<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
Commission file number 1-10389
-------
WESTERN GAS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1127613
- -------------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12200 N. Pecos Street, Denver, Colorado 80234-3439
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 452-5603
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
No Changes
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
On May 1, 1997, there were 32,138,388 shares of the registrant's Common Stock
outstanding.
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<PAGE>
WESTERN GAS RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - Financial Information Page
- ------------------------------ ----
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheet - March 31, 1997 and
December 31, 1996.................................. 3
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1997 and 1996............... 4
Consolidated Statement of Operations - Three
Months Ended March 31, 1997 and 1996............... 5
Consolidated Statement of Changes in Stockholders'
Equity - Three Months Ended March 31, 1997......... 6
Notes to Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
PART II - Other Information
- ---------------------------
Item 1. Legal Proceedings................................. 14
Item 6. Exhibits and Reports on Form 8-K.................. 15
Signatures.................................................. 16
</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>
March 31, December 31,
1997 1996
----------- -------------
ASSETS (unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 42,823 $ 39,504
Trade accounts receivable, net............................................... 183,933 338,708
Product inventory............................................................ 14,490 25,972
Parts inventory.............................................................. 2,161 2,599
Other........................................................................ 3,955 1,477
---------- ----------
Total current assets........................................................ 247,362 408,260
---------- ----------
Property and equipment:
Gas gathering, processing, storage and transmission.......................... 948,430 938,902
Oil and gas properties and equipment......................................... 165,329 144,732
Construction in progress..................................................... 69,008 35,250
---------- ----------
1,182,767 1,118,884
Accumulated depreciation, depletion and amortization.................. (265,850) (252,571)
---------- ----------
Total property and equipment, net........................................... 916,917 866,313
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $25,500 and
$24,552, respectively)...................................................... 45,741 46,689
Other........................................................................ 40,453 40,369
---------- ----------
Total other assets.......................................................... 86,194 87,058
---------- ----------
Total assets.................................................................. $1,250,473 $1,361,631
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 261,615 $ 386,268
Accrued expenses............................................................. 31,035 28,670
Dividends payable............................................................ 4,215 4,215
---------- ----------
Total current liabilities................................................... 296,865 419,153
Long-term debt................................................................ 379,500 379,500
Deferred income taxes payable................................................. 87,169 82,511
---------- ----------
Total liabilities........................................................... 763,534 881,164
---------- ----------
Commitments and contingent liabilities........................................ - -
Stockholders' equity:
Preferred stock, par value $.10; 10,000,000 shares authorized:
$2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding
($35,000 aggregate liquidation preference)................................. 140 140
$2.625 cumulative convertible preferred stock; 2,760,000 shares issued and
outstanding ($138,000 aggregate liquidation preference).................... 276 276
Common stock, par value $.10; 100,000,000 shares authorized; 32,139,501 and
32,134,151 shares issued, respectively...................................... 3,214 3,213
Treasury stock, at cost, 25,016 shares in treasury........................... (788) (788)
Additional paid-in capital................................................... 397,090 397,061
Retained earnings............................................................ 88,771 82,378
Notes receivable from key employees secured by common stock.................. (1,764) (1,813)
---------- ----------
Total stockholders' equity.................................................. 486,939 480,467
---------- ----------
Total liabilities and stockholders' equity.................................... $1,250,473 $1,361,631
========== ==========
</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>
Three Months Ended
March 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income.................................................................. $ 10,608 $ 10,233
Add income items that do not affect cash:
Depreciation, depletion and amortization................................... 15,174 15,662
Deferred income taxes...................................................... 4,658 4,680
Distributions in excess of equity income, net.............................. 276 2,798
Other non-cash items, net.................................................. 896 (26)
--------- ---------
31,612 33,347
--------- ---------
Adjustments to working capital to arrive at net cash provided by
operating activities:
Decrease (increase) in trade accounts receivable........................... 154,652 (2,286)
Decrease in product inventory.............................................. 10,983 20,809
Decrease (increase) in parts inventory..................................... 438 (585)
Increase in other current assets........................................... (2,478) (1,267)
Decrease in other assets and liabilities, net.............................. (233) (82)
(Decrease) increase in accounts payable.................................... (124,651) 19,705
(Decrease) increase in accrued expenses.................................... (5,313) 4,209
--------- ---------
Total adjustments......................................................... 33,398 40,503
--------- ---------
Net cash provided by operating activities................................... 65,010 73,850
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................................... (57,963) (9,893)
Proceeds from the dispositions of property and equipment................... 1,134 353
Contributions to equity investees.......................................... (668) (165)
--------- ---------
Net cash used in investing activities....................................... (57,497) (9,705)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of common stock options............................. 22 16
Debt issue costs paid...................................................... - (357)
Payments on revolving credit facility...................................... (79,950) (339,800)
Borrowings under revolving credit facility................................. 79,950 289,300
Dividends paid............................................................. (4,216) (3,899)
--------- ---------
Net cash used in financing activities....................................... (4,194) (54,740)
--------- ---------
Net increase in cash and cash equivalents................................... 3,319 9,405
Cash and cash equivalents at beginning of period............................ 39,504 5,795
--------- ---------
Cash and cash equivalents at end of period.................................. $ 42,823 $ 15,200
========= =========
</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
March 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Sale of residue gas................................. $ 429,182 $ 347,507
Sale of natural gas liquids......................... 169,099 119,678
Sale of electric power.............................. 24,106 60
Processing, transportation and storage revenue...... 10,269 11,214
Other, net.......................................... 2,882 2,255
----------- -----------
Total revenues..................................... 635,538 480,714
----------- -----------
Costs and expenses:
Product purchases................................... 570,365 412,123
Plant operating expense............................. 17,985 18,597
Oil and gas exploration and production expense...... 1,167 1,109
Depreciation, depletion and amortization............ 15,174 15,662
Selling and administrative expense.................. 7,734 7,725
Interest expense.................................... 6,427 9,454
----------- -----------
Total costs and expenses........................... 618,852 464,670
----------- -----------
Income before taxes.................................. 16,686 16,044
Provision for income taxes:
Current............................................. 1,420 1,131
Deferred............................................ 4,658 4,680
----------- -----------
6,078 5,811
----------- -----------
Net income........................................... 10,608 10,233
Preferred stock requirements......................... (2,610) (2,610)
----------- -----------
Income attributable to common stock.................. $ 7,998 $ 7,623
=========== ===========
Income per share of common stock..................... $ .25 $ .30
=========== ===========
Weighted average shares of common stock outstanding.. 32,111,695 25,771,928
=========== ===========
</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.... - - 5,350 - - - 1 - 29
Loans forgiven............. - - - - - - - - -
Dividends declared on
common stock.............. - - - - - - - - -
Dividends declared on
$2.28 cumulative
preferred stock........... - - - - - - - - -
Dividends declared on
$2.625 cumulative
convertible preferred
stock..................... - - - - - - - - -
--------- ----------- ---------- ------ ---------- ----------- ------ -------- --------
Balance at March 31, 1997 1,400,000 2,760,000 32,114,485 25,016 $ 140 $276 $3,214 $(788) $397,090
========= =========== ========== ====== ========== =========== ====== ======== ========
Notes Total
Receivable Stock-
Retained from Key holders'
Earnings Employees Equity
----------- ----------- -----------
<C> <C> <C>
Balance at December 31,
1996...................... $82,378 $(1,813) $480,467
Net income................. 10,608 - 10,608
Stock options exercised.... - (8) 22
Loans forgiven............. - 57 57
Dividends declared on
common stock.............. (1,606) - (1,606)
Dividends declared on
$2.28 cumulative
preferred stock........... (798) - (798)
Dividends declared on
$2.625 cumulative
convertible preferred
stock..................... (1,811) - (1,811)
------- ------- --------
Balance at March 31, 1997 $88,771 $(1,764) $486,939
======= ======= ========
</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 March 31, 1997 and for the three
month periods ended March 31, 1997 and 1996 included herein are unaudited but
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results for such
periods. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results of operations expected for the
year ended December 31, 1997.
Certain prior years' amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1997.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock is computed by dividing income attributable
to shares of common stock by the weighted average number of shares of common
stock outstanding. Income attributable to common stock is income less preferred
stock dividends. The Company declared preferred stock dividends of $2.6 million
for both of the three month periods ended March 31, 1997 and 1996. The
computation of fully diluted earnings per share of common stock for the three
months ended March 31, 1997 and 1996 was not dilutive; therefore, only primary
earnings per share of common stock is presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128")
with an effective date for fiscal years ending after December 15, 1997. The
Company does not believe that the implementation of SFAS 128 will result in a
material change in calculated earnings per share.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was $6.3 million and $9.2 million, respectively, for the three
months ended March 31, 1997 and 1996.
No income taxes were paid during the three months ended March 31, 1997 nor for
the three months ended March 31, 1996.
LEGAL PROCEEDINGS
Reference is made to "Item 1. Legal Proceedings-Part II-Other Information,"
of this Form 10-Q.
7
<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 months ended March 31, 1997 and 1996. Certain prior year amounts have
been reclassified to conform to the presentation used in 1997. Reference should
also be made to the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this document.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
(000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------- Percent
1997 1996 Change
--------- -------- -------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues................................... $635,538 $480,714 32
Gross profit............................... 30,847 33,223 (7)
Net income................................. 10,608 10,233 4
Income per share of common stock.... .25 .30 (17)
Net cash provided by operating activities.. $ 65,010 $ 73,850 (12)
OPERATING DATA:
Average gas sales (MMcf/D)................. 1,820 1,858 (2)
Average NGL sales (MGal/D)................. 4,275 3,670 16
Average gas prices ($/Mcf)................. $ 2.61 $ 2.07 26
Average NGL prices ($/Gal)................. $ .44 $ .35 26
</TABLE>
Revenues from the sale of residue gas increased approximately $81.7 million for
the three months ended March 31, 1997 compared to the same period in 1996.
Average gas sales volumes decreased 38 MMcf per day to 1,820 MMcf per day for
the three months ended March 31, 1997 compared to the same period in 1996,
largely due to a decrease in the sale of residue gas purchased from third
parties. Average gas prices realized by the Company increased $.54 per Mcf to
$2.61 per Mcf for the three months ended March 31, 1997 compared to the same
period in 1996. Included in the realized residue gas price was approximately
$500,000 of loss recognized for the three months ended March 31, 1997 related to
futures positions on equity volumes. The Company has entered into futures
positions for a portion of its equity gas for the remainder of 1997. See
further discussion in "Liquidity and Capital Resources - Risk Management
Activities."
Revenues from the sale of NGLs increased approximately $49.4 million for the
three months ended March 31, 1997 compared to the same period in 1996. Average
NGL sales volumes increased 605 MGal per day to 4,275 MGal per day for the three
months ended March 31, 1997 compared to the same period in 1996, largely due to
an increase in the sale of NGLs purchased from third parties. Average NGL
prices realized by the Company increased $.09 per gallon to $.44 per gallon for
the three months ended March 31, 1997 compared to the same period in 1996.
Included in the realized NGL price was approximately $2.6 million of gain
recognized for the three months ended March 31, 1997 related to futures
positions on equity volumes. The Company has entered into futures positions for
a portion of its equity production for the remainder of 1997. See further
discussion in "Liquidity and Capital Resources - Risk Management Activities."
Revenue associated with electric power marketing increased $24.0 million for the
three months ended March 31, 1997 compared to the same period in 1996 as the
Company had minimal transactions in this market during the first quarter of
1996.
The increase of $158.2 million in product purchases is primarily due to the
increase in commodity prices. Combined product purchases as a percentage of
residue gas, NGL and electric power sales increased from 88% to 92% for the
three months ended March 31, 1997 compared to the same period in 1996. The
benefit of the increase in residue gas prices compared to the first quarter of
1996, was partially offset by the Company's "keepwhole" contracts at its Granger
facility. Under a "keepwhole" contract, the Company's margin is reduced when
the value of NGLs decline relative to the value of residue gas. Rocky Mountain
residue gas prices have now declined to a level that allows more profitable NGL
recovery. Additionally, due to the volatility in the NGL market, the Company
recognized trading losses associated with liquid inventory held at Mont
Belvieu and Conway storage facilities and by narrowing margins in converting
normal butane into iso-butane at the Company's Reno Junction isomerization
facility. Overall, the increased
8
<PAGE>
product purchase percentage is a continuing trend based upon the growth of
third-party sales, which typically have lower margins than sales of the
Company's equity production. Over the past several years, the Company has
experienced narrowing margins related to third-party sales due to the increasing
availability of pricing information in the natural gas industry. The Company
believes, by targeting end-use markets and utilizing risk management techniques,
these margins will continue to stabilize. However, there is no assurance that
the Company will be able to expand its current end-use business.
Interest expense decreased $3.0 million for the three months ended March 31,
1997 compared to the same period in 1996. The decrease was primarily due to the
use of the Company's net proceeds from the November 1996 public offering of
6,325,000 shares of Common Stock to reduce indebtedness under the Revolving
Credit Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities, funds available under its financing
facilities and proceeds from offerings of equity securities. In the past, these
sources have been sufficient to meet the needs and finance the growth of the
Company's business. The Company can give no assurance that the historical
sources of liquidity and capital resources will be available for future
development and acquisition projects, and it may be required to investigate
alternative financing sources. Net cash provided by operating activities is
primarily affected by product prices and sales of inventory, the Company's
success in increasing the number and efficiency of its facilities and the
volumes of natural gas processed by such facilities, as well as the margin on
third-party product purchased for resale. The Company's continued growth will
be dependent upon success in the areas of marketing, additions to dedicated
plant reserves, acquisitions and new project development.
The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility, together with cash provided by operating activities,
will provide it with sufficient funds to connect new reserves, maintain its
existing facilities and complete its current capital projects. The Company also
believes that cash provided by operating activities will be sufficient to meet
its debt service and preferred stock dividend requirements in 1997.
The Company's sources and uses of funds for the three months ended March 31,
1997 are summarized as follows (000s):
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
<S> <C>
Borrowings under revolving credit facility.. $ 79,950
Net cash provided by operating activities... 65,010
Other....................................... 1,156
--------
Total sources of funds...................... $146,116
========
USES OF FUNDS:
Payments on revolving credit facility....... $ 79,950
Capital expenditures........................ 58,631
Dividends paid.............................. 4,216
--------
Total uses of funds......................... $142,797
========
</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 for such purposes of approximately 4.7 Bcf at an average cost of
$1.80 per Mcf at March 31, 1997 as compared to approximately 10.4 Bcf at an
average cost of $1.84 per Mcf at December 31, 1996, primarily at the Katy
Facility. At March 31, 1997, the Company had hedging contracts in place for
anticipated sales at a weighted average price of $2.08 per Mcf for all of the
stored residue gas in inventory. The Company also held NGLs in storage of
approximately 16,000 MGal at an average cost of $.37 per gallon and
approximately 16,100 MGal at an average cost of $.42 per gallon at March 31,
1997 and December 31, 1996, respectively, at various third-party storage
facilities. At March 31, 1997, the Company did not have any hedging contracts
in place associated with NGLs in storage.
Risk Management Activities
The Company enters into futures transactions on the New York Mercantile Exchange
("NYMEX") and the Kansas City Board of Trade and through OTC swaps and options
with creditworthy counterparties consisting primarily of financial institutions
and
9
<PAGE>
other natural gas companies. Using these tools, the Company has hedged a
portion of its equity volumes of residue gas and NGLs in 1997 at pricing levels
in excess of its 1997 operating budget. The Company's hedging strategy
establishes a minimum and maximum price to the Company while allowing market
participation between these levels. As of May 13, 1997, the Company had hedged
approximately 60% of its residue equity gas for the remainder of 1997 at a
weighted average NYMEX-equivalent minimum price of $2.09 per Mcf. Additionally,
the Company has hedged approximately 45% of its equity NGLs for 1997 at a
weighted average composite Mont Belvieu and West Texas Intermediate Crude-
equivalent minimum price of $.38 per gallon.
Capital Investment Program
Capital expenditures related to existing operations are expected to be
approximately $166.4 million during 1997, consisting of the following: capital
expenditures related to gathering, processing and pipeline assets are expected
to be $124.8 million, of which $111.9 million will be used for new connects,
system expansions and asset consolidations and $12.9 million for maintaining
existing facilities. The Company expects capital expenditures on exploration
and production activities, the Katy Facility and miscellaneous items to be $36.4
million, $3.3 million and $1.9 million, respectively. As of March 31, 1997, the
Company had expended, including a $7.6 million note payable related to the
purchase of certain assets in the Powder River Basin, $66.2 million consisting
of the following: (i) $35.7 million for new connects, system expansions and
asset consolidations; (ii) $1.6 million for maintaining existing facilities;
(iii) $26.1 for exploration and production activities; (iv) $2.4 million related
to the Katy Facility; and (v) $400,000 of miscellaneous expenditures.
The Company is currently constructing the Bethel facility in East Texas that
will gather gas from the Cotton Valley Pinnacle Reef trend. Based upon
currently anticipated gas compositions, this facility could treat up to
approximately 350 MMcf per day. The Bethel facility has been designed to
accommodate incremental expansions, depending upon the success of continued
development in the trend. Construction of the Bethel facility began in September
1996. The facility is expected to commence operations at a throughput capacity
of approximately 180 MMcf per day in July 1997. The initial phase is expected
to be completed to reach the 350 MMcf per day of throughput capacity during the
first quarter of 1998, approximately 75 days after the receipt of a pending air
quality permit. The initial phase of construction is expected to cost
approximately $80 million, approximately $37.5 million has been expended since
inception through March 31, 1997. Long-term gathering and treating agreements
have been signed with several producers, including Sonat Exploration Company,
UMC Petroleum Corporation and Broughton Associates Joint Venture, relating to
their interests in the Cotton Valley Pinnacle Reef trend. The agreements cover
specified areas of dedication aggregating approximately 500,000 acres of
previously undedicated interests. However, due to uncertainties related to
construction costs, possible delays in permitting and other conditions outside
the Company's control, there can be no assurance that this project will develop
as rapidly as currently anticipated. In addition, a portion of the production
that is anticipated to be gathered and treated at the Bethel facility is
expected to be produced from prospects that have not yet been drilled and
completed, and there can be no assurance of successful completion of wells in
these prospects.
The Company is currently expanding the capacity at its Midkiff/Benedum facility
from 150 MMcf per day to 180 MMcf per day. The expansion is in anticipation of
increased drilling activity by Parker & Parsley and other producers which supply
natural gas to this facility. The expansion is expected to be completed during
the second quarter of 1997 and the Company's share of the expansion is expected
to cost $4.3 million.
The Company continually monitors the economic performance of each of its
operating facilities to ensure that a desired cash flow objective is achieved.
If an operating facility is not generating desired cash flows or does not fit in
with the Company's strategic plans, the Company will explore various options,
such as consolidation with other Company-owned facilities, dismantlement, asset
swap or outright sale.
Depending on the timing of the Company's future projects, it may be required to
seek additional sources of capital. The Company's ability to secure such
capital is restricted by its credit facilities, although it may request
additional borrowing capacity from the banks, seek waivers from the banks to
permit it to borrow funds from third-parties, seek replacement credit facilities
from other lenders or issue additional equity securities. While the Company
believes that it would be able to secure additional financing, if required, no
assurance can be given that it will be able to do so or as to the terms of any
such financing.
Financing Facilities
Revolving Credit Facility. The Company's variable rate Revolving Credit
Facility, as restated on September 2, 1994 and subsequently amended, with a
syndicate of eight banks, provides for a maximum borrowing base of $300 million,
none of which was outstanding at March 31, 1997. The facility's commitment
period will terminate on April 1, 1998. If the facility
10
<PAGE>
is not renewed, any outstanding balance thereunder at such time will convert to
a three-year term loan, which will be payable in 10 equal quarterly
installments, commencing July 1, 1998. The Revolving Credit Facility bears
interest, at the Company's option, at certain spreads over the Eurodollar rate,
at the Federal Funds rate plus .50%, or at the agent bank's prime rate. The
interest rate spreads are adjusted based on the Company's debt to capitalization
ratio. At March 31, 1997, the spread was .875% over the Eurodollar rate,
resulting in an interest rate of 6.5%. The Company pays a commitment fee on the
unused commitment ranging from .15% to .375% based on the debt to capitalization
ratio. At March 31, 1997, the Company's debt to capitalization ratio was .46 to
1 resulting in a commitment fee rate of .30%. The Company is currently
negotiating with its bank syndicate for a new revolving credit facility. The new
agreement is expected to be in place within the second quarter of 1997.
Term Loan Facility. The Company also has a Term Loan Facility with four
banks with aggregate principal outstanding as of March 31, 1997 of $12.5 million
bearing interest at 9.87%. The final payment on the Term Loan Facility of $12.5
million is due in September 1997 and the Company intends to finance this payment
with amounts available under the Revolving Credit Facility.
The agreements governing the Company's Revolving Credit and Term Loan Facilities
(the "Credit Facilities Agreements") contain certain mandatory prepayment terms.
If funded debt (as defined in the agreement) of the Company, which has a final
maturity on or before October 1, 2000, exceeds four times (4.0 to 1.0) the sum
of the Company's last four quarters' cash flow (as defined in the agreement)
less preferred stock dividends projected to be paid during the next four
quarters, the overage must be repaid in no more than six monthly payments,
commencing 90 days from notification. This mandatory prepayment threshold will
be reduced to 3.5 to 1.0 at September 1, 1998. At March 31, 1997, taking into
account all the covenants contained in the Credit Facilities Agreements and
expected maturities of long-term debt during 1997, the Company had approximately
$170 million of available borrowing capacity.
The Credit Facilities Agreements are unsecured. Pursuant to the Credit
Facilities Agreements, the Company is required to maintain a current ratio (as
defined therein) of at least 1.0 to 1.0, a minimum tangible net worth equal to
the sum of $345 million plus 50% of consolidated net income earned after June
30, 1995 plus 75% of the net proceeds received after June 30, 1995 from the sale
of any equity securities, a debt to capitalization ratio (as defined therein)
of no more than 60% through December 31, 1996 and 55% thereafter, and an EBITDA
(as defined therein) to interest ratio of not less than 3.00 to 1.0 through
October 31, 1996, 3.25 to 1.0 from November 1, 1996 through October 31, 1997 and
3.75 to 1.0 thereafter. The Company is prohibited from declaring or paying
dividends on any capital stock on or after December 31, 1995, that in the
aggregate exceed the sum of $10 million plus 50% of consolidated net income
earned after December 31, 1995 plus 50% of the cumulative net proceeds received
by the Company after December 31, 1995 from the sale of any equity securities.
The dividends declared in the fourth quarter of 1995 and paid in 1996 were
excluded, per the agreement, from this calculation. At March 31, 1997, $9.2
million was available under this limitation, which is sufficient to pay required
preferred stock dividends in 1997. The Company generally utilizes excess daily
funds to reduce any outstanding revolving credit balances and associated
interest expense and it intends to continue such practice. Net proceeds from
the November 1996 offering of 6,325,000 shares of Common Stock were used to
reduce indebtedness under the Revolving Credit Facility. At March 31, 1997, the
Company had a cash balance of $42.8 million. The cash balance is considered
temporary as the cash will be used as the Company continues its 1997 capital
expenditure program.
Master Shelf Agreement. In December 1991, the Company entered into a
Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance
Company of America ("Prudential") pursuant to which Prudential agreed to quote,
from time-to-time, an interest rate at which Prudential or its nominee would be
willing to purchase up to $100 million of the Company's senior promissory notes
(the "Master Notes"). Any such Master Notes will mature in no more than 12
years, with an average life not in excess of 10 years, and are unsecured. The
Master Shelf contains certain financial covenants which substantially conform
with those contained in the Credit Facilities Agreements, as restated and
amended. In July 1993 and July 1995, Prudential and the Company amended the
Master Shelf to provide for additional borrowing capacity (for a total borrowing
capacity of $200
11
<PAGE>
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>
1993 Senior Notes. On April 28, 1993, the Company sold $50 million of
7.65% Senior Notes ("1993 Senior Notes") due 2003 to a group of insurance
companies. Annual principal payments of $7.1 million on the 1993 Senior Notes
are due on April 30 of each year from 1997 through 2002, with any remaining
principal and interest outstanding due on April 30, 2003. The Company financed
the $7.1 million payment paid on April 30, 1997 with amounts available under the
Revolving Credit Facility. The Company intends to finance the $7.1 million
payment due in 1998 also with amounts available under the Revolving Credit
Facility. The 1993 Senior Notes contain certain financial covenants that
substantially conform with those contained in the Master Shelf Agreement, as
restated and amended.
1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a
group of insurance companies in the fourth quarter of 1995, with an interest
rate of 8.16% per annum and principal due in a single payment in December 2005.
The 1995 Senior Notes contain certain financial covenants that conform with
those contained in the Master Shelf Agreement, as restated and amended.
Receivables Facility. In April 1995, the Company entered into an agreement
with Receivables Capital Corporation ("RCC"), as purchaser, and Bank of America
National Trust and Savings Association, as agent, pursuant to which the Company
will sell to RCC at face value on a revolving basis an undivided interest in
certain of the Company's trade receivables. As part of the sale, the Company
granted to RCC a security interest in such receivables. The Company may sell up
to $75 million of trade receivables under the Receivables Facility, at a rate
equal to RCC's commercial paper rate plus .375%, of which $75 million was funded
at a rate of 6.106% as of March 31, 1997. The Receivables Facility has a 364-
day term and contains financial covenants similar to those in the Credit
Facilities Agreements, as restated and amended, along with certain covenants
regarding the quality of the trade receivables pool. The parties have renewed
the facility through May 29, 1997. The Company anticipates that it repay the
facility with amounts available under the Revolving Credit Facility.
Covenant Compliance. At March 31, 1997, the Company was in compliance with
all covenants in its loan agreements.
12
<PAGE>
PRINCIPAL FACILITIES
The following tables provide information concerning the Company's principal
facilities at March 31, 1997. The Company also owns and operates several
smaller treating, processing and transmission facilities located in the same
areas as its other facilities.
<TABLE>
<CAPTION>
Average for the Three Months Ended
March 31, 1997
------------------------------------------------
Gas Gas
Gathering Throughput Gas Gas NGL
Year Placed Systems Capacity Throughput Production Production
Plant Facilities (1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4)
- --------------------------------- ----------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN REGION:
Texas
Midkiff /Benedum............... 1955 2,086 150 147 99 888
Giddings Gathering............. 1979 655 80 63 54 93
Edgewood (5)(6)................ 1964 93 65 29 10 74
Perkins........................ 1975 2,572 40 22 12 133
MiVida (5)..................... 1972 287 150 62 57 -
Gomez.......................... 1971 302 280 165 161 -
Mitchell Puckett Gathering..... 1972 86 140 87 86 -
Rosita Treating................ 1973 - 60 36 36 -
Louisiana
Black Lake..................... 1966 56 75 26 16 72
Toca (6)(7).................... 1958 - 160 123 120 79
NORTHERN REGION:
Oklahoma
Chaney Dell/Lamont............. 1966 2,026 180 80 61 248
Arkoma......................... 1985 63 8 5 5 -
Westana (8).................... 1986 281 45 61 54 65
Wyoming
Granger (6)(9)................. 1987 291 210 118 101 311
Red Desert (6)................. 1979 111 42 23 21 40
Lincoln Road (10).............. 1988 147 50 30 29 30
Hilight Complex (6)............ 1969 650 80 35 29 88
Kitty/Amos Draw (6)............ 1969 304 17 10 7 40
Newcastle (6).................. 1981 145 5 2 1 15
Reno Junction (9).............. 1991 - - - - 65
Coal Seam Gathering............ 1990 66 45 29 26 -
New Mexico
San Juan River (5)............. 1955 129 60 31 28 1
Utah
Four Corners................... 1988 104 15 4 3 1
------ ----- ----- ----- -----
Total......................... 10,454 1,957 1,188 1,016 2,243
====== ===== ===== ===== =====
Average for the
Three Months Ended
March 31, 1997
--------------
Gas Storage Pipeline Gas
Storage and Year Placed Transmission Capacity Capacity Throughput
Transmission Facilities (1) In Service Miles(2) (Bcf) (2) (MMcf/D) (2) (MMcf/D) (3)
- --------------------------------- ----------- -------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Katy Facility (11)............... 1994 17 19 - 252
MIGC (12)........................ 1970 214 - 45 55
MGTC (13)........................ 1963 250 - 18 11
------ ----- ----- -----
Total.......................... 481 19 63 318
====== ===== ===== =====
</TABLE>
____________________________
Footnotes on following page.
13
<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, transmission miles, gas throughput capacity,
gas storage capacity and pipeline capacity are as of March 31, 1997.
(3) Aggregate wellhead natural gas volumes collected by a gathering system or
aggregate volumes delivered over the header at the Katy Hub and Gas Storage
Facility ("Katy Facility").
(4) Volumes of residue gas and NGLs are allocated to a facility when a well is
dedicated to that facility; volumes exclude NGLs fractionated for third
parties.
(5) Sour gas facility (capable of processing gas containing hydrogen sulfide).
(6) Fractionation facility (capable of fractionating raw NGLs into end-use
products).
(7) Straddle plant (a plant located near a transmission pipeline that processes
gas dedicated to or gathered by a pipeline company or another third party).
(8) Gas throughput and gas production in excess of gas throughput capacity is
unprocessed gas delivered directly to an unaffiliated pipeline.
(9) NGL production represents conversion of third-party feedstock to iso-butane.
(10)Commencing in March 1996, the Company and its joint venture partner at the
Lincoln Road plant temporarily suspended processing operations at the
Lincoln Road plant and began processing the related gas at the Company's
Granger facility. This consolidation has resulted in lower overall plant
operating expenses for the combined systems. Beginning in April 1997, the
Lincoln Road plant was restarted as volumes increased beyond Granger's
capacity.
(11)Hub and gas storage facility.
(12)MIGC is an interstate pipeline located in Wyoming and is regulated by the
Federal Energy Regulatory Commission.
(13)MGTC is a public utility located in Wyoming and is regulated by the Wyoming
Public Service Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
JN Exploration and Production Litigation
JN Exploration and Production ("JN") is a producer of oil and natural gas that
sold unprocessed natural gas to the Company on a percentage-of-proceeds basis.
The Company processed the natural gas at its Teddy Roosevelt Plant, which is no
longer in operation. In JN Exploration and Production v. Western Gas Resources,
-------------------------------------------------------
Inc. United States District Court for the District of North Dakota,
- ----
Southwestern Division, Civil Action Nos. A1-93-53 and 903-CV-60, JN sued the
Company, alleging that JN was entitled to a portion of a $15 million amendment
fee the Company received in the years 1987 through 1989 from Williston Basin
Interstate Pipeline Company ("WBI"), which had an agreement with the Company to
purchase natural gas. On April 15, 1996, the Court issued a Memorandum and
Order granting JN's summary judgment motion on the issue of liability. On July
11, 1996, the Court issued a Memorandum and Order setting forth the manner in
which damages are to be calculated. On September 17, 1996, the Court entered a
final judgment against the Company in the amount of $421,000 (including pre-
judgment interest). The Company has appealed the decision and believes that
there are meritorious grounds to reverse the trial court's decision. One other
producer has filed a similar claim. If JN were to prevail on appeal, other
producers who sold natural gas which was processed at the Teddy Roosevelt Plant
during the time period in question may be able to assert similar claims. The
Company believes that it has meritorious defenses to such claims and, if sued,
the Company would defend vigorously against any such claims. At the present
time, it is not possible to predict the outcome of this litigation or any other
producer litigation that might raise similar issues or to estimate the amount of
potential damages.
Kennedy Litigation
M. John Kennedy ("Kennedy") is a producer of oil and natural gas who sells
unprocessed natural gas to the Company on a percentage-of-proceeds basis. The
Company processes the gas at two of the Company's plants located in the Powder
River Basin, Wyoming. In M. John Kennedy v. Western Gas Resources, Inc., Civil
----------------------------------------------
No. 96-CV-0142-B, United States District Court, District of Wyoming, (Originally
filed as Civil Action No. 20522, in the District Court, Sixth Judicial District,
State of Wyoming and removed to the United States District Court by notice filed
by the Company), Kennedy alleges that he is entitled to higher compensation for
residue gas purchased by the Company because the Company allegedly understated
the proceeds attributable to his gas. Kennedy also has claimed that the Company
reduced his revenues by processing gas that had a lower liquid content
14
<PAGE>
than did Kennedy's gas. Kennedy is seeking unspecified damages and prejudgment
interest. If Kennedy were to prevail in this matter, other producers who sold
residue gas that was processed by the two plants during the time period in
question may be able to assert similar claims. The Company believes that it has
meritorious defenses to Kennedy's claims and other similar potential claims. The
Company intends to defend this matter vigorously. At the present time, it is not
possible to predict the outcome of this litigation or any other producer
litigation that might raise similar issues or to estimate the amount of
potential damages.
Internal Revenue Service
The Internal Revenue Service ("IRS") has completed its examination of the
Company's returns for the years 1990 and 1991 and has proposed adjustments to
taxable income reflected in such returns that would shift the recognition of
certain items of income and expense from one year to another ("Timing
Adjustments"). To the extent taxable income in a prior year is increased by
proposed Timing Adjustments, taxable income may be reduced by a corresponding
amount in other years. However, the Company would incur an interest charge as a
result of such adjustment. The Company currently is protesting certain of these
proposed adjustments. In the opinion of management, adequate provision has been
made for the additional income taxes and interest that may result from the
proposed adjustments. However, it is reasonably possible that the ultimate
resolution could result in an amount which differs materially from amounts
provided.
Katy Condemnation
Commencing in March 1993 and continuing through July 1993, Western Gas Resources
Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company, filed a
total of 165 condemnation actions in County Court at Law No. 1 and No. 2 of Fort
Bend County, Texas, to obtain certain storage rights and rights-of-way relating
to its Katy Facility and the related underground reservoir. In February 1996 a
global settlement was entered into in 148 of the 151 condemnation cases
requiring Storage to pay approximately $2.5 million in exchange for receiving
all the property rights it sought to condemn, along with related releases,
assignments and indemnifications. Final judgments have been entered in the 148
cases and the $2.5 million has been released from escrow. The Company considers
the $2.5 million payment as a cost of building the Katy Facility and has
capitalized such costs. The remaining three cases not involved in the global
settlement are not expected to have any material impact on the Company and are
expected to be resolved through the normal course of litigation.
Other
The Company is involved in various other litigation and administrative
proceedings arising in the normal course of business. In the opinion of
management, any liabilities that may result from these claims, will not,
individually or in the aggregate, have a material adverse effect on the
Company's financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.7 Amendment of the Bylaws of Western Gas Resources, Inc. adopted by the
Board of Directors on March 21, 1997.
(b) Reports on Form 8-K:
None.
15
<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: May 14, 1997 By: /s/ LANNY F. OUTLAW
--------------------------------------
Lanny F. Outlaw
President and Chief Operating Officer
Date: May 14, 1997 By: /s/WILLIAM J. KRYSIAK
--------------------------------------
William J. Krysiak
Vice President - Finance
(Principal Financial and Accounting
Officer)
16
<PAGE>
EXHIBIT 3.7
WESTERN GAS RESOURCES, INC.
Resolutions Amending the Company's By-Laws
------------------------------------------
RESOLVED, that Section 11 of Article III of the Company's By-Laws is
hereby deleted in its entirety and replaced, in lieu thereof, with the
following:
"Section 11. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if one hundred percent of the
members of the Board or one hundred percent of the members of the
committee, as the case may be, consent thereto in writing and such
writing is filed with the minutes of the proceedings of the Board or
committee, as the case may be."
RESOLVED, that Section 1 of ARTICLE VII of the Company's By-Laws is
hereby amended by deleting all references to "any person" and replacing such
phrase with "any officer or director" and by deleting all references to "a
director, officer, employee or agent" and replacing such phrase with " a
director or officer."
ADOPTED ON MARCH 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,823
<SECURITIES> 0
<RECEIVABLES> 183,933
<ALLOWANCES> 0
<INVENTORY> 16,651
<CURRENT-ASSETS> 247,362
<PP&E> 1,182,767
<DEPRECIATION> (265,850)
<TOTAL-ASSETS> 1,250,473
<CURRENT-LIABILITIES> 296,865
<BONDS> 379,500
0
416
<COMMON> 3,214
<OTHER-SE> 483,309
<TOTAL-LIABILITY-AND-EQUITY> 1,250,473
<SALES> 632,656
<TOTAL-REVENUES> 635,831
<CGS> 570,365
<TOTAL-COSTS> 570,365
<OTHER-EXPENSES> 42,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,427
<INCOME-PRETAX> 16,686
<INCOME-TAX> 6,078
<INCOME-CONTINUING> 10,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,608
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>