolving Credit Facility's commitment period will terminate on March
31, 2002. At that time, any amounts outstanding on the Revolving Credit Facility
will become due and payable. The Revolving Credit Facility bears interest, at
the Company's option, at certain spreads over the Eurodollar rate, at the
Federal Funds rate plus .50%, or at the agent bank's prime rate. The Company
also pays a facility fee on the commitment. The interest rate spreads and
facility fee are adjusted based on the Company's debt to capitalization ratio.
At September 30, 1997, the spread was .35% over the Eurodollar rate and the
facility fee was .175%. The rate payable, including the facility fee, on the
Revolving Credit Facility at September 30, 1997 was 6.0%. The Company incurred
approximately $425,000 of fees in association with the restatement and
amendment, such amounts were capitalized and will be amortized over the term of
the agreement. Pursuant to the Revolving Credit Facility, the Company is
required to maintain a debt to capitalization ratio (as defined therein) of not
more than 60%, and a ratio of EBITDA (as defined therein) to interest and
dividends on preferred stock of not less than 2.75 to 1.0 through December 31,
1998, 3.0 to 1.0 from January 1, 1999 through December 31, 1999 and 3.25 to 1.0
thereafter.
The Company generally utilizes excess daily funds to reduce any outstanding
balances on the Revolving Credit Facility and associated interest expense and it
intends to continue such practice. At September 30, 1997, the Company had a
cash balance of $18.5 million.
Master Shelf Agreement. In December 1991, the Company entered into a
Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance
Company of America ("Prudential") pursuant to which Prudential agreed to quote,
from time-to-time, an interest rate at which Prudential or its nominee would be
willing to purchase up to $100 million of the Company's senior unsecured
promissory notes (the "Master Notes"). In July 1993 and July 1995, Prudential
and the Company amended the Master Shelf to provide for additional borrowing
capacity (for a total borrowing capacity of $200 million) and to extend the term
of the Master Shelf to October 31, 1995. The Master Shelf Agreement, as further
restated and amended, is fully utilized, as indicated in the following table
(000s):
<TABLE>
<CAPTION>
Interest Final
Issue Date Amount Rate Maturity Principal Payments Due
- ------------------------------ -------- -------- ------------------ -----------------------------------------------
<S> <C> <C> <C> <C>
October 27, 1992 $25,000 7.51% October 27, 2000 $8,333 on each of October 27, 1998 through 2000
October 27, 1992 25,000 7.99% October 27, 2003 $8,333 on each of October 27, 2001 through 2003
September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity
December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity
October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity
October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity
July 28, 1995 50,000 7.61% July 28, 2007 $10,000 on each of July 28, 2003 through 2007
--------
$200,000
========
</TABLE>
Pursuant to the Master Shelf Agreement, the Company is required to maintain a
current ratio (as defined therein) of at least 1.0 to 1.0, a minimum tangible
net worth equal to the sum of $345 million plus 50% of consolidated net earnings
earned from June
13
<PAGE>
30, 1995 plus 75% of the net proceeds of any equity offerings after June 30,
1995, a debt to capitalization ratio (as defined therein) of no more than 55%,
and an EBITDA (as defined therein) to interest ratio of not less than 3.25 to
1.0 through October 31, 1997 and 3.75 to 1.0 thereafter. The Company is
prohibited from declaring or paying dividends on any capital stock on or after
June 30, 1995, that in the aggregate exceed the sum of $50 million plus 50% of
consolidated net earnings earned after June 30, 1995, plus the cumulative net
proceeds received by the Company after June 30, 1995 from the sale of any equity
securities. At September 30, 1997, $130 million was available under this
limitation.
Term Loan Facility. The Company also had a Term Loan Facility with four
banks which bore interest at 9.87%. In September 1997 the Company made the
final payment on the Term Loan Facility with amounts available under the
Revolving Credit Facility.
1993 Senior Notes. On April 28, 1993, the Company sold $50 million of
7.65% Senior Notes ("1993 Senior Notes") due 2003 to a group of insurance
companies. Annual principal payments of $7.1 million on the 1993 Senior Notes
were and are due on April 30 of each year from 1997 through 2002, with any
remaining principal and interest outstanding due on April 30, 2003. The Company
financed the $7.1 million payment paid on April 30, 1997 with amounts available
under the Revolving Credit Facility. The Company presently intends to finance
the $7.1 million payment due on April 30, 1998 with amounts available under the
Revolving Credit Facility. The 1993 Senior Notes are unsecured and contain
certain financial covenants that substantially conform with those contained in
the Master Shelf Agreement, as restated and amended.
1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a
group of insurance companies in the fourth quarter of 1995, with an interest
rate of 8.16% per annum and principal due in a single payment in December 2005.
The 1995 Senior Notes are unsecured and contain certain financial covenants that
conform with those contained in the Master Shelf Agreement, as restated and
amended.
Covenant Compliance. At September 30, 1997, the Company was in compliance
with all covenants in its loan agreements. Taking into account all the
covenants contained in the Company's financing facilities and expected
maturities of long-term debt during 1997, the Company had approximately $100
million of available borrowing capacity at September 30, 1997.
14
<PAGE>
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 the Nine Months Ended
September 30, 1997
Gas Gas ---------------------------------------------
Gathering Throughput Gas Gas NGL
Year Placed Systems Capacity Throughput Production Production
Plant Facilities (1) In Service Miles(2) (MMcf/D)(3) (MMcf/D)(4) (MMcf/D)(5) (MGal/D)(5)
- --------------------------------- ----------- --------------------- -------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN REGION:
Texas
Midkiff /Benedum............... 1955 2,123 165 153 99 940
Giddings Gathering............. 1979 655 80 61 52 86
Edgewood (6)(7)................ 1964 89 65 26 8 63
Perkins........................ 1975 2,573 40 22 13 136
MiVida (6)..................... 1972 287 150 63 59 -
Gomez.......................... 1971 307 280 158 154 -
Mitchell Puckett Gathering..... 1972 86 85 81 80 -
Rosita Treating................ 1973 - 60 38 38 -
Bethel Treating................ 1997 70 350 13 11 -
Louisiana
Black Lake..................... 1966 56 75 24 15 65
Toca (7)(8).................... 1958 - 160 114 110 78
NORTHERN REGION:
Oklahoma
Chaney Dell/Lamont............. 1966 2,039 180 79 62 242
Arkoma......................... 1985 63 8 5 5 -
Westana (9).................... 1986 723 45 60 52 95
Wyoming
Granger (7)(10)................ 1987 330 235 141 123 306
Red Desert (7)................. 1979 111 42 23 21 37
Lincoln Road (11).............. 1988 148 50 32 31 29
Hilight Complex (7)............ 1969 621 80 38 31 90
Kitty/Amos Draw (7)............ 1969 307 17 11 7 45
Newcastle (7).................. 1981 145 5 2 1 16
Reno Junction (10)............. 1991 - - - - 65
Coal Bed Methane
Gathering (15)................ 1990 103 55 33 30 -
New Mexico
San Juan River (6)............. 1955 130 60 31 28 1
Utah
Four Corners................... 1988 104 15 4 3 2
------ ----- ----- ----- -----
Total......................... 11,070 2,302 1,212 1,033 2,296
====== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Average for the
Nine Months Ended
September 30, 1997
Interconnect ------------------
and Gas Storage Pipeline Gas
Storage and Year Placed Transmission Capacity Capacity Throughput
Transmission Facilities (1) In Service Miles(2) (Bcf)(2) (MMcf/D)(2) (MMcf/D)(4)
- --------------------------------- ----------- ------------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Katy Facility (12)............... 1994 17 19 - 250
MIGC (13)........................ 1970 234 - 45 52
MGTC (14)........................ 1963 250 - 18 8
------ ----- ----- -----
Total.......................... 501 19 63 310
====== ===== ===== =====
</TABLE>
- ----------------------------
Footnotes on following page.
15
<PAGE>
(1) The Company's interest in all facilities is 100% except for Midkiff/Benedum
(73%); Black Lake (69%); Lincoln Road (72%); Westana Gathering Company
("Westana") (50%) and Newcastle (50%). All facilities are operated by the
Company and all data include interests of the Company, other joint interest
owners and producers of gas volumes dedicated to the facility.
(2) Gas gathering systems miles, interconnect and transmission miles, gas
storage capacity and pipeline capacity are as of September 30, 1997.
(3) Gas throughput capacity is as of September 30, 1997 and represents capacity
in accordance with design specifications unless other physical constraints
exist, including permitting or field compression limits. Actual plant
throughput capacities at Midkiff/Benedum and Mitchell Puckett Gathering are
approximately 185 MMcf per day and 140 MMcf per day, respectively, as of
September 30, 1997.
(4) Aggregate wellhead natural gas volumes collected by a gathering system or
aggregate volumes delivered over the header at the Katy Hub and Gas Storage
Facility ("Katy Facility").
(5) Volumes of residue gas and NGLs are allocated to a facility when a well is
dedicated to that facility; volumes exclude NGLs fractionated for third
parties.
(6) Sour gas facility (capable of processing gas containing hydrogen sulfide
and/or carbon dioxide).
(7) Fractionation facility (capable of fractionating raw NGLs into end-use
products).
(8) Straddle plant (a plant located near a transmission pipeline that processes
gas dedicated to or gathered by a pipeline company or another third party).
(9) Gas throughput and gas production in excess of plant throughput capacity is
unprocessed gas delivered to the Company's Chaney Dell facility for
processing. These processed volumes are included in Westana's NGL
production volumes.
(10) NGL production includes conversion of third-party feedstock to iso-butane.
(11) Commencing in March 1996, the Company and its joint venture partner at the
Lincoln Road plant temporarily suspended processing operations at the
Lincoln Road plant and began processing the related gas at the Company's
Granger facility. Beginning in April 1997, the Lincoln Road plant was
restarted as volumes increased beyond Granger's capacity.
(12) Hub and gas storage facility.
(13) MIGC is an interstate pipeline located in Wyoming and is regulated by the
Federal Energy Regulatory Commission.
(14) MGTC is a public utility located in Wyoming and is regulated by the Wyoming
Public Service Commission.
(15) On October 30, 1997, the Company sold a 50% undivided interest in its
Powder River Basin coal bed methane gas operations. The sale involves
gathering assets, producing properties, production equipment and certain
undeveloped acreage in this area.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
JN Exploration and Production Litigation
JN Exploration and Production ("JN") is a producer of oil and natural gas that
sold unprocessed natural gas to the Company on a percentage-of-proceeds basis.
The Company processed the natural gas at its Teddy Roosevelt Plant, which is no
longer in operation. In JN Exploration and Production v. Western Gas Resources,
-------------------------------------------------------
Inc. United States District Court for the District of North Dakota,
- ----
Southwestern Division, Civil Action Nos. A1-93-53 and 903-CV-60, JN sued the
Company, alleging that JN was entitled to a portion of a $15 million amendment
fee the Company received in the years 1987 through 1989 from Williston Basin
Interstate Pipeline Company ("WBI"), which had an agreement with the Company to
purchase natural gas. On April 15, 1996, the Court issued a Memorandum and
Order granting JN's summary judgment motion on the issue of liability. On July
11, 1996, the Court issued a Memorandum and Order setting forth the manner in
which damages were to be calculated. On September 17, 1996, the Court entered a
final judgment against the Company in the amount of $421,000 (including pre-
judgment interest). The Company has appealed the decision and believes that
there are meritorious grounds to reverse the trial court's decision. One other
producer has filed a similar claim. If JN were to prevail on appeal, other
producers who sold natural gas which was processed at the Teddy Roosevelt Plant
during the time period in question may be able to assert similar claims. The
Company believes that it has meritorious defenses to such claims and, if sued,
the Company would defend vigorously against any such claims. At the present
time, it is not possible to predict the outcome of this litigation or any other
producer litigation that might raise similar issues or to estimate the amount of
potential damages.
16
<PAGE>
Internal Revenue Service
The Internal Revenue Service ("IRS") has completed its examination of the
Company's returns for the years 1990 and 1991 and has proposed adjustments to
taxable income reflected in such returns that would shift the recognition of
certain items of income and expense from one year to another ("Timing
Adjustments"). To the extent taxable income in a prior year is increased by
proposed Timing Adjustments, taxable income may be reduced by a corresponding
amount in other years. However, the Company would incur an interest charge as a
result of such adjustment. The Company currently is protesting certain of these
proposed adjustments. In the opinion of management, adequate provision has been
made for the additional income taxes and interest that may result from the
proposed adjustments. However, it is reasonably possible that the ultimate
resolution could result in an amount which differs materially from amounts
provided.
Coal Bed Methane Rights
A decision entered by the United States Court of Appeals, Tenth Circuit, in a
case entitled Southern Ute Indian Tribe v. Amoco Production Company, No. 94-
------------------------------------------------------
1579, determined that coal rights previously transferred to a Native American
tribe included the right to any coal bed methane rights and ruled against the
claim to the coal bed methane of a purchaser of natural gas rights from a seller
that owned natural gas rights but no coal rights. The Company produces coal bed
methane gas in the Powder River Basin pursuant to oil and gas leases. Owners of
previously transferred coal rights, if any, in this region may be able to assert
similar claims against the Company. The Company believes that there exists facts
and circumstances which would provide it with a valid defense to such claims.
However, there is no assurance that the Company would prevail in any such
lawsuit.
Other
The Company is involved in various other litigation and administrative
proceedings arising in the normal course of business. In the opinion of
management, any liabilities that may result from these claims, will not,
individually or in the aggregate, have a material adverse effect on the
Company's financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WESTERN GAS RESOURCES, INC.
---------------------------
(Registrant)
Date: November 13, 1997 By: /s/ LANNY F. OUTLAW
-------------------
Lanny F. Outlaw
President and Chief Operating Officer
Date: November 13, 1997 By: /s/WILLIAM J. KRYSIAK
---------------------
William J. Krysiak
Vice President - Finance
(Principal Financial
and Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,468
<SECURITIES> 0
<RECEIVABLES> 231,753
<ALLOWANCES> 0
<INVENTORY> 47,556
<CURRENT-ASSETS> 299,989
<PP&E> 1,277,623
<DEPRECIATION> (292,366)
<TOTAL-ASSETS> 1,371,994
<CURRENT-LIABILITIES> 316,435
<BONDS> 480,857
0
416
<COMMON> 3,217
<OTHER-SE> 483,540
<TOTAL-LIABILITY-AND-EQUITY> 1,371,994
<SALES> 1,647,001
<TOTAL-REVENUES> 1,655,001
<CGS> 1,487,326
<TOTAL-COSTS> 1,487,326
<OTHER-EXPENSES> 122,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,183
<INCOME-PRETAX> 25,798
<INCOME-TAX> 9,315
<INCOME-CONTINUING> 16,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,483
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
